49
SME Banking In Bangladesh: A Study on Brac Bank Limited COMPANY PROFILE Short History Brac Bank Ltd (BBL) is a banking company incorporated in the People’s Republic of Bangladesh with limited liability. It was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private sector with the objective of working as a finance company within the country and setting up joint venture banks/financial institutions abroad. Bank s Mission Bank’s Mission is to provide service to its clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make its position unique in giving quality service to all institutions and individuals that it cares for. The bank is committed to the welfare and economic prosperity of the people and the community, for drive from inspiration and drive for onward progress to prosperity. BBL wants to be the leader among banks in Bangladesh and make its indelible mark as an active partner in regional banking operating beyond the national boundary. In an intensely competitive and complex financial and business environment, BBL particularly focus on growth and profitability of all concerned. Milestones in the Development of BBL 1976 - Established as an Investment & Finance Company under arrangement of joint venture with the Govt. of Bangladesh.

brac SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

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Page 1: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

SME Banking In Bangladesh A Study on Brac Bank Limited

COMPANY PROFILE

Short History

Brac Bank Ltd (BBL) is a banking company incorporated in the Peoplersquos Republic of Bangladesh with limited liability It was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private sector with the objective of working as a finance company within the country and setting up joint venture banksfinancial institutions abroad

Bank s Mission

Bankrsquos Mission is to provide service to its clients with the help of a skilled and dedicated workforce whose creative talents innovative actions and competitive edge make its position unique in giving quality service to all institutions and individuals that it cares for The bank is committed to the welfare and economic prosperity of the people and the community for drive from inspiration and drive for onward progress to prosperity

BBL wants to be the leader among banks in Bangladesh and make its indelible mark as an active partner in regional banking operating beyond the national boundary In an intensely competitive and complex financial and business environment BBL particularly focus on growth and profitability of all concerned

Milestones in the Development of BBL

1976 - Established as an Investment amp Finance Company under arrangement of joint venture with the Govt of Bangladesh1980 - Commenced operation in Foreign Exchange Business in a limited scale1982 - Obtained permission from the Govt to operate as a commercial Bank1983 - Setup its first overseas joint venture (Bank of Maldives) on the Republic of Maldives

- Commenced operation as a full-fledged commercial Bank in Bangladesh1985 - Set up a joint venture Exchange Company in the Sultanate of Oman1987 - Set up its first overseas branch in Pakistan at Karachi1993 - Set up its second overseas branch in Pakistan at Lahore 1994 - Set up its first joint venture in Nepal for banking operation1999 - Set up its second joint venture in Nepal tor lease financing2003 - Bank celebrated its 20th founding anniversary

- Overseas Branches in Pakistan amalgamated with NDLC to establish a joint venture Bank NDLC-BBL

Management

The Bank has in its Management a combination of highly skilled and eminent bankers of the country of varied experience and expertise successfully The thirteen members of the Board of Directors are responsible for the strategic planning and overall policy guidelines of the Bank Further there is an Executive Committee of the Board to dispose of urgent business proposals Besides there is an Audit Committee in the Board to oversee compliance of major regulatory and operational issues

The CEO and Managing Director Deputy Managing Director and Head of Divisions are responsible for achieving business goals and overseeing the day to day operation The CEO and Managing Director are assisted by a Senior Management Group consisting of Deputy Managing Director and Head of Divisions who supervise operation of various Divisions centaury and co-ordinates operation of branches Key issues are managed by a Management Committee headed by the CEO and Managing Director This facilitates rapid lsquodecisions There is an Asset Liability Committee comprising member of the Senior Executives headed by CEO and Managing Director to look into all operational functions and Risk Management of the Bank

Network

BBL always considers client service the most vital factor to face ever increasing competition and challenge in the Banking sector and as such places on it utmost importance With that end in view the Bank continued its SMEized approach with speed precision and accuracy Presently the number of branches stands at 65 covering almost all the important places of the country 16 in Nepal and 8 affiliated Branches out side the country Moreover world - wide international correspondentsrsquo network of the Bank has been continuously expanding covering the important countries in all the continents of the world Besides the Bank has arrangement with a number of Exchange house at Singapore UAE Oman Qatar and Kuwait to facilitate remittances from expatriate Bangladeshi citizens

Capital and Reserve

During the year of 2008 the authorized capital of the bank remained unchanged at Tk 500 million The Paid-up capital stood at Tk 40644 million The reserve fund of the Bank increased by Tk 6439 million from Tk 73719 million in 2007 as against Tk 67280 million in the previous year

Deposit

The deposit of the bank registered an increase of 900 per cent in the year of 2005 At the close of 2004 total deposits stood at Tk 2250517 million as against Tk 2077449 million in the previous year

Credit

The bank continued its participation in different credit programs for financing new industrial projects working capital trade finance international trade etc The sector wise loan disbursement is shown below

Table 2 Sector Wise Credit Sector Tk in

MillionContinuous Loan 687365Demand Loan 74964Term Loan (UP to 5 years)

18901

Term Loan (Over 5 years)

132328

Staff Loan 10531Total 1094198

Foreign Trade

The bank continued its role as a facilitator in promoting countries export business The export business handled by the bank marked an impressive 12 percent growth during 2008 recoding an increase of Tk 4185 million from Tk 2951390 to Tk 3369827 million in 2007

Human Resource Development

Human Resources Development is focused on recruitment and in-house training for both on the job and off the job Bank staff members through the Bank Academy BBL Academy mdash the oldest institution in the private sector mdash was conceived of as an in-house training center to take care of the training needs of the Bank internally Academy is fully equipped with a professional library modem training aids and professional faculty Library has about 4941 books on banking economics accounting management marketing and other related subjects Main training activities consist of in-depth foundation programs for entry level Management Trainees Specialized training programs in the areas like general banking advance foreign exchange marketing and accounts etc are also organized by the Academy depending on need Frequently outreach programs are organized to meet demand for new and specialized skills

During its 23 years of existence Academy not only conducted courses workshops and seminars as required by the Bank but it also organized training programs for the Bank of Maldives Nepal Bangladesh Bank Limited and Oman International Exchange LLC In addition Academy has also the credit of organizing system of Bank of Maldives In addition to conducting courses internally The Academy also selects candidates for nomination to various courses conducted by distinguished training organizations in the country including Bangladesh Bank Training Academy and Bangladesh Institute of Bank Management The Academy also re-designs its courses programs etc regularly to need the requirement of new skills arising out of various directives guidelines of the Central Bank and significant changes in the banking sector from time to time

Performance

At the end of December 2005 the Authorized Capital Paid -up Capital and Reserve Fund of BBL was 500 million 406 million and 737 million respectively In the year 2004 the advance of the bank was Tk2128028 million Following table and figures will show us the scenario of BBL from 2003 to December 2005Table Over View of the Bank in Recent Years

010002000300040005000600070008000

Con

tinuo

usLo

an

Dem

and

Loan

Term

Loa

n(U

P to

5ye

ars)

Term

Loa

n(O

ver 5

year

s)

Sta

ff Lo

an

Figure 1 Sector wise loan disbursement

Sl Description 2009 2008 2007Taka USD Taka USD Taka USD

1 Authorized Capital

50000 714 50000 814 50000 847

2 Paid up Capital 40644 580 40639 661 40639 6893 Tier-I Capital 126918 1813 118693 1932 111502 18904 Tier-II Capital 48523 693 42187 687 42187 7155 Total Capital 175441 2506 160880 2618 153689 26056 Total Deposit 2250517 32150 2077449 33807 1979933 335587 Total Loans amp

Advances2169490 30992 2128088 34631 2045090 34663

8 Investment 297147 4244 266629 4339 240627 40789 Total Asset 3020105 43144 2857583 46503 2710127 4593410 Import Business 2692945 40894 2481012 40374 2541220 4307211 Export Business 3369827 52861 2951390 48029 2755730 4670712 Remittance 474494 8903 429779 6994 334400 566813 Guarantee

Business248140 3545 55056 896 220643 3740

14 Total Income 267220 3817 268702 4373 254383 431215 Total

Expenditure 212266 3032 198677 3233 192175 3257

16 Operating Profit 54954 785 70025 1140 62208 105417 Credit Deposit

Ratio9640 - 10244 10329 -

18 Return on Asset 027 - 025 024 -19 Return on

Equity604 - 592 563 -

GENERAL BANKING

Genera Banking is the starting point of all the banking operations it is the department which provides day to day services to the customers Every day it receives deposits from the customers and meets their demand for cash by honoring cheques It opens new accounts remits funds issues demand draft and pay orders etc Since bank is confined to provide services every day general banking is also known as SME banking General banking is the core department of a commercial bank General banking department is that department which is mostly exposed to the maximum number of customer Motijheel Corporate Branch of BBL has all the required sections of general banking and these sections are run by manpower with nigh quality banking knowledge

1 Sections of General Banking Department

General banking department comprises of the following sections1 Cash section2 Account opening section3 Dispatch section4 Remittance section5 Deposit section6 Accounts section

2 Functions of General Banking Department

Functions of different sections of general banking department are enumerated belowa Cash Section

Cash section deals with all types of negotiable instruments cash and other instrument and treated as a sensitive section of the bank It is the most vital and sensitive organ of the branch as j deals with all kinds of cash transactions This section starts the day with cash in vault Each day some cash that is opening cash balance 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 This figure is called closing balance This dosing balance is then added to the vault This is the final case balance figure for the bank at the end of any particular day

The following things are done in the cash section Cash payment is made only against cheque It makes payment only against its printed valid cheque It receives deposits from the depositors in form of cash It collects money only its receipts forms

b Account Opening Section

All banks are operated on the basis of bank-customer relationship and this relationship is established through opening an account Opening account is the contract of customer with banks which is enforceable by law Now a day all new amp existing account holders have to fill up a Know Your Customer (KYC) Form in addition with other required papers

i Account Opening Procedure

Any person of sound mind can open account in any bank The person who is interested in opening of any type account goes to the bank and expresses himselfherself to open an account Then heshe is supplied an account opening form and a specimen signature card Before opening an account the following formalities must be completed by the customer

1 The form is filled up by the applicant himselfherself2 Introduction by a valued account holder3 Two copies of photographs of account holder attested by the introducer4 One copy of photograph of the nominee attested by the account holder5 National ID6 TIN (if necessary)

Account opening procedure is shown in the following flow chartFigure-St Account opening procedure

Source Primary

ii Relevant Documents

Types of attached documents usually vary with the nature of the ACs being opened Following are the list of documents that should be enclosed with the account opening form

In case of club1 Certified copy of resolution2 Certified copy of by-laws and constitutions3 Copy of Government approval (if registered)

Applicant fills up theRelevant application

Form in thePrescribed manner

Heshe is required to fillUp the specimenSignature card

For individual introduction is needed by an account holder

Account is openedThe authorized officer

Scrutinizes the introduction andExamines the documents

After depositing the cash one chequebook is issued

Issuance of deposit slip and the deposit must be made in cash

In case of co-operative society Copy of by-laws duly certified by the co-operative officer Certified copy of resolution Certified copy of certificate of registration issued by the Registrar In case of minor Affix the word after the title of the AC Special instruction regarding operation of NC The form is to be filled up and signed by legal guardian

In case of Public limited Company Certified copy of the memorandum and articles of the company Certificate of incorporation of the company Certificate from registrar of the joint stock companies that the company is entitled to

commence business Copy of the latest balance sheet Certified copy of resolution List of Directors with address Authorized signature

iii Issuance of Cheque Book

An account holder can get a fresh cheque book only against requisition on the prescribed requisition slip attached with the cheque book issued earlier after proper verification of the signature of the account holder A new cheque book should be delivered to the account holder or his duly authorized representatives

b Dispatch Section

Dispatch section is fully controlled by the Establishment Department Any kind of letter DO IT MI cheque and telex are also transferred and received through this section There are two types of letter they continuously received These are as followsInward letterOutward letter

At first recording is required whether it is inwardoutward registeredunregistered letters Then letters are disbursed to their respective destination inward letters are firstly segmented according to their different sections and thereafter an entry is given to the Inward Register Book For local letters which area is not far from the branch are delivered through messengers In such

Cases firstly the entry is to be made in Dispatch Register Book and then a peon is to be maintained which contains only dispatch number and receiverrsquos addressrsquo For this the messenger will get TK20 as a conveyance

d Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank and making arrangement for payment to another branch within the country The remittance

facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Considering the urgency and nature of transaction the modes of bank remittances may be categorized as under

Demand Draft (DD) Telegraphic Transfer (TI) Pay Order (P0)

i Demand Draft (DD)

Demand Draft (DD) is a negotiable instrument payable on issued by the branchof a bank containing an order to another branch of the same bank to pay a certain sum of money to a certain person or order on demand It is basically used for transferring and payment of money The difference between PC and OD is in terms of place only P0 used for remitting money within the city whereas DD is used for within the country The commission is minimum TK2500 or TK1 50 per thousand whichever is greater

ii Issuance of DD

When a person wants to purchase a DD from a bank the bank confirms about the existence of the branch where the DD is to be issued or drawn as asked for by the applicant

Then the party submits application duly filled up on bankrsquos prescribed form Thereafter the applicant will be asked to deposit the amount mentioned in the D along with commission On receipt of cash a voucher is passed and scrolled by at least two officers Then the DD is issued and recorded in the DD issue Register Test number is affixed on both DD and Advice as per rule

iii Payment of DD

The holder of the DD submits it to the paying bank for payment and in genera banks make payments after it receives the corresponding advice from the issuing bank On receipt of the DD advices from different branches the paying banker will verify the genuineness of the advices by way of verifying test numbers and signature

iv Cancellation of DD

The purchaser of DD can cancel it by submitting an application stating that the DD is no longer required In this case the issuing branch verifies the signature and the purchaser has to pay TI( 4000 as cancellation charge

v Issuing of Duplicate DD

If the DD is lost the purchaser may ask the issuing branch to issue a duplicate DD But before issuing a duplicate 00 the branch observes the following information

Verify purchasers signature on the DD application slipTake indemnity bond from purchaserClearance from paying branch whether the DD is already paid or not to be obtainedDD cancellation advice to be sent to the paying branchLastly the duplicate DD is issued and the word ldquoDUPLICATErdquo in red ink is stamped in the front side of the DD block

vi Telegraphic Transfer (TT)

Sometimes the remitter requires the funds immediately In this case the banker is requested to remit the funds telegraphically Different modes are telegram telephone telex fax etc Among those telegraphic transfer is the most rapid and convenient but expensive method TI is issued against cash cheque and letter of instruction

vii Issuance of TT

Procedures followed by BBL Naya Paltan Branch regarding issuing of TT are stated below The customer deposits money with BBL Naya Paltan Branch to sent The customer obtains a cash memo containing TI serial Number Ti serial Number notifying party name is mentioned in the telex message The telex department confirms transaction of the telex

viii Payment of TT

After receiving the telex it is decoded at first then the TI serial number and test number are verified TK5000 is taken as postal amp Telex charge The minimum commission is TK5000 or 015 of the amount whichever is higher

ix Pay Order (PO)

PO is an instrument that contains an order for payment to the payee only in case of local payment P0 s in the form of receipts and issued by joint signature of two officials It ensures payment to the payee as the money deposited by the purchaser of P0 is kept in the bankrsquos own NC named P0 NC It is not transferable and therefore it can only be paid to the payee the payeersquos banker or the person holding the letter of authority from the payee

x Issuance of PO

Procedures followed by BBL Naya Paltan Branch regarding issuing of PO are stated below

Deposit money by the customer along with application form Give necessary entry in the bills payable Register where payeersquos name date P0 No etc are mentionedAfter scrutinizing and approval of the instrument by the authority it is delivered to customer Signature of the customer is taken on the counter part

xi Reasons for issuing PO

Remittance purpose Advice to pay

Payment against bill submitted to the bank xii Payment of PO

As the PO issued by the bank is crossed one it is not paid over the counter On the contrary the amount is transferred to the payeersquos account To transfer the amount the payee must duly stamp the PO The PO can only be encashed through the branch that has issued the instrument

xiii Cancellation of PO

The following procedures are followed to refund pay order by cancellation

Submit written request to refund the Pa attaching therewith the original PC Verify purchasers signature with the original application form on record Managers prior permission is required before refunding the amount of PO PO should be affixed with a stamp cancelledrsquo under proper authentication No charge is created for cancellation Record the cancelled PC in the PO issue

Register

e Deposit Section

Deposits are the life-blood of a commercial bank Without deposits there is no business for the commercial bank Accepting deposits is one of the two classic functions of commercial banks Bank deposits can be broadly classified as follows

I Demand Deposit

These deposits can be withdrawn without any prior notice IF1C Bank Ltd accepts demand deposits through the opening of-

1 Current Account2 Savings Account

ii Lime Deposit

The deposit which is payable at a fixed date or after a period of notice is a time deposit BBL accepts time deposits through the opening of-

Fixed Deposit Receipt (FDR)

Fixed deposits receipts are the deposits in which an amount of cash is deposited in bank for a fixed period specified in advance Normally the money on a fixed deposit is not repayable before the expiry of a fixed period In case of fixed deposits receipts the bank needs not to hold a cash reserve to repay money to the customer

Short Term Deposit (STD)

Short term deposits are deposits which as deposits for at least 7 days to get interest The interest offered for STD is less than that of savings account

Pension Savings Scheme (PSS)

Empower for a secure and prosperous future with BBL PSS Partnership for a prosperous and secure future

Features

Under this Scheme Customer can open a deposit scheme for Tk500 Tki000 11c2000 and TK500C) per month tor 3 or 5 years whichever suits you

Customer can make the deposit within 10th of each month (In case of holiday the next working day)Customer can get Loan up to 80 of the deposited amount

Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installmentsFor a Table of Deposit Scheme and after Maturity Payable Amount is given below

Monthly Installment 3 Years Scheme 5 Years SchemeTk500 Tk20322 Tk36266Tk1000 1k 40645 Tk12532Tk2000 Tk61 290 Tk145064Tk5000 Tk203225 Tk362661

Extra Benefits

If anyone fails to deposit monthly installments continuously for 3 consecutive months hisher account will become automatically inoperative But it can be revalidated on the 4th month on receiving all outstanding installments along with a written application HeShe will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option

Customer can pay installments by transferring from your CDSB account maintained with the concerned branch Installments may also be paid in advanceCustomer can dose the account at any time by a written applicationMonthly installments to P55 will quality as investments in yearly Income Tax return

f Accounts Section

Accounts section maintains all records of transactions and all types of statement At the end of transaction hour all concerned sections send vouchers of transaction to this section The major functions of this section are stated below

It records the profit amp loss NC and statement of asset amp liabilities It prepares daily weekly monthly half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement provident fund statement and administrative

expenditure statementForeign Exchange Department

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 2: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

The Bank has in its Management a combination of highly skilled and eminent bankers of the country of varied experience and expertise successfully The thirteen members of the Board of Directors are responsible for the strategic planning and overall policy guidelines of the Bank Further there is an Executive Committee of the Board to dispose of urgent business proposals Besides there is an Audit Committee in the Board to oversee compliance of major regulatory and operational issues

The CEO and Managing Director Deputy Managing Director and Head of Divisions are responsible for achieving business goals and overseeing the day to day operation The CEO and Managing Director are assisted by a Senior Management Group consisting of Deputy Managing Director and Head of Divisions who supervise operation of various Divisions centaury and co-ordinates operation of branches Key issues are managed by a Management Committee headed by the CEO and Managing Director This facilitates rapid lsquodecisions There is an Asset Liability Committee comprising member of the Senior Executives headed by CEO and Managing Director to look into all operational functions and Risk Management of the Bank

Network

BBL always considers client service the most vital factor to face ever increasing competition and challenge in the Banking sector and as such places on it utmost importance With that end in view the Bank continued its SMEized approach with speed precision and accuracy Presently the number of branches stands at 65 covering almost all the important places of the country 16 in Nepal and 8 affiliated Branches out side the country Moreover world - wide international correspondentsrsquo network of the Bank has been continuously expanding covering the important countries in all the continents of the world Besides the Bank has arrangement with a number of Exchange house at Singapore UAE Oman Qatar and Kuwait to facilitate remittances from expatriate Bangladeshi citizens

Capital and Reserve

During the year of 2008 the authorized capital of the bank remained unchanged at Tk 500 million The Paid-up capital stood at Tk 40644 million The reserve fund of the Bank increased by Tk 6439 million from Tk 73719 million in 2007 as against Tk 67280 million in the previous year

Deposit

The deposit of the bank registered an increase of 900 per cent in the year of 2005 At the close of 2004 total deposits stood at Tk 2250517 million as against Tk 2077449 million in the previous year

Credit

The bank continued its participation in different credit programs for financing new industrial projects working capital trade finance international trade etc The sector wise loan disbursement is shown below

Table 2 Sector Wise Credit Sector Tk in

MillionContinuous Loan 687365Demand Loan 74964Term Loan (UP to 5 years)

18901

Term Loan (Over 5 years)

132328

Staff Loan 10531Total 1094198

Foreign Trade

The bank continued its role as a facilitator in promoting countries export business The export business handled by the bank marked an impressive 12 percent growth during 2008 recoding an increase of Tk 4185 million from Tk 2951390 to Tk 3369827 million in 2007

Human Resource Development

Human Resources Development is focused on recruitment and in-house training for both on the job and off the job Bank staff members through the Bank Academy BBL Academy mdash the oldest institution in the private sector mdash was conceived of as an in-house training center to take care of the training needs of the Bank internally Academy is fully equipped with a professional library modem training aids and professional faculty Library has about 4941 books on banking economics accounting management marketing and other related subjects Main training activities consist of in-depth foundation programs for entry level Management Trainees Specialized training programs in the areas like general banking advance foreign exchange marketing and accounts etc are also organized by the Academy depending on need Frequently outreach programs are organized to meet demand for new and specialized skills

During its 23 years of existence Academy not only conducted courses workshops and seminars as required by the Bank but it also organized training programs for the Bank of Maldives Nepal Bangladesh Bank Limited and Oman International Exchange LLC In addition Academy has also the credit of organizing system of Bank of Maldives In addition to conducting courses internally The Academy also selects candidates for nomination to various courses conducted by distinguished training organizations in the country including Bangladesh Bank Training Academy and Bangladesh Institute of Bank Management The Academy also re-designs its courses programs etc regularly to need the requirement of new skills arising out of various directives guidelines of the Central Bank and significant changes in the banking sector from time to time

Performance

At the end of December 2005 the Authorized Capital Paid -up Capital and Reserve Fund of BBL was 500 million 406 million and 737 million respectively In the year 2004 the advance of the bank was Tk2128028 million Following table and figures will show us the scenario of BBL from 2003 to December 2005Table Over View of the Bank in Recent Years

010002000300040005000600070008000

Con

tinuo

usLo

an

Dem

and

Loan

Term

Loa

n(U

P to

5ye

ars)

Term

Loa

n(O

ver 5

year

s)

Sta

ff Lo

an

Figure 1 Sector wise loan disbursement

Sl Description 2009 2008 2007Taka USD Taka USD Taka USD

1 Authorized Capital

50000 714 50000 814 50000 847

2 Paid up Capital 40644 580 40639 661 40639 6893 Tier-I Capital 126918 1813 118693 1932 111502 18904 Tier-II Capital 48523 693 42187 687 42187 7155 Total Capital 175441 2506 160880 2618 153689 26056 Total Deposit 2250517 32150 2077449 33807 1979933 335587 Total Loans amp

Advances2169490 30992 2128088 34631 2045090 34663

8 Investment 297147 4244 266629 4339 240627 40789 Total Asset 3020105 43144 2857583 46503 2710127 4593410 Import Business 2692945 40894 2481012 40374 2541220 4307211 Export Business 3369827 52861 2951390 48029 2755730 4670712 Remittance 474494 8903 429779 6994 334400 566813 Guarantee

Business248140 3545 55056 896 220643 3740

14 Total Income 267220 3817 268702 4373 254383 431215 Total

Expenditure 212266 3032 198677 3233 192175 3257

16 Operating Profit 54954 785 70025 1140 62208 105417 Credit Deposit

Ratio9640 - 10244 10329 -

18 Return on Asset 027 - 025 024 -19 Return on

Equity604 - 592 563 -

GENERAL BANKING

Genera Banking is the starting point of all the banking operations it is the department which provides day to day services to the customers Every day it receives deposits from the customers and meets their demand for cash by honoring cheques It opens new accounts remits funds issues demand draft and pay orders etc Since bank is confined to provide services every day general banking is also known as SME banking General banking is the core department of a commercial bank General banking department is that department which is mostly exposed to the maximum number of customer Motijheel Corporate Branch of BBL has all the required sections of general banking and these sections are run by manpower with nigh quality banking knowledge

1 Sections of General Banking Department

General banking department comprises of the following sections1 Cash section2 Account opening section3 Dispatch section4 Remittance section5 Deposit section6 Accounts section

2 Functions of General Banking Department

Functions of different sections of general banking department are enumerated belowa Cash Section

Cash section deals with all types of negotiable instruments cash and other instrument and treated as a sensitive section of the bank It is the most vital and sensitive organ of the branch as j deals with all kinds of cash transactions This section starts the day with cash in vault Each day some cash that is opening cash balance 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 This figure is called closing balance This dosing balance is then added to the vault This is the final case balance figure for the bank at the end of any particular day

The following things are done in the cash section Cash payment is made only against cheque It makes payment only against its printed valid cheque It receives deposits from the depositors in form of cash It collects money only its receipts forms

b Account Opening Section

All banks are operated on the basis of bank-customer relationship and this relationship is established through opening an account Opening account is the contract of customer with banks which is enforceable by law Now a day all new amp existing account holders have to fill up a Know Your Customer (KYC) Form in addition with other required papers

i Account Opening Procedure

Any person of sound mind can open account in any bank The person who is interested in opening of any type account goes to the bank and expresses himselfherself to open an account Then heshe is supplied an account opening form and a specimen signature card Before opening an account the following formalities must be completed by the customer

1 The form is filled up by the applicant himselfherself2 Introduction by a valued account holder3 Two copies of photographs of account holder attested by the introducer4 One copy of photograph of the nominee attested by the account holder5 National ID6 TIN (if necessary)

Account opening procedure is shown in the following flow chartFigure-St Account opening procedure

Source Primary

ii Relevant Documents

Types of attached documents usually vary with the nature of the ACs being opened Following are the list of documents that should be enclosed with the account opening form

In case of club1 Certified copy of resolution2 Certified copy of by-laws and constitutions3 Copy of Government approval (if registered)

Applicant fills up theRelevant application

Form in thePrescribed manner

Heshe is required to fillUp the specimenSignature card

For individual introduction is needed by an account holder

Account is openedThe authorized officer

Scrutinizes the introduction andExamines the documents

After depositing the cash one chequebook is issued

Issuance of deposit slip and the deposit must be made in cash

In case of co-operative society Copy of by-laws duly certified by the co-operative officer Certified copy of resolution Certified copy of certificate of registration issued by the Registrar In case of minor Affix the word after the title of the AC Special instruction regarding operation of NC The form is to be filled up and signed by legal guardian

In case of Public limited Company Certified copy of the memorandum and articles of the company Certificate of incorporation of the company Certificate from registrar of the joint stock companies that the company is entitled to

commence business Copy of the latest balance sheet Certified copy of resolution List of Directors with address Authorized signature

iii Issuance of Cheque Book

An account holder can get a fresh cheque book only against requisition on the prescribed requisition slip attached with the cheque book issued earlier after proper verification of the signature of the account holder A new cheque book should be delivered to the account holder or his duly authorized representatives

b Dispatch Section

Dispatch section is fully controlled by the Establishment Department Any kind of letter DO IT MI cheque and telex are also transferred and received through this section There are two types of letter they continuously received These are as followsInward letterOutward letter

At first recording is required whether it is inwardoutward registeredunregistered letters Then letters are disbursed to their respective destination inward letters are firstly segmented according to their different sections and thereafter an entry is given to the Inward Register Book For local letters which area is not far from the branch are delivered through messengers In such

Cases firstly the entry is to be made in Dispatch Register Book and then a peon is to be maintained which contains only dispatch number and receiverrsquos addressrsquo For this the messenger will get TK20 as a conveyance

d Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank and making arrangement for payment to another branch within the country The remittance

facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Considering the urgency and nature of transaction the modes of bank remittances may be categorized as under

Demand Draft (DD) Telegraphic Transfer (TI) Pay Order (P0)

i Demand Draft (DD)

Demand Draft (DD) is a negotiable instrument payable on issued by the branchof a bank containing an order to another branch of the same bank to pay a certain sum of money to a certain person or order on demand It is basically used for transferring and payment of money The difference between PC and OD is in terms of place only P0 used for remitting money within the city whereas DD is used for within the country The commission is minimum TK2500 or TK1 50 per thousand whichever is greater

ii Issuance of DD

When a person wants to purchase a DD from a bank the bank confirms about the existence of the branch where the DD is to be issued or drawn as asked for by the applicant

Then the party submits application duly filled up on bankrsquos prescribed form Thereafter the applicant will be asked to deposit the amount mentioned in the D along with commission On receipt of cash a voucher is passed and scrolled by at least two officers Then the DD is issued and recorded in the DD issue Register Test number is affixed on both DD and Advice as per rule

iii Payment of DD

The holder of the DD submits it to the paying bank for payment and in genera banks make payments after it receives the corresponding advice from the issuing bank On receipt of the DD advices from different branches the paying banker will verify the genuineness of the advices by way of verifying test numbers and signature

iv Cancellation of DD

The purchaser of DD can cancel it by submitting an application stating that the DD is no longer required In this case the issuing branch verifies the signature and the purchaser has to pay TI( 4000 as cancellation charge

v Issuing of Duplicate DD

If the DD is lost the purchaser may ask the issuing branch to issue a duplicate DD But before issuing a duplicate 00 the branch observes the following information

Verify purchasers signature on the DD application slipTake indemnity bond from purchaserClearance from paying branch whether the DD is already paid or not to be obtainedDD cancellation advice to be sent to the paying branchLastly the duplicate DD is issued and the word ldquoDUPLICATErdquo in red ink is stamped in the front side of the DD block

vi Telegraphic Transfer (TT)

Sometimes the remitter requires the funds immediately In this case the banker is requested to remit the funds telegraphically Different modes are telegram telephone telex fax etc Among those telegraphic transfer is the most rapid and convenient but expensive method TI is issued against cash cheque and letter of instruction

vii Issuance of TT

Procedures followed by BBL Naya Paltan Branch regarding issuing of TT are stated below The customer deposits money with BBL Naya Paltan Branch to sent The customer obtains a cash memo containing TI serial Number Ti serial Number notifying party name is mentioned in the telex message The telex department confirms transaction of the telex

viii Payment of TT

After receiving the telex it is decoded at first then the TI serial number and test number are verified TK5000 is taken as postal amp Telex charge The minimum commission is TK5000 or 015 of the amount whichever is higher

ix Pay Order (PO)

PO is an instrument that contains an order for payment to the payee only in case of local payment P0 s in the form of receipts and issued by joint signature of two officials It ensures payment to the payee as the money deposited by the purchaser of P0 is kept in the bankrsquos own NC named P0 NC It is not transferable and therefore it can only be paid to the payee the payeersquos banker or the person holding the letter of authority from the payee

x Issuance of PO

Procedures followed by BBL Naya Paltan Branch regarding issuing of PO are stated below

Deposit money by the customer along with application form Give necessary entry in the bills payable Register where payeersquos name date P0 No etc are mentionedAfter scrutinizing and approval of the instrument by the authority it is delivered to customer Signature of the customer is taken on the counter part

xi Reasons for issuing PO

Remittance purpose Advice to pay

Payment against bill submitted to the bank xii Payment of PO

As the PO issued by the bank is crossed one it is not paid over the counter On the contrary the amount is transferred to the payeersquos account To transfer the amount the payee must duly stamp the PO The PO can only be encashed through the branch that has issued the instrument

xiii Cancellation of PO

The following procedures are followed to refund pay order by cancellation

Submit written request to refund the Pa attaching therewith the original PC Verify purchasers signature with the original application form on record Managers prior permission is required before refunding the amount of PO PO should be affixed with a stamp cancelledrsquo under proper authentication No charge is created for cancellation Record the cancelled PC in the PO issue

Register

e Deposit Section

Deposits are the life-blood of a commercial bank Without deposits there is no business for the commercial bank Accepting deposits is one of the two classic functions of commercial banks Bank deposits can be broadly classified as follows

I Demand Deposit

These deposits can be withdrawn without any prior notice IF1C Bank Ltd accepts demand deposits through the opening of-

1 Current Account2 Savings Account

ii Lime Deposit

The deposit which is payable at a fixed date or after a period of notice is a time deposit BBL accepts time deposits through the opening of-

Fixed Deposit Receipt (FDR)

Fixed deposits receipts are the deposits in which an amount of cash is deposited in bank for a fixed period specified in advance Normally the money on a fixed deposit is not repayable before the expiry of a fixed period In case of fixed deposits receipts the bank needs not to hold a cash reserve to repay money to the customer

Short Term Deposit (STD)

Short term deposits are deposits which as deposits for at least 7 days to get interest The interest offered for STD is less than that of savings account

Pension Savings Scheme (PSS)

Empower for a secure and prosperous future with BBL PSS Partnership for a prosperous and secure future

Features

Under this Scheme Customer can open a deposit scheme for Tk500 Tki000 11c2000 and TK500C) per month tor 3 or 5 years whichever suits you

Customer can make the deposit within 10th of each month (In case of holiday the next working day)Customer can get Loan up to 80 of the deposited amount

Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installmentsFor a Table of Deposit Scheme and after Maturity Payable Amount is given below

Monthly Installment 3 Years Scheme 5 Years SchemeTk500 Tk20322 Tk36266Tk1000 1k 40645 Tk12532Tk2000 Tk61 290 Tk145064Tk5000 Tk203225 Tk362661

Extra Benefits

If anyone fails to deposit monthly installments continuously for 3 consecutive months hisher account will become automatically inoperative But it can be revalidated on the 4th month on receiving all outstanding installments along with a written application HeShe will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option

Customer can pay installments by transferring from your CDSB account maintained with the concerned branch Installments may also be paid in advanceCustomer can dose the account at any time by a written applicationMonthly installments to P55 will quality as investments in yearly Income Tax return

f Accounts Section

Accounts section maintains all records of transactions and all types of statement At the end of transaction hour all concerned sections send vouchers of transaction to this section The major functions of this section are stated below

It records the profit amp loss NC and statement of asset amp liabilities It prepares daily weekly monthly half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement provident fund statement and administrative

expenditure statementForeign Exchange Department

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 3: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Table 2 Sector Wise Credit Sector Tk in

MillionContinuous Loan 687365Demand Loan 74964Term Loan (UP to 5 years)

18901

Term Loan (Over 5 years)

132328

Staff Loan 10531Total 1094198

Foreign Trade

The bank continued its role as a facilitator in promoting countries export business The export business handled by the bank marked an impressive 12 percent growth during 2008 recoding an increase of Tk 4185 million from Tk 2951390 to Tk 3369827 million in 2007

Human Resource Development

Human Resources Development is focused on recruitment and in-house training for both on the job and off the job Bank staff members through the Bank Academy BBL Academy mdash the oldest institution in the private sector mdash was conceived of as an in-house training center to take care of the training needs of the Bank internally Academy is fully equipped with a professional library modem training aids and professional faculty Library has about 4941 books on banking economics accounting management marketing and other related subjects Main training activities consist of in-depth foundation programs for entry level Management Trainees Specialized training programs in the areas like general banking advance foreign exchange marketing and accounts etc are also organized by the Academy depending on need Frequently outreach programs are organized to meet demand for new and specialized skills

During its 23 years of existence Academy not only conducted courses workshops and seminars as required by the Bank but it also organized training programs for the Bank of Maldives Nepal Bangladesh Bank Limited and Oman International Exchange LLC In addition Academy has also the credit of organizing system of Bank of Maldives In addition to conducting courses internally The Academy also selects candidates for nomination to various courses conducted by distinguished training organizations in the country including Bangladesh Bank Training Academy and Bangladesh Institute of Bank Management The Academy also re-designs its courses programs etc regularly to need the requirement of new skills arising out of various directives guidelines of the Central Bank and significant changes in the banking sector from time to time

Performance

At the end of December 2005 the Authorized Capital Paid -up Capital and Reserve Fund of BBL was 500 million 406 million and 737 million respectively In the year 2004 the advance of the bank was Tk2128028 million Following table and figures will show us the scenario of BBL from 2003 to December 2005Table Over View of the Bank in Recent Years

010002000300040005000600070008000

Con

tinuo

usLo

an

Dem

and

Loan

Term

Loa

n(U

P to

5ye

ars)

Term

Loa

n(O

ver 5

year

s)

Sta

ff Lo

an

Figure 1 Sector wise loan disbursement

Sl Description 2009 2008 2007Taka USD Taka USD Taka USD

1 Authorized Capital

50000 714 50000 814 50000 847

2 Paid up Capital 40644 580 40639 661 40639 6893 Tier-I Capital 126918 1813 118693 1932 111502 18904 Tier-II Capital 48523 693 42187 687 42187 7155 Total Capital 175441 2506 160880 2618 153689 26056 Total Deposit 2250517 32150 2077449 33807 1979933 335587 Total Loans amp

Advances2169490 30992 2128088 34631 2045090 34663

8 Investment 297147 4244 266629 4339 240627 40789 Total Asset 3020105 43144 2857583 46503 2710127 4593410 Import Business 2692945 40894 2481012 40374 2541220 4307211 Export Business 3369827 52861 2951390 48029 2755730 4670712 Remittance 474494 8903 429779 6994 334400 566813 Guarantee

Business248140 3545 55056 896 220643 3740

14 Total Income 267220 3817 268702 4373 254383 431215 Total

Expenditure 212266 3032 198677 3233 192175 3257

16 Operating Profit 54954 785 70025 1140 62208 105417 Credit Deposit

Ratio9640 - 10244 10329 -

18 Return on Asset 027 - 025 024 -19 Return on

Equity604 - 592 563 -

GENERAL BANKING

Genera Banking is the starting point of all the banking operations it is the department which provides day to day services to the customers Every day it receives deposits from the customers and meets their demand for cash by honoring cheques It opens new accounts remits funds issues demand draft and pay orders etc Since bank is confined to provide services every day general banking is also known as SME banking General banking is the core department of a commercial bank General banking department is that department which is mostly exposed to the maximum number of customer Motijheel Corporate Branch of BBL has all the required sections of general banking and these sections are run by manpower with nigh quality banking knowledge

1 Sections of General Banking Department

General banking department comprises of the following sections1 Cash section2 Account opening section3 Dispatch section4 Remittance section5 Deposit section6 Accounts section

2 Functions of General Banking Department

Functions of different sections of general banking department are enumerated belowa Cash Section

Cash section deals with all types of negotiable instruments cash and other instrument and treated as a sensitive section of the bank It is the most vital and sensitive organ of the branch as j deals with all kinds of cash transactions This section starts the day with cash in vault Each day some cash that is opening cash balance 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 This figure is called closing balance This dosing balance is then added to the vault This is the final case balance figure for the bank at the end of any particular day

The following things are done in the cash section Cash payment is made only against cheque It makes payment only against its printed valid cheque It receives deposits from the depositors in form of cash It collects money only its receipts forms

b Account Opening Section

All banks are operated on the basis of bank-customer relationship and this relationship is established through opening an account Opening account is the contract of customer with banks which is enforceable by law Now a day all new amp existing account holders have to fill up a Know Your Customer (KYC) Form in addition with other required papers

i Account Opening Procedure

Any person of sound mind can open account in any bank The person who is interested in opening of any type account goes to the bank and expresses himselfherself to open an account Then heshe is supplied an account opening form and a specimen signature card Before opening an account the following formalities must be completed by the customer

1 The form is filled up by the applicant himselfherself2 Introduction by a valued account holder3 Two copies of photographs of account holder attested by the introducer4 One copy of photograph of the nominee attested by the account holder5 National ID6 TIN (if necessary)

Account opening procedure is shown in the following flow chartFigure-St Account opening procedure

Source Primary

ii Relevant Documents

Types of attached documents usually vary with the nature of the ACs being opened Following are the list of documents that should be enclosed with the account opening form

In case of club1 Certified copy of resolution2 Certified copy of by-laws and constitutions3 Copy of Government approval (if registered)

Applicant fills up theRelevant application

Form in thePrescribed manner

Heshe is required to fillUp the specimenSignature card

For individual introduction is needed by an account holder

Account is openedThe authorized officer

Scrutinizes the introduction andExamines the documents

After depositing the cash one chequebook is issued

Issuance of deposit slip and the deposit must be made in cash

In case of co-operative society Copy of by-laws duly certified by the co-operative officer Certified copy of resolution Certified copy of certificate of registration issued by the Registrar In case of minor Affix the word after the title of the AC Special instruction regarding operation of NC The form is to be filled up and signed by legal guardian

In case of Public limited Company Certified copy of the memorandum and articles of the company Certificate of incorporation of the company Certificate from registrar of the joint stock companies that the company is entitled to

commence business Copy of the latest balance sheet Certified copy of resolution List of Directors with address Authorized signature

iii Issuance of Cheque Book

An account holder can get a fresh cheque book only against requisition on the prescribed requisition slip attached with the cheque book issued earlier after proper verification of the signature of the account holder A new cheque book should be delivered to the account holder or his duly authorized representatives

b Dispatch Section

Dispatch section is fully controlled by the Establishment Department Any kind of letter DO IT MI cheque and telex are also transferred and received through this section There are two types of letter they continuously received These are as followsInward letterOutward letter

At first recording is required whether it is inwardoutward registeredunregistered letters Then letters are disbursed to their respective destination inward letters are firstly segmented according to their different sections and thereafter an entry is given to the Inward Register Book For local letters which area is not far from the branch are delivered through messengers In such

Cases firstly the entry is to be made in Dispatch Register Book and then a peon is to be maintained which contains only dispatch number and receiverrsquos addressrsquo For this the messenger will get TK20 as a conveyance

d Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank and making arrangement for payment to another branch within the country The remittance

facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Considering the urgency and nature of transaction the modes of bank remittances may be categorized as under

Demand Draft (DD) Telegraphic Transfer (TI) Pay Order (P0)

i Demand Draft (DD)

Demand Draft (DD) is a negotiable instrument payable on issued by the branchof a bank containing an order to another branch of the same bank to pay a certain sum of money to a certain person or order on demand It is basically used for transferring and payment of money The difference between PC and OD is in terms of place only P0 used for remitting money within the city whereas DD is used for within the country The commission is minimum TK2500 or TK1 50 per thousand whichever is greater

ii Issuance of DD

When a person wants to purchase a DD from a bank the bank confirms about the existence of the branch where the DD is to be issued or drawn as asked for by the applicant

Then the party submits application duly filled up on bankrsquos prescribed form Thereafter the applicant will be asked to deposit the amount mentioned in the D along with commission On receipt of cash a voucher is passed and scrolled by at least two officers Then the DD is issued and recorded in the DD issue Register Test number is affixed on both DD and Advice as per rule

iii Payment of DD

The holder of the DD submits it to the paying bank for payment and in genera banks make payments after it receives the corresponding advice from the issuing bank On receipt of the DD advices from different branches the paying banker will verify the genuineness of the advices by way of verifying test numbers and signature

iv Cancellation of DD

The purchaser of DD can cancel it by submitting an application stating that the DD is no longer required In this case the issuing branch verifies the signature and the purchaser has to pay TI( 4000 as cancellation charge

v Issuing of Duplicate DD

If the DD is lost the purchaser may ask the issuing branch to issue a duplicate DD But before issuing a duplicate 00 the branch observes the following information

Verify purchasers signature on the DD application slipTake indemnity bond from purchaserClearance from paying branch whether the DD is already paid or not to be obtainedDD cancellation advice to be sent to the paying branchLastly the duplicate DD is issued and the word ldquoDUPLICATErdquo in red ink is stamped in the front side of the DD block

vi Telegraphic Transfer (TT)

Sometimes the remitter requires the funds immediately In this case the banker is requested to remit the funds telegraphically Different modes are telegram telephone telex fax etc Among those telegraphic transfer is the most rapid and convenient but expensive method TI is issued against cash cheque and letter of instruction

vii Issuance of TT

Procedures followed by BBL Naya Paltan Branch regarding issuing of TT are stated below The customer deposits money with BBL Naya Paltan Branch to sent The customer obtains a cash memo containing TI serial Number Ti serial Number notifying party name is mentioned in the telex message The telex department confirms transaction of the telex

viii Payment of TT

After receiving the telex it is decoded at first then the TI serial number and test number are verified TK5000 is taken as postal amp Telex charge The minimum commission is TK5000 or 015 of the amount whichever is higher

ix Pay Order (PO)

PO is an instrument that contains an order for payment to the payee only in case of local payment P0 s in the form of receipts and issued by joint signature of two officials It ensures payment to the payee as the money deposited by the purchaser of P0 is kept in the bankrsquos own NC named P0 NC It is not transferable and therefore it can only be paid to the payee the payeersquos banker or the person holding the letter of authority from the payee

x Issuance of PO

Procedures followed by BBL Naya Paltan Branch regarding issuing of PO are stated below

Deposit money by the customer along with application form Give necessary entry in the bills payable Register where payeersquos name date P0 No etc are mentionedAfter scrutinizing and approval of the instrument by the authority it is delivered to customer Signature of the customer is taken on the counter part

xi Reasons for issuing PO

Remittance purpose Advice to pay

Payment against bill submitted to the bank xii Payment of PO

As the PO issued by the bank is crossed one it is not paid over the counter On the contrary the amount is transferred to the payeersquos account To transfer the amount the payee must duly stamp the PO The PO can only be encashed through the branch that has issued the instrument

xiii Cancellation of PO

The following procedures are followed to refund pay order by cancellation

Submit written request to refund the Pa attaching therewith the original PC Verify purchasers signature with the original application form on record Managers prior permission is required before refunding the amount of PO PO should be affixed with a stamp cancelledrsquo under proper authentication No charge is created for cancellation Record the cancelled PC in the PO issue

Register

e Deposit Section

Deposits are the life-blood of a commercial bank Without deposits there is no business for the commercial bank Accepting deposits is one of the two classic functions of commercial banks Bank deposits can be broadly classified as follows

I Demand Deposit

These deposits can be withdrawn without any prior notice IF1C Bank Ltd accepts demand deposits through the opening of-

1 Current Account2 Savings Account

ii Lime Deposit

The deposit which is payable at a fixed date or after a period of notice is a time deposit BBL accepts time deposits through the opening of-

Fixed Deposit Receipt (FDR)

Fixed deposits receipts are the deposits in which an amount of cash is deposited in bank for a fixed period specified in advance Normally the money on a fixed deposit is not repayable before the expiry of a fixed period In case of fixed deposits receipts the bank needs not to hold a cash reserve to repay money to the customer

Short Term Deposit (STD)

Short term deposits are deposits which as deposits for at least 7 days to get interest The interest offered for STD is less than that of savings account

Pension Savings Scheme (PSS)

Empower for a secure and prosperous future with BBL PSS Partnership for a prosperous and secure future

Features

Under this Scheme Customer can open a deposit scheme for Tk500 Tki000 11c2000 and TK500C) per month tor 3 or 5 years whichever suits you

Customer can make the deposit within 10th of each month (In case of holiday the next working day)Customer can get Loan up to 80 of the deposited amount

Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installmentsFor a Table of Deposit Scheme and after Maturity Payable Amount is given below

Monthly Installment 3 Years Scheme 5 Years SchemeTk500 Tk20322 Tk36266Tk1000 1k 40645 Tk12532Tk2000 Tk61 290 Tk145064Tk5000 Tk203225 Tk362661

Extra Benefits

If anyone fails to deposit monthly installments continuously for 3 consecutive months hisher account will become automatically inoperative But it can be revalidated on the 4th month on receiving all outstanding installments along with a written application HeShe will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option

Customer can pay installments by transferring from your CDSB account maintained with the concerned branch Installments may also be paid in advanceCustomer can dose the account at any time by a written applicationMonthly installments to P55 will quality as investments in yearly Income Tax return

f Accounts Section

Accounts section maintains all records of transactions and all types of statement At the end of transaction hour all concerned sections send vouchers of transaction to this section The major functions of this section are stated below

It records the profit amp loss NC and statement of asset amp liabilities It prepares daily weekly monthly half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement provident fund statement and administrative

expenditure statementForeign Exchange Department

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 4: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Sl Description 2009 2008 2007Taka USD Taka USD Taka USD

1 Authorized Capital

50000 714 50000 814 50000 847

2 Paid up Capital 40644 580 40639 661 40639 6893 Tier-I Capital 126918 1813 118693 1932 111502 18904 Tier-II Capital 48523 693 42187 687 42187 7155 Total Capital 175441 2506 160880 2618 153689 26056 Total Deposit 2250517 32150 2077449 33807 1979933 335587 Total Loans amp

Advances2169490 30992 2128088 34631 2045090 34663

8 Investment 297147 4244 266629 4339 240627 40789 Total Asset 3020105 43144 2857583 46503 2710127 4593410 Import Business 2692945 40894 2481012 40374 2541220 4307211 Export Business 3369827 52861 2951390 48029 2755730 4670712 Remittance 474494 8903 429779 6994 334400 566813 Guarantee

Business248140 3545 55056 896 220643 3740

14 Total Income 267220 3817 268702 4373 254383 431215 Total

Expenditure 212266 3032 198677 3233 192175 3257

16 Operating Profit 54954 785 70025 1140 62208 105417 Credit Deposit

Ratio9640 - 10244 10329 -

18 Return on Asset 027 - 025 024 -19 Return on

Equity604 - 592 563 -

GENERAL BANKING

Genera Banking is the starting point of all the banking operations it is the department which provides day to day services to the customers Every day it receives deposits from the customers and meets their demand for cash by honoring cheques It opens new accounts remits funds issues demand draft and pay orders etc Since bank is confined to provide services every day general banking is also known as SME banking General banking is the core department of a commercial bank General banking department is that department which is mostly exposed to the maximum number of customer Motijheel Corporate Branch of BBL has all the required sections of general banking and these sections are run by manpower with nigh quality banking knowledge

1 Sections of General Banking Department

General banking department comprises of the following sections1 Cash section2 Account opening section3 Dispatch section4 Remittance section5 Deposit section6 Accounts section

2 Functions of General Banking Department

Functions of different sections of general banking department are enumerated belowa Cash Section

Cash section deals with all types of negotiable instruments cash and other instrument and treated as a sensitive section of the bank It is the most vital and sensitive organ of the branch as j deals with all kinds of cash transactions This section starts the day with cash in vault Each day some cash that is opening cash balance 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 This figure is called closing balance This dosing balance is then added to the vault This is the final case balance figure for the bank at the end of any particular day

The following things are done in the cash section Cash payment is made only against cheque It makes payment only against its printed valid cheque It receives deposits from the depositors in form of cash It collects money only its receipts forms

b Account Opening Section

All banks are operated on the basis of bank-customer relationship and this relationship is established through opening an account Opening account is the contract of customer with banks which is enforceable by law Now a day all new amp existing account holders have to fill up a Know Your Customer (KYC) Form in addition with other required papers

i Account Opening Procedure

Any person of sound mind can open account in any bank The person who is interested in opening of any type account goes to the bank and expresses himselfherself to open an account Then heshe is supplied an account opening form and a specimen signature card Before opening an account the following formalities must be completed by the customer

1 The form is filled up by the applicant himselfherself2 Introduction by a valued account holder3 Two copies of photographs of account holder attested by the introducer4 One copy of photograph of the nominee attested by the account holder5 National ID6 TIN (if necessary)

Account opening procedure is shown in the following flow chartFigure-St Account opening procedure

Source Primary

ii Relevant Documents

Types of attached documents usually vary with the nature of the ACs being opened Following are the list of documents that should be enclosed with the account opening form

In case of club1 Certified copy of resolution2 Certified copy of by-laws and constitutions3 Copy of Government approval (if registered)

Applicant fills up theRelevant application

Form in thePrescribed manner

Heshe is required to fillUp the specimenSignature card

For individual introduction is needed by an account holder

Account is openedThe authorized officer

Scrutinizes the introduction andExamines the documents

After depositing the cash one chequebook is issued

Issuance of deposit slip and the deposit must be made in cash

In case of co-operative society Copy of by-laws duly certified by the co-operative officer Certified copy of resolution Certified copy of certificate of registration issued by the Registrar In case of minor Affix the word after the title of the AC Special instruction regarding operation of NC The form is to be filled up and signed by legal guardian

In case of Public limited Company Certified copy of the memorandum and articles of the company Certificate of incorporation of the company Certificate from registrar of the joint stock companies that the company is entitled to

commence business Copy of the latest balance sheet Certified copy of resolution List of Directors with address Authorized signature

iii Issuance of Cheque Book

An account holder can get a fresh cheque book only against requisition on the prescribed requisition slip attached with the cheque book issued earlier after proper verification of the signature of the account holder A new cheque book should be delivered to the account holder or his duly authorized representatives

b Dispatch Section

Dispatch section is fully controlled by the Establishment Department Any kind of letter DO IT MI cheque and telex are also transferred and received through this section There are two types of letter they continuously received These are as followsInward letterOutward letter

At first recording is required whether it is inwardoutward registeredunregistered letters Then letters are disbursed to their respective destination inward letters are firstly segmented according to their different sections and thereafter an entry is given to the Inward Register Book For local letters which area is not far from the branch are delivered through messengers In such

Cases firstly the entry is to be made in Dispatch Register Book and then a peon is to be maintained which contains only dispatch number and receiverrsquos addressrsquo For this the messenger will get TK20 as a conveyance

d Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank and making arrangement for payment to another branch within the country The remittance

facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Considering the urgency and nature of transaction the modes of bank remittances may be categorized as under

Demand Draft (DD) Telegraphic Transfer (TI) Pay Order (P0)

i Demand Draft (DD)

Demand Draft (DD) is a negotiable instrument payable on issued by the branchof a bank containing an order to another branch of the same bank to pay a certain sum of money to a certain person or order on demand It is basically used for transferring and payment of money The difference between PC and OD is in terms of place only P0 used for remitting money within the city whereas DD is used for within the country The commission is minimum TK2500 or TK1 50 per thousand whichever is greater

ii Issuance of DD

When a person wants to purchase a DD from a bank the bank confirms about the existence of the branch where the DD is to be issued or drawn as asked for by the applicant

Then the party submits application duly filled up on bankrsquos prescribed form Thereafter the applicant will be asked to deposit the amount mentioned in the D along with commission On receipt of cash a voucher is passed and scrolled by at least two officers Then the DD is issued and recorded in the DD issue Register Test number is affixed on both DD and Advice as per rule

iii Payment of DD

The holder of the DD submits it to the paying bank for payment and in genera banks make payments after it receives the corresponding advice from the issuing bank On receipt of the DD advices from different branches the paying banker will verify the genuineness of the advices by way of verifying test numbers and signature

iv Cancellation of DD

The purchaser of DD can cancel it by submitting an application stating that the DD is no longer required In this case the issuing branch verifies the signature and the purchaser has to pay TI( 4000 as cancellation charge

v Issuing of Duplicate DD

If the DD is lost the purchaser may ask the issuing branch to issue a duplicate DD But before issuing a duplicate 00 the branch observes the following information

Verify purchasers signature on the DD application slipTake indemnity bond from purchaserClearance from paying branch whether the DD is already paid or not to be obtainedDD cancellation advice to be sent to the paying branchLastly the duplicate DD is issued and the word ldquoDUPLICATErdquo in red ink is stamped in the front side of the DD block

vi Telegraphic Transfer (TT)

Sometimes the remitter requires the funds immediately In this case the banker is requested to remit the funds telegraphically Different modes are telegram telephone telex fax etc Among those telegraphic transfer is the most rapid and convenient but expensive method TI is issued against cash cheque and letter of instruction

vii Issuance of TT

Procedures followed by BBL Naya Paltan Branch regarding issuing of TT are stated below The customer deposits money with BBL Naya Paltan Branch to sent The customer obtains a cash memo containing TI serial Number Ti serial Number notifying party name is mentioned in the telex message The telex department confirms transaction of the telex

viii Payment of TT

After receiving the telex it is decoded at first then the TI serial number and test number are verified TK5000 is taken as postal amp Telex charge The minimum commission is TK5000 or 015 of the amount whichever is higher

ix Pay Order (PO)

PO is an instrument that contains an order for payment to the payee only in case of local payment P0 s in the form of receipts and issued by joint signature of two officials It ensures payment to the payee as the money deposited by the purchaser of P0 is kept in the bankrsquos own NC named P0 NC It is not transferable and therefore it can only be paid to the payee the payeersquos banker or the person holding the letter of authority from the payee

x Issuance of PO

Procedures followed by BBL Naya Paltan Branch regarding issuing of PO are stated below

Deposit money by the customer along with application form Give necessary entry in the bills payable Register where payeersquos name date P0 No etc are mentionedAfter scrutinizing and approval of the instrument by the authority it is delivered to customer Signature of the customer is taken on the counter part

xi Reasons for issuing PO

Remittance purpose Advice to pay

Payment against bill submitted to the bank xii Payment of PO

As the PO issued by the bank is crossed one it is not paid over the counter On the contrary the amount is transferred to the payeersquos account To transfer the amount the payee must duly stamp the PO The PO can only be encashed through the branch that has issued the instrument

xiii Cancellation of PO

The following procedures are followed to refund pay order by cancellation

Submit written request to refund the Pa attaching therewith the original PC Verify purchasers signature with the original application form on record Managers prior permission is required before refunding the amount of PO PO should be affixed with a stamp cancelledrsquo under proper authentication No charge is created for cancellation Record the cancelled PC in the PO issue

Register

e Deposit Section

Deposits are the life-blood of a commercial bank Without deposits there is no business for the commercial bank Accepting deposits is one of the two classic functions of commercial banks Bank deposits can be broadly classified as follows

I Demand Deposit

These deposits can be withdrawn without any prior notice IF1C Bank Ltd accepts demand deposits through the opening of-

1 Current Account2 Savings Account

ii Lime Deposit

The deposit which is payable at a fixed date or after a period of notice is a time deposit BBL accepts time deposits through the opening of-

Fixed Deposit Receipt (FDR)

Fixed deposits receipts are the deposits in which an amount of cash is deposited in bank for a fixed period specified in advance Normally the money on a fixed deposit is not repayable before the expiry of a fixed period In case of fixed deposits receipts the bank needs not to hold a cash reserve to repay money to the customer

Short Term Deposit (STD)

Short term deposits are deposits which as deposits for at least 7 days to get interest The interest offered for STD is less than that of savings account

Pension Savings Scheme (PSS)

Empower for a secure and prosperous future with BBL PSS Partnership for a prosperous and secure future

Features

Under this Scheme Customer can open a deposit scheme for Tk500 Tki000 11c2000 and TK500C) per month tor 3 or 5 years whichever suits you

Customer can make the deposit within 10th of each month (In case of holiday the next working day)Customer can get Loan up to 80 of the deposited amount

Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installmentsFor a Table of Deposit Scheme and after Maturity Payable Amount is given below

Monthly Installment 3 Years Scheme 5 Years SchemeTk500 Tk20322 Tk36266Tk1000 1k 40645 Tk12532Tk2000 Tk61 290 Tk145064Tk5000 Tk203225 Tk362661

Extra Benefits

If anyone fails to deposit monthly installments continuously for 3 consecutive months hisher account will become automatically inoperative But it can be revalidated on the 4th month on receiving all outstanding installments along with a written application HeShe will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option

Customer can pay installments by transferring from your CDSB account maintained with the concerned branch Installments may also be paid in advanceCustomer can dose the account at any time by a written applicationMonthly installments to P55 will quality as investments in yearly Income Tax return

f Accounts Section

Accounts section maintains all records of transactions and all types of statement At the end of transaction hour all concerned sections send vouchers of transaction to this section The major functions of this section are stated below

It records the profit amp loss NC and statement of asset amp liabilities It prepares daily weekly monthly half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement provident fund statement and administrative

expenditure statementForeign Exchange Department

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 5: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

GENERAL BANKING

Genera Banking is the starting point of all the banking operations it is the department which provides day to day services to the customers Every day it receives deposits from the customers and meets their demand for cash by honoring cheques It opens new accounts remits funds issues demand draft and pay orders etc Since bank is confined to provide services every day general banking is also known as SME banking General banking is the core department of a commercial bank General banking department is that department which is mostly exposed to the maximum number of customer Motijheel Corporate Branch of BBL has all the required sections of general banking and these sections are run by manpower with nigh quality banking knowledge

1 Sections of General Banking Department

General banking department comprises of the following sections1 Cash section2 Account opening section3 Dispatch section4 Remittance section5 Deposit section6 Accounts section

2 Functions of General Banking Department

Functions of different sections of general banking department are enumerated belowa Cash Section

Cash section deals with all types of negotiable instruments cash and other instrument and treated as a sensitive section of the bank It is the most vital and sensitive organ of the branch as j deals with all kinds of cash transactions This section starts the day with cash in vault Each day some cash that is opening cash balance 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 This figure is called closing balance This dosing balance is then added to the vault This is the final case balance figure for the bank at the end of any particular day

The following things are done in the cash section Cash payment is made only against cheque It makes payment only against its printed valid cheque It receives deposits from the depositors in form of cash It collects money only its receipts forms

b Account Opening Section

All banks are operated on the basis of bank-customer relationship and this relationship is established through opening an account Opening account is the contract of customer with banks which is enforceable by law Now a day all new amp existing account holders have to fill up a Know Your Customer (KYC) Form in addition with other required papers

i Account Opening Procedure

Any person of sound mind can open account in any bank The person who is interested in opening of any type account goes to the bank and expresses himselfherself to open an account Then heshe is supplied an account opening form and a specimen signature card Before opening an account the following formalities must be completed by the customer

1 The form is filled up by the applicant himselfherself2 Introduction by a valued account holder3 Two copies of photographs of account holder attested by the introducer4 One copy of photograph of the nominee attested by the account holder5 National ID6 TIN (if necessary)

Account opening procedure is shown in the following flow chartFigure-St Account opening procedure

Source Primary

ii Relevant Documents

Types of attached documents usually vary with the nature of the ACs being opened Following are the list of documents that should be enclosed with the account opening form

In case of club1 Certified copy of resolution2 Certified copy of by-laws and constitutions3 Copy of Government approval (if registered)

Applicant fills up theRelevant application

Form in thePrescribed manner

Heshe is required to fillUp the specimenSignature card

For individual introduction is needed by an account holder

Account is openedThe authorized officer

Scrutinizes the introduction andExamines the documents

After depositing the cash one chequebook is issued

Issuance of deposit slip and the deposit must be made in cash

In case of co-operative society Copy of by-laws duly certified by the co-operative officer Certified copy of resolution Certified copy of certificate of registration issued by the Registrar In case of minor Affix the word after the title of the AC Special instruction regarding operation of NC The form is to be filled up and signed by legal guardian

In case of Public limited Company Certified copy of the memorandum and articles of the company Certificate of incorporation of the company Certificate from registrar of the joint stock companies that the company is entitled to

commence business Copy of the latest balance sheet Certified copy of resolution List of Directors with address Authorized signature

iii Issuance of Cheque Book

An account holder can get a fresh cheque book only against requisition on the prescribed requisition slip attached with the cheque book issued earlier after proper verification of the signature of the account holder A new cheque book should be delivered to the account holder or his duly authorized representatives

b Dispatch Section

Dispatch section is fully controlled by the Establishment Department Any kind of letter DO IT MI cheque and telex are also transferred and received through this section There are two types of letter they continuously received These are as followsInward letterOutward letter

At first recording is required whether it is inwardoutward registeredunregistered letters Then letters are disbursed to their respective destination inward letters are firstly segmented according to their different sections and thereafter an entry is given to the Inward Register Book For local letters which area is not far from the branch are delivered through messengers In such

Cases firstly the entry is to be made in Dispatch Register Book and then a peon is to be maintained which contains only dispatch number and receiverrsquos addressrsquo For this the messenger will get TK20 as a conveyance

d Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank and making arrangement for payment to another branch within the country The remittance

facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Considering the urgency and nature of transaction the modes of bank remittances may be categorized as under

Demand Draft (DD) Telegraphic Transfer (TI) Pay Order (P0)

i Demand Draft (DD)

Demand Draft (DD) is a negotiable instrument payable on issued by the branchof a bank containing an order to another branch of the same bank to pay a certain sum of money to a certain person or order on demand It is basically used for transferring and payment of money The difference between PC and OD is in terms of place only P0 used for remitting money within the city whereas DD is used for within the country The commission is minimum TK2500 or TK1 50 per thousand whichever is greater

ii Issuance of DD

When a person wants to purchase a DD from a bank the bank confirms about the existence of the branch where the DD is to be issued or drawn as asked for by the applicant

Then the party submits application duly filled up on bankrsquos prescribed form Thereafter the applicant will be asked to deposit the amount mentioned in the D along with commission On receipt of cash a voucher is passed and scrolled by at least two officers Then the DD is issued and recorded in the DD issue Register Test number is affixed on both DD and Advice as per rule

iii Payment of DD

The holder of the DD submits it to the paying bank for payment and in genera banks make payments after it receives the corresponding advice from the issuing bank On receipt of the DD advices from different branches the paying banker will verify the genuineness of the advices by way of verifying test numbers and signature

iv Cancellation of DD

The purchaser of DD can cancel it by submitting an application stating that the DD is no longer required In this case the issuing branch verifies the signature and the purchaser has to pay TI( 4000 as cancellation charge

v Issuing of Duplicate DD

If the DD is lost the purchaser may ask the issuing branch to issue a duplicate DD But before issuing a duplicate 00 the branch observes the following information

Verify purchasers signature on the DD application slipTake indemnity bond from purchaserClearance from paying branch whether the DD is already paid or not to be obtainedDD cancellation advice to be sent to the paying branchLastly the duplicate DD is issued and the word ldquoDUPLICATErdquo in red ink is stamped in the front side of the DD block

vi Telegraphic Transfer (TT)

Sometimes the remitter requires the funds immediately In this case the banker is requested to remit the funds telegraphically Different modes are telegram telephone telex fax etc Among those telegraphic transfer is the most rapid and convenient but expensive method TI is issued against cash cheque and letter of instruction

vii Issuance of TT

Procedures followed by BBL Naya Paltan Branch regarding issuing of TT are stated below The customer deposits money with BBL Naya Paltan Branch to sent The customer obtains a cash memo containing TI serial Number Ti serial Number notifying party name is mentioned in the telex message The telex department confirms transaction of the telex

viii Payment of TT

After receiving the telex it is decoded at first then the TI serial number and test number are verified TK5000 is taken as postal amp Telex charge The minimum commission is TK5000 or 015 of the amount whichever is higher

ix Pay Order (PO)

PO is an instrument that contains an order for payment to the payee only in case of local payment P0 s in the form of receipts and issued by joint signature of two officials It ensures payment to the payee as the money deposited by the purchaser of P0 is kept in the bankrsquos own NC named P0 NC It is not transferable and therefore it can only be paid to the payee the payeersquos banker or the person holding the letter of authority from the payee

x Issuance of PO

Procedures followed by BBL Naya Paltan Branch regarding issuing of PO are stated below

Deposit money by the customer along with application form Give necessary entry in the bills payable Register where payeersquos name date P0 No etc are mentionedAfter scrutinizing and approval of the instrument by the authority it is delivered to customer Signature of the customer is taken on the counter part

xi Reasons for issuing PO

Remittance purpose Advice to pay

Payment against bill submitted to the bank xii Payment of PO

As the PO issued by the bank is crossed one it is not paid over the counter On the contrary the amount is transferred to the payeersquos account To transfer the amount the payee must duly stamp the PO The PO can only be encashed through the branch that has issued the instrument

xiii Cancellation of PO

The following procedures are followed to refund pay order by cancellation

Submit written request to refund the Pa attaching therewith the original PC Verify purchasers signature with the original application form on record Managers prior permission is required before refunding the amount of PO PO should be affixed with a stamp cancelledrsquo under proper authentication No charge is created for cancellation Record the cancelled PC in the PO issue

Register

e Deposit Section

Deposits are the life-blood of a commercial bank Without deposits there is no business for the commercial bank Accepting deposits is one of the two classic functions of commercial banks Bank deposits can be broadly classified as follows

I Demand Deposit

These deposits can be withdrawn without any prior notice IF1C Bank Ltd accepts demand deposits through the opening of-

1 Current Account2 Savings Account

ii Lime Deposit

The deposit which is payable at a fixed date or after a period of notice is a time deposit BBL accepts time deposits through the opening of-

Fixed Deposit Receipt (FDR)

Fixed deposits receipts are the deposits in which an amount of cash is deposited in bank for a fixed period specified in advance Normally the money on a fixed deposit is not repayable before the expiry of a fixed period In case of fixed deposits receipts the bank needs not to hold a cash reserve to repay money to the customer

Short Term Deposit (STD)

Short term deposits are deposits which as deposits for at least 7 days to get interest The interest offered for STD is less than that of savings account

Pension Savings Scheme (PSS)

Empower for a secure and prosperous future with BBL PSS Partnership for a prosperous and secure future

Features

Under this Scheme Customer can open a deposit scheme for Tk500 Tki000 11c2000 and TK500C) per month tor 3 or 5 years whichever suits you

Customer can make the deposit within 10th of each month (In case of holiday the next working day)Customer can get Loan up to 80 of the deposited amount

Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installmentsFor a Table of Deposit Scheme and after Maturity Payable Amount is given below

Monthly Installment 3 Years Scheme 5 Years SchemeTk500 Tk20322 Tk36266Tk1000 1k 40645 Tk12532Tk2000 Tk61 290 Tk145064Tk5000 Tk203225 Tk362661

Extra Benefits

If anyone fails to deposit monthly installments continuously for 3 consecutive months hisher account will become automatically inoperative But it can be revalidated on the 4th month on receiving all outstanding installments along with a written application HeShe will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option

Customer can pay installments by transferring from your CDSB account maintained with the concerned branch Installments may also be paid in advanceCustomer can dose the account at any time by a written applicationMonthly installments to P55 will quality as investments in yearly Income Tax return

f Accounts Section

Accounts section maintains all records of transactions and all types of statement At the end of transaction hour all concerned sections send vouchers of transaction to this section The major functions of this section are stated below

It records the profit amp loss NC and statement of asset amp liabilities It prepares daily weekly monthly half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement provident fund statement and administrative

expenditure statementForeign Exchange Department

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 6: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Any person of sound mind can open account in any bank The person who is interested in opening of any type account goes to the bank and expresses himselfherself to open an account Then heshe is supplied an account opening form and a specimen signature card Before opening an account the following formalities must be completed by the customer

1 The form is filled up by the applicant himselfherself2 Introduction by a valued account holder3 Two copies of photographs of account holder attested by the introducer4 One copy of photograph of the nominee attested by the account holder5 National ID6 TIN (if necessary)

Account opening procedure is shown in the following flow chartFigure-St Account opening procedure

Source Primary

ii Relevant Documents

Types of attached documents usually vary with the nature of the ACs being opened Following are the list of documents that should be enclosed with the account opening form

In case of club1 Certified copy of resolution2 Certified copy of by-laws and constitutions3 Copy of Government approval (if registered)

Applicant fills up theRelevant application

Form in thePrescribed manner

Heshe is required to fillUp the specimenSignature card

For individual introduction is needed by an account holder

Account is openedThe authorized officer

Scrutinizes the introduction andExamines the documents

After depositing the cash one chequebook is issued

Issuance of deposit slip and the deposit must be made in cash

In case of co-operative society Copy of by-laws duly certified by the co-operative officer Certified copy of resolution Certified copy of certificate of registration issued by the Registrar In case of minor Affix the word after the title of the AC Special instruction regarding operation of NC The form is to be filled up and signed by legal guardian

In case of Public limited Company Certified copy of the memorandum and articles of the company Certificate of incorporation of the company Certificate from registrar of the joint stock companies that the company is entitled to

commence business Copy of the latest balance sheet Certified copy of resolution List of Directors with address Authorized signature

iii Issuance of Cheque Book

An account holder can get a fresh cheque book only against requisition on the prescribed requisition slip attached with the cheque book issued earlier after proper verification of the signature of the account holder A new cheque book should be delivered to the account holder or his duly authorized representatives

b Dispatch Section

Dispatch section is fully controlled by the Establishment Department Any kind of letter DO IT MI cheque and telex are also transferred and received through this section There are two types of letter they continuously received These are as followsInward letterOutward letter

At first recording is required whether it is inwardoutward registeredunregistered letters Then letters are disbursed to their respective destination inward letters are firstly segmented according to their different sections and thereafter an entry is given to the Inward Register Book For local letters which area is not far from the branch are delivered through messengers In such

Cases firstly the entry is to be made in Dispatch Register Book and then a peon is to be maintained which contains only dispatch number and receiverrsquos addressrsquo For this the messenger will get TK20 as a conveyance

d Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank and making arrangement for payment to another branch within the country The remittance

facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Considering the urgency and nature of transaction the modes of bank remittances may be categorized as under

Demand Draft (DD) Telegraphic Transfer (TI) Pay Order (P0)

i Demand Draft (DD)

Demand Draft (DD) is a negotiable instrument payable on issued by the branchof a bank containing an order to another branch of the same bank to pay a certain sum of money to a certain person or order on demand It is basically used for transferring and payment of money The difference between PC and OD is in terms of place only P0 used for remitting money within the city whereas DD is used for within the country The commission is minimum TK2500 or TK1 50 per thousand whichever is greater

ii Issuance of DD

When a person wants to purchase a DD from a bank the bank confirms about the existence of the branch where the DD is to be issued or drawn as asked for by the applicant

Then the party submits application duly filled up on bankrsquos prescribed form Thereafter the applicant will be asked to deposit the amount mentioned in the D along with commission On receipt of cash a voucher is passed and scrolled by at least two officers Then the DD is issued and recorded in the DD issue Register Test number is affixed on both DD and Advice as per rule

iii Payment of DD

The holder of the DD submits it to the paying bank for payment and in genera banks make payments after it receives the corresponding advice from the issuing bank On receipt of the DD advices from different branches the paying banker will verify the genuineness of the advices by way of verifying test numbers and signature

iv Cancellation of DD

The purchaser of DD can cancel it by submitting an application stating that the DD is no longer required In this case the issuing branch verifies the signature and the purchaser has to pay TI( 4000 as cancellation charge

v Issuing of Duplicate DD

If the DD is lost the purchaser may ask the issuing branch to issue a duplicate DD But before issuing a duplicate 00 the branch observes the following information

Verify purchasers signature on the DD application slipTake indemnity bond from purchaserClearance from paying branch whether the DD is already paid or not to be obtainedDD cancellation advice to be sent to the paying branchLastly the duplicate DD is issued and the word ldquoDUPLICATErdquo in red ink is stamped in the front side of the DD block

vi Telegraphic Transfer (TT)

Sometimes the remitter requires the funds immediately In this case the banker is requested to remit the funds telegraphically Different modes are telegram telephone telex fax etc Among those telegraphic transfer is the most rapid and convenient but expensive method TI is issued against cash cheque and letter of instruction

vii Issuance of TT

Procedures followed by BBL Naya Paltan Branch regarding issuing of TT are stated below The customer deposits money with BBL Naya Paltan Branch to sent The customer obtains a cash memo containing TI serial Number Ti serial Number notifying party name is mentioned in the telex message The telex department confirms transaction of the telex

viii Payment of TT

After receiving the telex it is decoded at first then the TI serial number and test number are verified TK5000 is taken as postal amp Telex charge The minimum commission is TK5000 or 015 of the amount whichever is higher

ix Pay Order (PO)

PO is an instrument that contains an order for payment to the payee only in case of local payment P0 s in the form of receipts and issued by joint signature of two officials It ensures payment to the payee as the money deposited by the purchaser of P0 is kept in the bankrsquos own NC named P0 NC It is not transferable and therefore it can only be paid to the payee the payeersquos banker or the person holding the letter of authority from the payee

x Issuance of PO

Procedures followed by BBL Naya Paltan Branch regarding issuing of PO are stated below

Deposit money by the customer along with application form Give necessary entry in the bills payable Register where payeersquos name date P0 No etc are mentionedAfter scrutinizing and approval of the instrument by the authority it is delivered to customer Signature of the customer is taken on the counter part

xi Reasons for issuing PO

Remittance purpose Advice to pay

Payment against bill submitted to the bank xii Payment of PO

As the PO issued by the bank is crossed one it is not paid over the counter On the contrary the amount is transferred to the payeersquos account To transfer the amount the payee must duly stamp the PO The PO can only be encashed through the branch that has issued the instrument

xiii Cancellation of PO

The following procedures are followed to refund pay order by cancellation

Submit written request to refund the Pa attaching therewith the original PC Verify purchasers signature with the original application form on record Managers prior permission is required before refunding the amount of PO PO should be affixed with a stamp cancelledrsquo under proper authentication No charge is created for cancellation Record the cancelled PC in the PO issue

Register

e Deposit Section

Deposits are the life-blood of a commercial bank Without deposits there is no business for the commercial bank Accepting deposits is one of the two classic functions of commercial banks Bank deposits can be broadly classified as follows

I Demand Deposit

These deposits can be withdrawn without any prior notice IF1C Bank Ltd accepts demand deposits through the opening of-

1 Current Account2 Savings Account

ii Lime Deposit

The deposit which is payable at a fixed date or after a period of notice is a time deposit BBL accepts time deposits through the opening of-

Fixed Deposit Receipt (FDR)

Fixed deposits receipts are the deposits in which an amount of cash is deposited in bank for a fixed period specified in advance Normally the money on a fixed deposit is not repayable before the expiry of a fixed period In case of fixed deposits receipts the bank needs not to hold a cash reserve to repay money to the customer

Short Term Deposit (STD)

Short term deposits are deposits which as deposits for at least 7 days to get interest The interest offered for STD is less than that of savings account

Pension Savings Scheme (PSS)

Empower for a secure and prosperous future with BBL PSS Partnership for a prosperous and secure future

Features

Under this Scheme Customer can open a deposit scheme for Tk500 Tki000 11c2000 and TK500C) per month tor 3 or 5 years whichever suits you

Customer can make the deposit within 10th of each month (In case of holiday the next working day)Customer can get Loan up to 80 of the deposited amount

Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installmentsFor a Table of Deposit Scheme and after Maturity Payable Amount is given below

Monthly Installment 3 Years Scheme 5 Years SchemeTk500 Tk20322 Tk36266Tk1000 1k 40645 Tk12532Tk2000 Tk61 290 Tk145064Tk5000 Tk203225 Tk362661

Extra Benefits

If anyone fails to deposit monthly installments continuously for 3 consecutive months hisher account will become automatically inoperative But it can be revalidated on the 4th month on receiving all outstanding installments along with a written application HeShe will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option

Customer can pay installments by transferring from your CDSB account maintained with the concerned branch Installments may also be paid in advanceCustomer can dose the account at any time by a written applicationMonthly installments to P55 will quality as investments in yearly Income Tax return

f Accounts Section

Accounts section maintains all records of transactions and all types of statement At the end of transaction hour all concerned sections send vouchers of transaction to this section The major functions of this section are stated below

It records the profit amp loss NC and statement of asset amp liabilities It prepares daily weekly monthly half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement provident fund statement and administrative

expenditure statementForeign Exchange Department

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 7: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

In case of co-operative society Copy of by-laws duly certified by the co-operative officer Certified copy of resolution Certified copy of certificate of registration issued by the Registrar In case of minor Affix the word after the title of the AC Special instruction regarding operation of NC The form is to be filled up and signed by legal guardian

In case of Public limited Company Certified copy of the memorandum and articles of the company Certificate of incorporation of the company Certificate from registrar of the joint stock companies that the company is entitled to

commence business Copy of the latest balance sheet Certified copy of resolution List of Directors with address Authorized signature

iii Issuance of Cheque Book

An account holder can get a fresh cheque book only against requisition on the prescribed requisition slip attached with the cheque book issued earlier after proper verification of the signature of the account holder A new cheque book should be delivered to the account holder or his duly authorized representatives

b Dispatch Section

Dispatch section is fully controlled by the Establishment Department Any kind of letter DO IT MI cheque and telex are also transferred and received through this section There are two types of letter they continuously received These are as followsInward letterOutward letter

At first recording is required whether it is inwardoutward registeredunregistered letters Then letters are disbursed to their respective destination inward letters are firstly segmented according to their different sections and thereafter an entry is given to the Inward Register Book For local letters which area is not far from the branch are delivered through messengers In such

Cases firstly the entry is to be made in Dispatch Register Book and then a peon is to be maintained which contains only dispatch number and receiverrsquos addressrsquo For this the messenger will get TK20 as a conveyance

d Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank and making arrangement for payment to another branch within the country The remittance

facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Considering the urgency and nature of transaction the modes of bank remittances may be categorized as under

Demand Draft (DD) Telegraphic Transfer (TI) Pay Order (P0)

i Demand Draft (DD)

Demand Draft (DD) is a negotiable instrument payable on issued by the branchof a bank containing an order to another branch of the same bank to pay a certain sum of money to a certain person or order on demand It is basically used for transferring and payment of money The difference between PC and OD is in terms of place only P0 used for remitting money within the city whereas DD is used for within the country The commission is minimum TK2500 or TK1 50 per thousand whichever is greater

ii Issuance of DD

When a person wants to purchase a DD from a bank the bank confirms about the existence of the branch where the DD is to be issued or drawn as asked for by the applicant

Then the party submits application duly filled up on bankrsquos prescribed form Thereafter the applicant will be asked to deposit the amount mentioned in the D along with commission On receipt of cash a voucher is passed and scrolled by at least two officers Then the DD is issued and recorded in the DD issue Register Test number is affixed on both DD and Advice as per rule

iii Payment of DD

The holder of the DD submits it to the paying bank for payment and in genera banks make payments after it receives the corresponding advice from the issuing bank On receipt of the DD advices from different branches the paying banker will verify the genuineness of the advices by way of verifying test numbers and signature

iv Cancellation of DD

The purchaser of DD can cancel it by submitting an application stating that the DD is no longer required In this case the issuing branch verifies the signature and the purchaser has to pay TI( 4000 as cancellation charge

v Issuing of Duplicate DD

If the DD is lost the purchaser may ask the issuing branch to issue a duplicate DD But before issuing a duplicate 00 the branch observes the following information

Verify purchasers signature on the DD application slipTake indemnity bond from purchaserClearance from paying branch whether the DD is already paid or not to be obtainedDD cancellation advice to be sent to the paying branchLastly the duplicate DD is issued and the word ldquoDUPLICATErdquo in red ink is stamped in the front side of the DD block

vi Telegraphic Transfer (TT)

Sometimes the remitter requires the funds immediately In this case the banker is requested to remit the funds telegraphically Different modes are telegram telephone telex fax etc Among those telegraphic transfer is the most rapid and convenient but expensive method TI is issued against cash cheque and letter of instruction

vii Issuance of TT

Procedures followed by BBL Naya Paltan Branch regarding issuing of TT are stated below The customer deposits money with BBL Naya Paltan Branch to sent The customer obtains a cash memo containing TI serial Number Ti serial Number notifying party name is mentioned in the telex message The telex department confirms transaction of the telex

viii Payment of TT

After receiving the telex it is decoded at first then the TI serial number and test number are verified TK5000 is taken as postal amp Telex charge The minimum commission is TK5000 or 015 of the amount whichever is higher

ix Pay Order (PO)

PO is an instrument that contains an order for payment to the payee only in case of local payment P0 s in the form of receipts and issued by joint signature of two officials It ensures payment to the payee as the money deposited by the purchaser of P0 is kept in the bankrsquos own NC named P0 NC It is not transferable and therefore it can only be paid to the payee the payeersquos banker or the person holding the letter of authority from the payee

x Issuance of PO

Procedures followed by BBL Naya Paltan Branch regarding issuing of PO are stated below

Deposit money by the customer along with application form Give necessary entry in the bills payable Register where payeersquos name date P0 No etc are mentionedAfter scrutinizing and approval of the instrument by the authority it is delivered to customer Signature of the customer is taken on the counter part

xi Reasons for issuing PO

Remittance purpose Advice to pay

Payment against bill submitted to the bank xii Payment of PO

As the PO issued by the bank is crossed one it is not paid over the counter On the contrary the amount is transferred to the payeersquos account To transfer the amount the payee must duly stamp the PO The PO can only be encashed through the branch that has issued the instrument

xiii Cancellation of PO

The following procedures are followed to refund pay order by cancellation

Submit written request to refund the Pa attaching therewith the original PC Verify purchasers signature with the original application form on record Managers prior permission is required before refunding the amount of PO PO should be affixed with a stamp cancelledrsquo under proper authentication No charge is created for cancellation Record the cancelled PC in the PO issue

Register

e Deposit Section

Deposits are the life-blood of a commercial bank Without deposits there is no business for the commercial bank Accepting deposits is one of the two classic functions of commercial banks Bank deposits can be broadly classified as follows

I Demand Deposit

These deposits can be withdrawn without any prior notice IF1C Bank Ltd accepts demand deposits through the opening of-

1 Current Account2 Savings Account

ii Lime Deposit

The deposit which is payable at a fixed date or after a period of notice is a time deposit BBL accepts time deposits through the opening of-

Fixed Deposit Receipt (FDR)

Fixed deposits receipts are the deposits in which an amount of cash is deposited in bank for a fixed period specified in advance Normally the money on a fixed deposit is not repayable before the expiry of a fixed period In case of fixed deposits receipts the bank needs not to hold a cash reserve to repay money to the customer

Short Term Deposit (STD)

Short term deposits are deposits which as deposits for at least 7 days to get interest The interest offered for STD is less than that of savings account

Pension Savings Scheme (PSS)

Empower for a secure and prosperous future with BBL PSS Partnership for a prosperous and secure future

Features

Under this Scheme Customer can open a deposit scheme for Tk500 Tki000 11c2000 and TK500C) per month tor 3 or 5 years whichever suits you

Customer can make the deposit within 10th of each month (In case of holiday the next working day)Customer can get Loan up to 80 of the deposited amount

Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installmentsFor a Table of Deposit Scheme and after Maturity Payable Amount is given below

Monthly Installment 3 Years Scheme 5 Years SchemeTk500 Tk20322 Tk36266Tk1000 1k 40645 Tk12532Tk2000 Tk61 290 Tk145064Tk5000 Tk203225 Tk362661

Extra Benefits

If anyone fails to deposit monthly installments continuously for 3 consecutive months hisher account will become automatically inoperative But it can be revalidated on the 4th month on receiving all outstanding installments along with a written application HeShe will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option

Customer can pay installments by transferring from your CDSB account maintained with the concerned branch Installments may also be paid in advanceCustomer can dose the account at any time by a written applicationMonthly installments to P55 will quality as investments in yearly Income Tax return

f Accounts Section

Accounts section maintains all records of transactions and all types of statement At the end of transaction hour all concerned sections send vouchers of transaction to this section The major functions of this section are stated below

It records the profit amp loss NC and statement of asset amp liabilities It prepares daily weekly monthly half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement provident fund statement and administrative

expenditure statementForeign Exchange Department

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 8: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Considering the urgency and nature of transaction the modes of bank remittances may be categorized as under

Demand Draft (DD) Telegraphic Transfer (TI) Pay Order (P0)

i Demand Draft (DD)

Demand Draft (DD) is a negotiable instrument payable on issued by the branchof a bank containing an order to another branch of the same bank to pay a certain sum of money to a certain person or order on demand It is basically used for transferring and payment of money The difference between PC and OD is in terms of place only P0 used for remitting money within the city whereas DD is used for within the country The commission is minimum TK2500 or TK1 50 per thousand whichever is greater

ii Issuance of DD

When a person wants to purchase a DD from a bank the bank confirms about the existence of the branch where the DD is to be issued or drawn as asked for by the applicant

Then the party submits application duly filled up on bankrsquos prescribed form Thereafter the applicant will be asked to deposit the amount mentioned in the D along with commission On receipt of cash a voucher is passed and scrolled by at least two officers Then the DD is issued and recorded in the DD issue Register Test number is affixed on both DD and Advice as per rule

iii Payment of DD

The holder of the DD submits it to the paying bank for payment and in genera banks make payments after it receives the corresponding advice from the issuing bank On receipt of the DD advices from different branches the paying banker will verify the genuineness of the advices by way of verifying test numbers and signature

iv Cancellation of DD

The purchaser of DD can cancel it by submitting an application stating that the DD is no longer required In this case the issuing branch verifies the signature and the purchaser has to pay TI( 4000 as cancellation charge

v Issuing of Duplicate DD

If the DD is lost the purchaser may ask the issuing branch to issue a duplicate DD But before issuing a duplicate 00 the branch observes the following information

Verify purchasers signature on the DD application slipTake indemnity bond from purchaserClearance from paying branch whether the DD is already paid or not to be obtainedDD cancellation advice to be sent to the paying branchLastly the duplicate DD is issued and the word ldquoDUPLICATErdquo in red ink is stamped in the front side of the DD block

vi Telegraphic Transfer (TT)

Sometimes the remitter requires the funds immediately In this case the banker is requested to remit the funds telegraphically Different modes are telegram telephone telex fax etc Among those telegraphic transfer is the most rapid and convenient but expensive method TI is issued against cash cheque and letter of instruction

vii Issuance of TT

Procedures followed by BBL Naya Paltan Branch regarding issuing of TT are stated below The customer deposits money with BBL Naya Paltan Branch to sent The customer obtains a cash memo containing TI serial Number Ti serial Number notifying party name is mentioned in the telex message The telex department confirms transaction of the telex

viii Payment of TT

After receiving the telex it is decoded at first then the TI serial number and test number are verified TK5000 is taken as postal amp Telex charge The minimum commission is TK5000 or 015 of the amount whichever is higher

ix Pay Order (PO)

PO is an instrument that contains an order for payment to the payee only in case of local payment P0 s in the form of receipts and issued by joint signature of two officials It ensures payment to the payee as the money deposited by the purchaser of P0 is kept in the bankrsquos own NC named P0 NC It is not transferable and therefore it can only be paid to the payee the payeersquos banker or the person holding the letter of authority from the payee

x Issuance of PO

Procedures followed by BBL Naya Paltan Branch regarding issuing of PO are stated below

Deposit money by the customer along with application form Give necessary entry in the bills payable Register where payeersquos name date P0 No etc are mentionedAfter scrutinizing and approval of the instrument by the authority it is delivered to customer Signature of the customer is taken on the counter part

xi Reasons for issuing PO

Remittance purpose Advice to pay

Payment against bill submitted to the bank xii Payment of PO

As the PO issued by the bank is crossed one it is not paid over the counter On the contrary the amount is transferred to the payeersquos account To transfer the amount the payee must duly stamp the PO The PO can only be encashed through the branch that has issued the instrument

xiii Cancellation of PO

The following procedures are followed to refund pay order by cancellation

Submit written request to refund the Pa attaching therewith the original PC Verify purchasers signature with the original application form on record Managers prior permission is required before refunding the amount of PO PO should be affixed with a stamp cancelledrsquo under proper authentication No charge is created for cancellation Record the cancelled PC in the PO issue

Register

e Deposit Section

Deposits are the life-blood of a commercial bank Without deposits there is no business for the commercial bank Accepting deposits is one of the two classic functions of commercial banks Bank deposits can be broadly classified as follows

I Demand Deposit

These deposits can be withdrawn without any prior notice IF1C Bank Ltd accepts demand deposits through the opening of-

1 Current Account2 Savings Account

ii Lime Deposit

The deposit which is payable at a fixed date or after a period of notice is a time deposit BBL accepts time deposits through the opening of-

Fixed Deposit Receipt (FDR)

Fixed deposits receipts are the deposits in which an amount of cash is deposited in bank for a fixed period specified in advance Normally the money on a fixed deposit is not repayable before the expiry of a fixed period In case of fixed deposits receipts the bank needs not to hold a cash reserve to repay money to the customer

Short Term Deposit (STD)

Short term deposits are deposits which as deposits for at least 7 days to get interest The interest offered for STD is less than that of savings account

Pension Savings Scheme (PSS)

Empower for a secure and prosperous future with BBL PSS Partnership for a prosperous and secure future

Features

Under this Scheme Customer can open a deposit scheme for Tk500 Tki000 11c2000 and TK500C) per month tor 3 or 5 years whichever suits you

Customer can make the deposit within 10th of each month (In case of holiday the next working day)Customer can get Loan up to 80 of the deposited amount

Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installmentsFor a Table of Deposit Scheme and after Maturity Payable Amount is given below

Monthly Installment 3 Years Scheme 5 Years SchemeTk500 Tk20322 Tk36266Tk1000 1k 40645 Tk12532Tk2000 Tk61 290 Tk145064Tk5000 Tk203225 Tk362661

Extra Benefits

If anyone fails to deposit monthly installments continuously for 3 consecutive months hisher account will become automatically inoperative But it can be revalidated on the 4th month on receiving all outstanding installments along with a written application HeShe will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option

Customer can pay installments by transferring from your CDSB account maintained with the concerned branch Installments may also be paid in advanceCustomer can dose the account at any time by a written applicationMonthly installments to P55 will quality as investments in yearly Income Tax return

f Accounts Section

Accounts section maintains all records of transactions and all types of statement At the end of transaction hour all concerned sections send vouchers of transaction to this section The major functions of this section are stated below

It records the profit amp loss NC and statement of asset amp liabilities It prepares daily weekly monthly half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement provident fund statement and administrative

expenditure statementForeign Exchange Department

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 9: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Verify purchasers signature on the DD application slipTake indemnity bond from purchaserClearance from paying branch whether the DD is already paid or not to be obtainedDD cancellation advice to be sent to the paying branchLastly the duplicate DD is issued and the word ldquoDUPLICATErdquo in red ink is stamped in the front side of the DD block

vi Telegraphic Transfer (TT)

Sometimes the remitter requires the funds immediately In this case the banker is requested to remit the funds telegraphically Different modes are telegram telephone telex fax etc Among those telegraphic transfer is the most rapid and convenient but expensive method TI is issued against cash cheque and letter of instruction

vii Issuance of TT

Procedures followed by BBL Naya Paltan Branch regarding issuing of TT are stated below The customer deposits money with BBL Naya Paltan Branch to sent The customer obtains a cash memo containing TI serial Number Ti serial Number notifying party name is mentioned in the telex message The telex department confirms transaction of the telex

viii Payment of TT

After receiving the telex it is decoded at first then the TI serial number and test number are verified TK5000 is taken as postal amp Telex charge The minimum commission is TK5000 or 015 of the amount whichever is higher

ix Pay Order (PO)

PO is an instrument that contains an order for payment to the payee only in case of local payment P0 s in the form of receipts and issued by joint signature of two officials It ensures payment to the payee as the money deposited by the purchaser of P0 is kept in the bankrsquos own NC named P0 NC It is not transferable and therefore it can only be paid to the payee the payeersquos banker or the person holding the letter of authority from the payee

x Issuance of PO

Procedures followed by BBL Naya Paltan Branch regarding issuing of PO are stated below

Deposit money by the customer along with application form Give necessary entry in the bills payable Register where payeersquos name date P0 No etc are mentionedAfter scrutinizing and approval of the instrument by the authority it is delivered to customer Signature of the customer is taken on the counter part

xi Reasons for issuing PO

Remittance purpose Advice to pay

Payment against bill submitted to the bank xii Payment of PO

As the PO issued by the bank is crossed one it is not paid over the counter On the contrary the amount is transferred to the payeersquos account To transfer the amount the payee must duly stamp the PO The PO can only be encashed through the branch that has issued the instrument

xiii Cancellation of PO

The following procedures are followed to refund pay order by cancellation

Submit written request to refund the Pa attaching therewith the original PC Verify purchasers signature with the original application form on record Managers prior permission is required before refunding the amount of PO PO should be affixed with a stamp cancelledrsquo under proper authentication No charge is created for cancellation Record the cancelled PC in the PO issue

Register

e Deposit Section

Deposits are the life-blood of a commercial bank Without deposits there is no business for the commercial bank Accepting deposits is one of the two classic functions of commercial banks Bank deposits can be broadly classified as follows

I Demand Deposit

These deposits can be withdrawn without any prior notice IF1C Bank Ltd accepts demand deposits through the opening of-

1 Current Account2 Savings Account

ii Lime Deposit

The deposit which is payable at a fixed date or after a period of notice is a time deposit BBL accepts time deposits through the opening of-

Fixed Deposit Receipt (FDR)

Fixed deposits receipts are the deposits in which an amount of cash is deposited in bank for a fixed period specified in advance Normally the money on a fixed deposit is not repayable before the expiry of a fixed period In case of fixed deposits receipts the bank needs not to hold a cash reserve to repay money to the customer

Short Term Deposit (STD)

Short term deposits are deposits which as deposits for at least 7 days to get interest The interest offered for STD is less than that of savings account

Pension Savings Scheme (PSS)

Empower for a secure and prosperous future with BBL PSS Partnership for a prosperous and secure future

Features

Under this Scheme Customer can open a deposit scheme for Tk500 Tki000 11c2000 and TK500C) per month tor 3 or 5 years whichever suits you

Customer can make the deposit within 10th of each month (In case of holiday the next working day)Customer can get Loan up to 80 of the deposited amount

Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installmentsFor a Table of Deposit Scheme and after Maturity Payable Amount is given below

Monthly Installment 3 Years Scheme 5 Years SchemeTk500 Tk20322 Tk36266Tk1000 1k 40645 Tk12532Tk2000 Tk61 290 Tk145064Tk5000 Tk203225 Tk362661

Extra Benefits

If anyone fails to deposit monthly installments continuously for 3 consecutive months hisher account will become automatically inoperative But it can be revalidated on the 4th month on receiving all outstanding installments along with a written application HeShe will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option

Customer can pay installments by transferring from your CDSB account maintained with the concerned branch Installments may also be paid in advanceCustomer can dose the account at any time by a written applicationMonthly installments to P55 will quality as investments in yearly Income Tax return

f Accounts Section

Accounts section maintains all records of transactions and all types of statement At the end of transaction hour all concerned sections send vouchers of transaction to this section The major functions of this section are stated below

It records the profit amp loss NC and statement of asset amp liabilities It prepares daily weekly monthly half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement provident fund statement and administrative

expenditure statementForeign Exchange Department

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 10: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Payment against bill submitted to the bank xii Payment of PO

As the PO issued by the bank is crossed one it is not paid over the counter On the contrary the amount is transferred to the payeersquos account To transfer the amount the payee must duly stamp the PO The PO can only be encashed through the branch that has issued the instrument

xiii Cancellation of PO

The following procedures are followed to refund pay order by cancellation

Submit written request to refund the Pa attaching therewith the original PC Verify purchasers signature with the original application form on record Managers prior permission is required before refunding the amount of PO PO should be affixed with a stamp cancelledrsquo under proper authentication No charge is created for cancellation Record the cancelled PC in the PO issue

Register

e Deposit Section

Deposits are the life-blood of a commercial bank Without deposits there is no business for the commercial bank Accepting deposits is one of the two classic functions of commercial banks Bank deposits can be broadly classified as follows

I Demand Deposit

These deposits can be withdrawn without any prior notice IF1C Bank Ltd accepts demand deposits through the opening of-

1 Current Account2 Savings Account

ii Lime Deposit

The deposit which is payable at a fixed date or after a period of notice is a time deposit BBL accepts time deposits through the opening of-

Fixed Deposit Receipt (FDR)

Fixed deposits receipts are the deposits in which an amount of cash is deposited in bank for a fixed period specified in advance Normally the money on a fixed deposit is not repayable before the expiry of a fixed period In case of fixed deposits receipts the bank needs not to hold a cash reserve to repay money to the customer

Short Term Deposit (STD)

Short term deposits are deposits which as deposits for at least 7 days to get interest The interest offered for STD is less than that of savings account

Pension Savings Scheme (PSS)

Empower for a secure and prosperous future with BBL PSS Partnership for a prosperous and secure future

Features

Under this Scheme Customer can open a deposit scheme for Tk500 Tki000 11c2000 and TK500C) per month tor 3 or 5 years whichever suits you

Customer can make the deposit within 10th of each month (In case of holiday the next working day)Customer can get Loan up to 80 of the deposited amount

Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installmentsFor a Table of Deposit Scheme and after Maturity Payable Amount is given below

Monthly Installment 3 Years Scheme 5 Years SchemeTk500 Tk20322 Tk36266Tk1000 1k 40645 Tk12532Tk2000 Tk61 290 Tk145064Tk5000 Tk203225 Tk362661

Extra Benefits

If anyone fails to deposit monthly installments continuously for 3 consecutive months hisher account will become automatically inoperative But it can be revalidated on the 4th month on receiving all outstanding installments along with a written application HeShe will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option

Customer can pay installments by transferring from your CDSB account maintained with the concerned branch Installments may also be paid in advanceCustomer can dose the account at any time by a written applicationMonthly installments to P55 will quality as investments in yearly Income Tax return

f Accounts Section

Accounts section maintains all records of transactions and all types of statement At the end of transaction hour all concerned sections send vouchers of transaction to this section The major functions of this section are stated below

It records the profit amp loss NC and statement of asset amp liabilities It prepares daily weekly monthly half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement provident fund statement and administrative

expenditure statementForeign Exchange Department

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 11: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Pension Savings Scheme (PSS)

Empower for a secure and prosperous future with BBL PSS Partnership for a prosperous and secure future

Features

Under this Scheme Customer can open a deposit scheme for Tk500 Tki000 11c2000 and TK500C) per month tor 3 or 5 years whichever suits you

Customer can make the deposit within 10th of each month (In case of holiday the next working day)Customer can get Loan up to 80 of the deposited amount

Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installmentsFor a Table of Deposit Scheme and after Maturity Payable Amount is given below

Monthly Installment 3 Years Scheme 5 Years SchemeTk500 Tk20322 Tk36266Tk1000 1k 40645 Tk12532Tk2000 Tk61 290 Tk145064Tk5000 Tk203225 Tk362661

Extra Benefits

If anyone fails to deposit monthly installments continuously for 3 consecutive months hisher account will become automatically inoperative But it can be revalidated on the 4th month on receiving all outstanding installments along with a written application HeShe will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option

Customer can pay installments by transferring from your CDSB account maintained with the concerned branch Installments may also be paid in advanceCustomer can dose the account at any time by a written applicationMonthly installments to P55 will quality as investments in yearly Income Tax return

f Accounts Section

Accounts section maintains all records of transactions and all types of statement At the end of transaction hour all concerned sections send vouchers of transaction to this section The major functions of this section are stated below

It records the profit amp loss NC and statement of asset amp liabilities It prepares daily weekly monthly half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement provident fund statement and administrative

expenditure statementForeign Exchange Department

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 12: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

The foreign exchange department deals with import export foreign remittance and post import financing It facilitates international trade through its various modes of services It bridges between and exporters It the bank is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country This department mainly deals with foreign currency

Banks play a vital role by minimizing the risk of two parties namely buyer and salient In fact without the help of banks we can not think about a congenial international trade environment Now the question comes how banks help international trade We know that in a local trade there is a chance to know each other But in international trade the involved parties stay two distant places

In case of international trade for a buyer the following risks are involves Risk of non-delivery of goods Risk of receiving sub standard goods Risk of fraud in goods

Again for a seller the following risk is involvedThe risk of non-payment

Some in Terms Regarding Foreign Exchange

Every business has its own terminology Similarly international trade has some terms also The following terms are normally used in foreign exchange department

a Letter of Credit (LC)

Letter of credit (LC) is a payment guarantee to the seller by the buyerrsquos bank It is in fact a credit contract whereby the buyerrsquos bank is committed to place an agreed amount of money at the sellerrsquos disposal under some conditions

b Clean Credit

If the conditions of the credit do not require for presentation of specified documents it is called clean credit

c Documentary Credit

If the presentation of specified document is obligatory the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance Le the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document

d Revocable Credit

In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary Here the bank enjoys liberty

e Irrevocable Credit

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 13: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

In this case the issuing bank can not cancel amend or modify the credit at any way

f Beneficiary

Beneficiary is the party in whose favor the letter of credit is issued Heshe is the seller or buyer

g Applicant

The person who requests the bank to issue LC can be termed as applicant The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer

h Advising Bank

Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary

i Issuing Bank

The issuing bank is one which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with Especially the issuing bank should satisfy himself on the credit worthiness of the applicant

j Confirming Bank

The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank

k Negotiating Bank

The bank which is nominated or authorized by the issuing bank to pay to incur deferred payment liability to accept draft or to negotiate the credit Normally negotiating bank is the banker of the beneficiary

I Reimbursing Bank

The bank which is authorized to honor the reimbursement claims in settlement it is normally the bank with which the issuing bank has account from which payment is to be madeFunctions of Foreign Exchange Department

The foreign exchange department is mainly divided into three wings in accordance with major activities The wings are shown in the following diagram

Figure-6 Different sections of foreign exchange department

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 14: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Source Primary

a Import Section

This section helps LIC opening and post import financing In case of import the importers are asked by their exporters to open UC so that their payment against goods is ensured Hence import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer

i LC Opening Process

At first the importer will request banker to open UC along with the following documents

LC application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number LC authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL

After receiving the LC authorization form and other documents the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form

ii Verification of the Application

The branch officials verify all the information given in the application carefully with special emphasis on the following points

Whether the required columns of the application form are duly filled in prescribed manners

Whether the LJC application is stamped properly Whether the items to be imported are e or not

Foreign ExchangeDepartment

Export SectionImport Section Remittance Section

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 15: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Whether the terms and conditions stipulated in the LC form are consistent with the Bangladesh Bankrsquos foreign exchange guidelines

Survey report or certificate in case of old machinery

iii Sanction of LC

The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority The authority examines the documents terms and conditions and makes correction if necessary and then approves the opening of LC After obtaining the approval of the brandi incumbent authority to LC proposal the respective officer will pass the vouchers Thereby particulars of LC are entered in the LC opening register and get LC number Then the transmission of LC is done through airmail to the advising bank

iv Advising an LC

Generally the advising bank is situated in the beneficiary county It becomes customary to advice a documentary credit to the beneficiary through an advising bank The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase

v Import Procedure

The import procedures are as follows

The buyer and the seller complete a sales contract provided for payment by documentary credit

The buyer instructs his bank to issue a credit in favor of the seller The issuing bank then sends message to another bank The advising bank informs the seller through his bank that the credit has been issued The seller receives the credit and he informs the buyer that he is in the position to lead

the goods and dispatch The seller then sends the documents evidencing the shipment to the bank where the

credit is available

The bank checks the documents against the credit If they meet the requirements of the credit the bank then makes payment accepts or negotiates according to the terms of the credit The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents if they satisfy the terms on condition of the credit the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank The buyer sends transport documents to the carrier who will then proceed to deliver the goods

b Export Section

This section deals with export trade financing Readymade textile garments jute jute-made products frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries Garments sector is the largest sector that exports the lion share of the country export Most of the exporters who export through BBL Motijheel Corporate Branch

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 16: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

are readymade garment exporters They open LC in this branch to export their goods which they open against the import LC opened by their foreign importers

i Export Procedure

The export trade of the country is regulated by the import and export act 1950 There are a number of formalities that an exporter has to fulfill before and after shipment of goods These formalities are enumerated as follows

The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import amp Export (CCI amp E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCIampE and holds valid export registration certificate (ERC) The ERC is required to be renewed every year The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports

After having the registration the exporter applies for getting EXP form along with trade license ERC and certificate from the CCIampE

Upon registration the exporter may proceed to secure the export order This can be done by contracting the buyers directly through correspondence

During making contract the exporter has to be mentioned description quantify amp price of the goods and shipment insurance inspection attribution etc

After making the deal and on having the Ic opened in his favor the exporter starts for procuring or manufacturing the contracted goods

If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that

After completing the above formalities the goods are sent for shipment

c Remittance Section

Remittance means transferring funds from one place to another place Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place Banks take the risk and ensure payment to the beneficiary by charging the customer a commission

Modes of Payment of Export

The payment of export bills is made in the following ways

a Sight PaymentWhen the payment is made immediately after presentation of documents is called payment at sight

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 17: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

b Deferred Payment

If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments Deferred payments may be at rate of 30-60- go-I 80-360 days

c Acceptance Credit

If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted The exporter can then represent it for payment on maturity Alternatively he can discount it in order to obtain immediate payment

d Negotiation Credit

If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit

FUNCTIONAL DIVISIONS OF BBL

The BBL has a centralized banking structure through online banking system that resembles the ABNAMRO Model BBL consisted of four major divisions namely- Retail Banking SME Division Corporate Banking Treasury Division Other important division are Credit Administration Loan Administration Trade Fin IT HRM CCU Internal Control etc which work to support the major business divisions

RETAIL BANKING

RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks In BBL retail section has been divided into two parts ndash

Distribution ndash Serve the acquired customers Sales ndash Business acquisition

They both are interdependent and work closely with each other Retail offers different types of competitive banking products to the customers The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention

RETAIL DEPOSIT PRODUCTS

Current Account

Saving Account (Maximize and Normal Saving Account)Deposit Premium Scheme (DPS)Short Term Deposit (STD)FDR

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 18: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

RETAIL LOAN PRODUCTS Jibondhara Loan Utsab Loan Executive Loan Education Loan Fast Loan Travel Loan Home Loan Auto Loan

SME DIVISION

The biggest operational division of BBL is the SME (Small amp Medium Enterprise) Division SME is directly related to business of the bank BBL extends loans to potential small and medium trading manufacturing and service enterprises This loan is able to provide quick and quality banking services to targeted business at any places of the country Potential women entrepreneurs will also get the facilities of SME loan this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment BBL was titled to be the fastest growing bank in 2008 amp 2009 and it had a profit of 250 corer taka The profitability of the bank came mostly from the SME sector SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country

STRUCTURE OF SME DIVISION

Field Level In the field level there are three types of designated BBL staff operates They are Relationship Manager (RM) Relationship Officer (RO) and Assistant Relationship Officer (ARO)

CORPORATE DIVISION

Like SME corporate department has also two different wings - Corporate Banking division amp Cash Management

CORPORATE BANKING DIVISION

Corporate Banking is a specialized area of BBL which addresses the diverse financial needs of Corporate Clients

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies) NGOrsquos trading houses joint ventures and various government bodiescorporations etc As the financial partner of choice for the corporate sector BBL wants to be distinguished by its

Quality of service

Value of innovative solutions Level of trust with clients Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 19: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Corporate clients can access a wide range of financial services offered by corporate banking division including

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each companyrsquos needs This range includes both funded and non-funded facilities Following are some of the products that BBL offers to its clients

Corporate Finance Loan Syndication Project Finance Short and Medium term FinanceCredit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit Guarantee Performance Security Advance Payment etc Lease financing

Target Market

Pharmaceuticals Toiletries Chemicals and PesticidesPower Generation oil exploration Industrial and household gases (Liquid Petroleum Gases etc) Edible oil Bulk Trading ndashEssential Commodities Industrial Raw Materials Agricultural Inputs Cement

Garments Textiles and related backward linkages industries including spinning Knitting Yarn Garment accessories etcFood Processing and Beverage IndustriesCable and Cable wire Information TechnologyLeasing CompaniesNon Banking Financial InstitutionsHealth service Industry Non Governmental OrganizationsImportersdealers of machinery Industrial Electrical equipmentEducation Institutions Bone china Ceramics Melamine plastic products Manufacturing and Trading of Consumer Durables Telecommunication and Contractor FinanceShip Breaking Re-rolling Corrugated Iron (CI) Sheet Mfg and related businessAir Lines Shipping Lines Freight Forwarders Testing Inspection agencies Footwear and LeatherTarget Customers Group

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 20: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Leading Domestic Corporate and Trading HousesLocal medium and large corporateEducational InstitutionsTRS division also has Priority Service System for their Corporate Customer which manages their business finance and cash resources very conveniently Priority Service Banking includes the following special servicesPick-up amp Delivery ServicesAuto fax ReportCorporate Help LineInward Remittance InformationExpress PaymentLiquidity this division borrows money from other financial institution on the same basis On the other hand the back office keeps records of the fund position of the bankKKEYEY A ASPECTSSPECTS R RELATEDELATED TOTO THETHE M MARKETINGARKETING OFOF SME P SME PRODUCTSRODUCTS ININ BBL BBL

DEMAND CREATION

The SME division of BBL basically provides micro credit loans to small and medium enterprises Because of its unique nature the demand for SME loans is different in nature to the demand for corporate or SME loans A huge portion of the target market has traditionally been neglected by the banking sector and hence is ignorant about banking activities Thus awareness building has been and still is a vital activity of the demand management process of SME loans The process flow of demand creation is as follows

The RM plays a vital role in all the stages of demand creation apart from market identification and product development They provide door-to-door services for the clients and at the same time are always in search for potential new clients Because clients are ignorant about banking products that may satisfy their needs the RM identify their needs evaluate their requirements and determine which products are most suitable for them

The major security of the SME products is building relationship between clients and banks Demand basically comes from two groups new customers and repeat customers Because

Market Customer Needs

Identification

Awareness Creation

Product Development

Relationship Building

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 21: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

banks are facing new marketing realities like changing demographics slow growth economy more sophisticated competitors etc BBL cannot afford to lose clients The key to customer retention is superior value and satisfaction As BBL recognizes this fact repeat borrowers of SME products enjoy lots of extra benefits

MARKET SEGMENTATION

The market consists of many types of customers products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives BBL segments the market for banking products into three categories based on the nature of the consumer

TABLE MARKET SEGMENTATION OF BBL

Segment Target Market

Corporate Enterprises with loan requirement of Taka 600 lacs or more

Small amp Medium Enterprise Enterprises with loan requirement of Taka 5-500 lacs

Retail Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories BBL is trying to serve niche markets where there is ample opportunity for growth

Within SME the market is further segmented on the basis of the nature of the business as follows

TARGET CUSTOMERS

SME Market

Trading Manufacturing Agriculture Service

Wholesale

SME

Mills

Bakery

General Stores

Press

Factory

Food

Beverage

Poultry

Pathology

Hospital

Schools amp Colleges

Dairy

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 22: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

To succeed in todayrsquos competitive marketplace organizations must be able to hold on to its customers by delivering greater value In order to do this an organization must be able to identify the customers who would be benefited from their products BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products However BBL does not finance business startups The business has to be at least two years old to avail the SME loan facilities offered by BBL Most of such businesses are sole proprietorships There are some partnerships as

Well but limited companies are rarely seen in this category The survey that I had conducted brought up the following results as common characteristics of the respondentsThe mean age of the respondents was 3871 years and mode was 33 years

7150 of the respondents did not pursue education after completing their HSC 4450 of the respondents did not complete HSC

The average working capital requirement of the respondents per month was almost Tk 28000

Thus the target customers can be classified as the entrepreneurs who have little or no formal education between the age group of 30-40 years and having working capital requirement of around Tk 30000

MARKET POSITIONING

Every product must have a unique proposition that will enable it to fulfill the customersrsquo needs In case of loans there are four factors that might influence the clientsrsquo decisions regarding the selection of a loan from a bankInterest RateCollateralTime Involved in Acquiring the LoanRepayment Scheme and Tenure

Not all factors influence every segment of the market In the survey conducted the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL

DEVELOPING THE MARKETING MIX FOR SME LOANS

PRODUCT

In order to serve the market more efficiently BBL has designed various products that will be able to satisfy the needs of the clients The summary of all the SME loan products of BBL can be found in Appendix III However a few important factors are worth mentioning here

TABLE 2 DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Digun Loan

Apurbo Loan

Business Equity Loan

Purpose To expand the To To expand To To To

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 23: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

businessexpand the business

the business

expand the business

expand the business

expand the business

Loan Size 3 -9 lac 10-50 lac 3-25 lac 10-50 lac 5-50 lac 10 lac to 3 crore

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment Monthly Installment of Full Volume

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market The different loan sizes are set to attract enterprises of different sizes Loans are approved on the basis of inventory and total receivables Usually up to 75 of the average inventory and receivables is granted as loan

PRICE

The price of loans is actually the interest paid for it and the charges fees or commissions associated with it In case of BBL the pricing for SME products are as follows

TABLE PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Interest Loan Processing Fee

Anonno Loan 1780 pa 25 of loan amount plus VAT

BIZ loan 1780 pa 1 of the loan amount plus VAT

Durjoy Loan

1880 pa15 of loan amount plus VAT

Digun Loan 178 pa 1 of the loan amount plus VAT

Apurbo Loan 178 pa 1 of loan amount plus VAT

Business Equity Loan

178 pa 1 of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements

PLACE (DISTRIBUTION)

BBL offers loans to SME clients all over the country However loans are processed centrally in the SME Division of the Asset Operations Department The base unit of the distribution channel of the SME Department is the Unit Office There are 2-7 LOs in each unit office based on the market potential of that particular unit The LOs are responsible for the grass-root level distribution of SME loans At present there are almost 1050 LOs operating in the country

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 24: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

The distribution channel of SME loans is as follows

The country is divided into 7 territories There are 36 branch and 30 Unit Offices in the country

PROMOTIONDue to the nature of clients direct marketing techniques are very effective for the promotion of SME loans of BBL BBL has two main types of promotional activities

Door-to-Door Service The SOs identifies potential clients and reaches them with loan offerings Most of these clients are illiterate and do not maintain any financial documents The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening transaction etc Flyers amp Brochures For the more educated clients BBL provides flyers and brochures in the unit offices as well as in the branches These flyers contain specific features of the product they advertise However as this type of promotion is handled by the Marketing Department it would not be within the scope of this report to discuss more elaborately on this promotional tool

AANALYSISNALYSIS OFOF SME L SME LOANOAN ININ BBL P BBL PRESENTRESENT S SCENARIOCENARIO

DDEFINITIONEFINITION OFOF SME L SME LOANOAN

There are a lot of confusions regarding the definition of SME loan within the banking sectors For example BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac In Standard Chartered Bank however SME loan starts from Tk 1 lac Again in the NCBs SME loan includes even smaller enterprises with loan requirements of Tk 5 lac However for the context of this report SME loan will be counted as enterprises with loan requirements of Tk 3 lac50 lac

IINVESTMENTSNVESTMENTS ININ THETHE SME SME LOANLOAN S SECTORECTOR BYBY THETHE B BANKINGANKING I INDUSTRYNDUSTRYCCATEGORYATEGORY--WISEWISE M MARKETARKET S SHAREHARE

Business development manager

Relationship manager

Relationship manager

Sales officer

Sales officer

Sales officer

Sales officer

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 25: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

The market of SME loans is dominated mainly by the BBL with a market share of 5337 The total size of the market is Tk 45652 billion Category-wise distribution of SME loans in the banking industry is shown in the following table

TTABLEABLE B BANKANK C CATEGORYATEGORY--WISEWISE D DISTRIBUTIONISTRIBUTION OFOF THETHE V VOLUMEOLUME OFOF SME L SME LOANSOANS

Figures in 000000 BDT

Volume Percentage

SCB 23294 5337

BBL 11125 2549

CBL 2450 561

EBL 6778 1553

Total 43647 10000

The top ten market players in the consumer banking sector and their market share are shown below

RREASONSEASONS B BEHINDEHIND THETHE D DOMINANCEOMINANCE OFOF BBL BBL

There are various reasons behind the dominance of BBL in the SME loan sector Unfortunately BBL which are supposed to support the SME loan sector could not make such a dominant presence in the industry

The lowest interest rate is in Agrani Bank which has an average interest rate of 750 only The highest interest rate is in BBL which is 1705

CCOMPARISONOMPARISON OFOF THETHE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR P PLAYERSLAYERSThe trend for the top ten market share holders is as follows

This figure depicts the rather poor condition of the BBL The BBL have experienced stagnant or negative growth during these three years BBL and HSBC Bank have grown at a consistent rate during this period Standard Chartered Bank has also made remarkable progress during this period Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate

The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows

TTABLEABLE G GROWTHROWTH R RATEATE FORFOR THETHE T TOPOP T TENEN SME SME LOANLOAN I INVESTORSNVESTORS

Bank 2008 2009Agrani Bank 584 023

Sonali Bank 3836 1563

Janata Bank -1506 1031

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 26: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

IFIC Bank 3885 2649

BRAC Bank 8175 4862

CBL 1231 1585

SCB 354286 6013

RKUB 1212 -025

BBL 32865 1683

BSB -1051 -6338

In both 2004 and the highest growth rate was achieved by Standard Chartered Bank- 354286 and 6013 respectively However as the bank has started SME loan banking only in 2004 this growth rate is expected Same is the case for Brac Bank Limited which has experienced a growth of 32865 in 2003 The growth rates for the BBL are less because of the following reasons

Huge Volume The NCBs are the market leaders in the SME banking segment Because of the huge volume of SME loans they have already achieved it is impossible for them to sustain the same growth rate Existence for a Longer Period The BBL have started consumer banking in the 1990s It is impossible to maintain a high growth rate for such a long time The SME loan market has almost reached the maturity stage for the BBL

Aggressive Marketing by the BBL After their emergence in the SME loan sector in the early 2000s the BBL have adopted an aggressive strategy in marketing their SME loan products This has enabled them to snatch away a considerable portion of the SME loan market from the BBL As they could not compete with the interest rates they provided other facilities like minimum collateral and shorter processing time

SME SME LOANLOAN B BANKINGANKING ININ BBL BBL

CCONTRIBUTIONONTRIBUTION OFOF THETHE M MAJORAJOR B BUSINESSUSINESS D DIVISIONSIVISIONS

As is shown from Figure 2 BBL is one of the major investors in the SME loan segment of Bangladeshrsquos economy with a market share of 378 Even within the bank SME loan consists of a major portion of the total loan portfolio The bank policy requires that at least 50 of the total loan portfolio should be allocated to SME loan The contribution of SME loans in BBLrsquos loan portfolio is shown in Figure 6

The contribution of SME loan in the overall loan portfolio was highest in 2003 at 6114 However in 2005 the contribution has decreased to 4245 This is mainly due to the managementrsquos concentration on SME loan products the share of which has increased from 1755 in 2002 to 3119 in 2006

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 27: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

The total loan portfolio of BBL in the years 2002 2003 and 2004 is shown in the following table

TTABLEABLE D DIVISIONIVISION--WISEWISE L LOANOAN P PORTFOLIOORTFOLIO OFOF BBL BBL

Figures in Million BDT

2006 2007 2008 2009

SME 331 1890 3435 331

Retail 110 578 1229 110

Corporate 184 623 1405 184

Total 625 3091 6069 12027

GGROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

The growth rate in the business divisions of BBL are as follows

TTABLEABLE G GROWTHROWTH ININ THETHE B BUSINESSUSINESS D DIVISIONSIVISIONS OFOF BBL BBL

2007 2008 2009

Retail 47072 8176 4861

SME 42641 11272 20510

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 28: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Corporate 23795 12533 12576

The year 2003 brought about huge growth in all the divisions of BBL As the bank began its operations in late 2001 this was expected Although the growth rate declined in the subsequent years the bank still managed to sustain at least a 100 growth rate in the SME and corporate division But the growth in the consumer division continued to decline drastically through the years 2005 and 2006 This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs

Figure shows that SME has maintained a steady slope over the years whereas the slope for SME and corporate has begun to become steeper after 2005 This indicates that SME and corporate are experiencing a greater growth than SME from 2004

PPRODUCTRODUCT--WISEWISE B BREAKDOWNREAKDOWN OFOF SME L SME LOANSOANS ININ BBL BBL

The first product introduced in SME banking by BBL in 2001 was Jibondhara loan which was an any-purpose loan with a range of Tk 2-8 lacs This loan still remains the most dominant product with a share of almost 85 of the SME loan portfolio After the success of JDL Utsab was introduced with a range of Tk 50 thousand-10 lacs This product also became quite popular and now has a share of 12 HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market namely the health-care and education sector These loans have a combined portfolio share of 25 The most recent loans Digun Rin and Supplier Finance have not made significant progress yet and have a combined portfolio share of 05

Figure Trend of the Volume of Loans (Division-wise) in BBL

0100020003000400050006000

2006 2007 2008 2009

SME SME Corporate

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 29: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

IINVESTMENTNVESTMENT S SECTORECTOR--WISEWISE B BREAKDOWNREAKDOWN OFOF SME PRODUCTS SME PRODUCTS OFOF BBL BBLBased on investment sector BBL has segmented the SME market into 4 categories Trade Manufacturing Agriculture and Services The portfolio share in each of the segments is shown in Figure 9 and 10

Although trading companies have an 8743 share and service companies 157 number-wise the volume-wise share is 8348 and 107 respectively On the other hand manufacturing and agro-based companies have a larger share in volume than in number of loans This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies

SSECTORECTOR--WISEWISE G GROWTHROWTH

If we compare the sector-wise trend of SME loans as is shown in Figure 11 we can see that investment in the trading companies has the steepest curve This indicates the huge increase volume-wise in this sector on a year-to-year basis Service sector on the other

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 30: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Hand has experienced slow increase in volume up to 2005 However if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period Investment growth in the manufacturing sector has also begun to increase from 2004 From these figures it can be concluded that although the trading sector still accounts for the bulk of the portfolio manufacturing and service sectors have enormous potential for growth

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 31: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

PPERFORMANCEERFORMANCE OFOF SME L SME LOANSOANS OFOF BBL BBL

The performance of a loan is determined by the repayment status of that loan A loan has two statuses which determine its performance

Regular Loan When the repayment of a loan is made on time it is considered to be a regular loan A loan is performing as long as the installments of that loan are paid on time

Irregular Loan A loan becomes irregular when the installments are not paid on time or when installments are missed The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted Therefore the actual recovery efforts by the bank start

FFINDINGSINDINGS amp P amp PROBLEMSROBLEMSIIDENTIFIEDDENTIFIED amp R amp RECOMMENDATIONSECOMMENDATIONSFFINDINGSINDINGS

The scenario in the SME sector is quite complex The data analyzed did not indicate any specific trend in the market However the situation can be termed fairly prospective if the market can be properly exploited Based on my analysis I have presented my findings below

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 32: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

However their market share has declined gradually in the last three years The market share of the different categories of banks over the previous three years is shown in the following table

TTABLEABLE C CATEGORYATEGORY--WISEWISE M MARKETARKET OFOF SME L SME LOANSOANS

Figures in 000000 BDT

2007 2008 2009BBL 5448 5059 5103PCB 1611 2090 2437FCB 011 361 5367NSB 2396 2017 1485

In 2006 the market share of the BBL in the SME sector was 5448 which declined to 5103 in 2008 Again the market share of PCBs has increased from 1611 in 2006 to 2437 in 2008 As the PCBs are penetrating the market in the SME sector the growth potential for BBL in the SME sector is increasing year by year

Amongst the PCBs investing in the SME sector BBL has a market share of 4589 It is the second largest PCB behind IFIC Bank in this sector As the PCBs have a market share that is gradually increasing BBL has a tremendous potential to be the market leaders in the SME sector in the near future The growth rate of SME loans of BBL from 2006 to 2008 was 17212 A comparison of the growth rate of the major banks in the SME sector is shown in the following table

TTABLEABLE G GROWTHROWTH R RATEATE OFOF THETHE M MAJORAJOR B BANKSANKS ININ THETHE SME S SME SECTORECTOR

Bank Growth Rate

BBL 1608

Sonali Bank 5998

IFIC Bank 7564

BRAC Bank 17212 Loan Range BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs In such a definition enterprises with lesser loan requirements miss out In the survey conducted the required loan amount of the clients was asked

Interest Rate The interest rate of BBL is the lowest among its competitors Although BBL provides other facilities to its clients the lowest interest rate interests many clients to approach the bank for loans During the survey 3850 of the respondents appeared to be

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 33: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

neutral about the interest rate of SME loans of BBL 35 of the respondents were not satisfied with the interest rate while 175 to18 were happy with it This indicates that many more potential clients were put off by the high interest rates

PROBLEMS IDENTIFIED

When I was doing my internship at The BBL I identified some problems which are presented below

Lack of variety of services is also a drawback of the SME banking area of CBL The bank provides only some traditional limited services to its client As a result the bank falling behind in competition

They are not using data base networking in information technology (IT) department So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system

According to some clients opinion introducer is one of the problems to open an account (SME loan account) If a person who is new of the city ones to open account it is a problem for himher to arrange an introducer of SB or CD accounts holder

Employees are not so efficient those who are in the SME booth (Relationship Manager)

Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive

Though it is local non-government bank it has on-line banking system But most of the executive are not expert to run on-line system

The bank gives SME loan only few sectors like Trade Manufacturing Service amp agricultureThe bank takes long time to process the loan

Lack of proper monitoring of loans

RRECOMMENDATIONSECOMMENDATIONS

On the basis of the above findings I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market

New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference

They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head officeThe problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank

Employees have to be very careful when they process loan proposal Every relationship manager has to be very fast and responsible for goods proposal

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 34: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

At present BBL has been 16 different schemes available but clients are not concerned about that have to create the awareness among the client perfectly advertised about the advantages of the schemes only then clientsrsquo welcome to know

The bank kills enough time of there clients in providing services as it lacks in expert computer operators To remove this lacking I think bank should arrange some sorts of training programs in this sector

The bank need to remove there traditional system and expand to the all sectorNow a day On-line banking system is very much faster and popular in the world So the bank should appoint some efficient people in this sector

There is an existing recovery team for the SME division to monitor the performance of SME loans yet the performance is declining Therefore BBL has to be more careful on this issue In order to improve the performance of SME loans the following steps can be taken

Experienced consultant may be needed to discover new ideas and student with entrepreneurial sprit may also concern in this matter

As the survey and analysis have revealed many SME require a smaller loan size The current loan floor of Taka 5 lacks is actually an excess of funds for them Thus BBL can consider dropping the floor to Taka 3 lack This will increase the market size as well as the prospect for faster growth

CONCLUSION CONCLUSION

Brac Bank Limited is a SME focused bank The prospects of the SME market are great and the market size is also huge Research in this field has only begun recently and the specifics of the market are still not clearly outlined At the same time this market is a risky market as it involves dealing with entities which are prone to default However because of its tremendous potential it is worth taking the risk But in the process BBL has to take care to minimize the risk involved in investing in this sector As the SME sector is relatively new the performance of the loans in this segment cannot be evaluated conclusively yet A cautious approach to the SME market will enable BBL to exploit the prospects of this segment

B BIBLIOGRAPHYIBLIOGRAPHY

Booklet of BBLInformation from officers of BBLAnnual Report of BBLHelpful input from internee supervisor

Policy guideline of BBLBangladesh Economics Review 2009Different types of journals

URLSwwwBBLcomwwwbangladeshbankorgwwwcp-bangladeshorghttpenwikipediaorgwikibank

List of AbbreviationsBBL Brac Bank Limited

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 35: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

AOD Assets Operations Department CBL City bank limited

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 36: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

BSB Bangladesh Shilpa Bank BSRB Bangladesh Shilpa Rin Sangstha

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan

Page 37: brac  SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

CIB Central Information Bureau

CRO Customer Relationship Officers

CSE Chittagong Stock Exchange

DSE Dhaka Stock Exchange

FCB Foreign Commercial Banks

FY Financial Year

HBFC House Building Finance Corporation

IAS International Accounting System

ICB Investment Corporation of Bangladesh

IFC International Financing Company

MBS Millennium Banking System

NCB National Commercialized Banks

NSB Nationalized Specialized Banks

PAR Portfolio At Risk

PCB Private Commercial Banks

PPG Product Program Guidelines

RKUB Rajshahi Krishi Unnayan Bank

SME Small amp Medium Enterprises

HSBC Hongkong Sanghai Banking Corporation

ZO Zonal Officers

SCB Standard Chartered Bank

BIZ loan Business Loan