SME (Small & Medium Enterprise) Banking of Commercial Bank.A study on Mutual Trust Bank Shahparan Branch, Sylhet

SME (Small & Medium Enterprise) Banking of Commercial Bank.A study on Mutual Trust Bank Shahparan Branch, Sylhet

CHAPTER-1

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INTRODUCTION


1.1 Introduction:

Business environment are becoming more and more complex with the passage of time. To

understand and deal with such riddle phenomena, one needs a lot of energy and knowledge. So

business education has become an evolving science, which helps to solve the business problems.

Academic education provides general knowledge about business decision and policies.

Internship as an integral part of BBA provides the opportunity of peeping into real professional

life of the business people. Its enable us to evaluate and understand the practical application of

all the terms and techniques that we have studied during our course work. I was assigned to

complete my internship comprising practical work of 3 months, at Mutual Trust Bank,

Shahparan Branch. In this internship report, I have tried my best to explain the operation of the

branch comprehensively.

1.2 Background of the study :

Internship program is an essential part of the regular BBA program of the department of the

Business Administration of Leading University. It gives chance to a student to get a brief idea

about the professional world. At the end of the program, the students are required to place the

accomplishment and findings of the work through the writing of report covering the topic

assigned to them. The department assigned the report for which the students study thoroughly

about the organizations. During the program each student is supervised and guided by a teacher

of the department. It enables the students to develop their analytical skills and scholastic

aptitudes.

This internship report is generated under the academic supervision of Tahmina Khanom,

Senior Lecturer, Department of Business Administration, Leading University, Sylhet. To

complete the Internship program, I have selected and got opportunity to work as an internee

Mutual Trust Bank Shahparan Branch, Sylhet.

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1.3 Justification of the study

Internship report is a prerequisite for acquiring BBA degree. Before completion of the degree, a student must undergo the internship report. Internship report is a perfect blend of the theoretical and practical knowledge. As the classroom discussion alone cannot make a student perfect in handling the real business situation, therefore it is an opportunity for the students to know about real life situation through this report. This report consists of three phases.

I. Organization orientation to acquaint at the intern’s as whit structure, function and performance of the organization.

II. The work pertaining to a particular problem or problems matching with the intern’s area of specification and organization’s requirement and

III. The report writing to summarize the intern’s analysis findings and achievements in proceeding two phases.

And conclusion is written. It could help improving the existing service.

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1.4 Objectives of the study

General Objective:

The General Objective for the report is to make an analysis of the SME Banking procedure of

MTBL.

Specific objectives:

I. To monitor and understand the activities of the SME Department of Mutual Trust Bank

Limited, and to accumulate practical knowledge on the SME operations.

II. To evaluate importance of SME loan.

III. To identify the requirements to get SME loan.

IV. To recognize the enterprise selection criteria to provide SME loan.

V. To analysis the loan sanctions, disbursement and recovery procedures of SME loans.

VI. To make comparison of different product, services, SME Loan of MTBL & Some other

commercial Bank.

VII. To make some recommendations for further development of SME loan products of

MTBL.

1.5 Scope of the study

Mutual Trust Bank is one of the successful private banks in our country. But the scope of the

study is limited to shahparan branch only. The report covers the organizational structure,

background, function and performance of the bank. I have mainly worked in the SME Banking,

so my report covers all the activities of SME service. Basically focuses on the study on SME

services of Mutual Trust Bank Shahparan Branch.

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1.6 Methodology of Data Collection

Methods of data collection

The ‘‘Primary Sources’’ are as follows-

Face-to-face conversation with the respective Executives & officers of the Bank.

Practical work exposures form the different desks of the various departments of the Branch covered.

Relevant file study as provided by the officers concerned.

The ‘‘Secondary Sources’’ of data and information are-

Annual Reports of Mutual Trust Bank Limited. Periodicals published by Bangladesh Bank. Websites.

1.7 Limitations Of The study

A number of drawbacks appeared during preparing the report and hindered the total work

process. The report may have some incompleteness due to some of the limitation I mentioned

below:

This report may be too narrow because I worked only in one branch instead of different

branches located in different location of Bangladesh. My area of study was limited.

The time period was very short; it is very tough to know the entire service process in

short time period. The Bank was a busy one having heavy rush of people, whom officers

need to deal with. So allocation of time for an intern is very much tough for the officers

of the bank.

I had to focus on the bank job because of high work pressure which leads me hurry to

preparing this report.

I request to overlook the errors in the report by considering my genuine efforts to avoid

these errors by myself.

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CHAPTER-2

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ORGANIZATIONAL

PROFILE


2.1. Banking System in Bangladesh :

The Nation can look back with certain justifiable pride at the achievements of the banking

sector of Bangladesh. In the wake of liberation struggle, the banking structures of Bangladesh

were in shambles in the war ravaged economy of the country. The banking business in the

country was performed entirely by the nationalized banks till 1981/82. Thereafter, some banks

were allowed to function as private sector banks for the purpose of widening the area of private

sector operation. Two nationalized banks, the Uttara Bank and the Pubali Bank Were

denationalized, and they started operation as private commercial bank. The banking system of

Bangladesh has undoubtedly made significant strides during the last years. Banking network

now covers the entire country. Commercial banks play a very important role in our economy; in

fact, it is difficult to imagine how our economic system could function efficiently without many

of their services. They are the heart of our financial structure since they have the ability, in co-

operation with Bangladesh bank to add to the money supply of the nation and thus create

additional purchasing power. This characteristic sets commercial Banks apart from other

financial institutions. In addition to issuing deposits payable in demands, they accept time

deposits. By Lending and investing these resources, and by transferring funds throughout the

nation and even between countries, they make possible a more complete utilization of the

resources of the nation. Although banks create no new wealth, their lending, investing and

related activities facilitate the economic processes of production, distribution and consumption.

Human resource development through training is most crucial for organization growth.

Training is a means to reduce obsolesce among the people in organization in the face of

relentless innovation. Training is the process of increasing the skills and knowledge of

personnel for the purpose of improving individual and organizational performance. Training is

essential for the continued growth and development of both individual employee and the

organization.

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2.2 Background of MTBL

The Company was incorporated as a Public Limited Company in 1999, under the Companies Act

1994, with an Authorized Share Capital of BDT 1,000,000,000 divided into 10,000,000 ordinary

shares of BDT 100 each. At present, the Authorized Share Capital of the company is BDT

10,000,000,000 divided into 1,000,000,000 ordinary shares of BDT 10 each.The Company was

also issued Certificate for Commencement of Business on the same day and was granted license

on October 05, 1999 by Bangladesh Bank under the Banking Companies Act 1991 and started its

banking operation on October 24, 1999. As envisaged in the Memorandum of Association and as

licensed by Bangladesh Bank under the provisions of the Banking Companies Act 1991, the

Company started its banking operation and entitled to carry out the following types of banking

business:

Wholesale Banking

Retail Banking

International Trade Financing

Small and Medium Enterprises (SME) Banking

NRB Banking

Privilege Banking

Card Services

Treasury Operations

The Company (Bank) operates through its Head Office at Dhaka and 103 branches. The

Company/ Bank carry out international business through a Global Network of Foreign

Correspondent Banks.

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2.3 Organizational Chart of MTBLThe expansion of an organization depends on the management style of their organizations. The hierarch of the MTBL is given below:

Table: 1. Organogram of MTBL

Board of Director

Managing Director

Deputy Managing Director

Senior Executive Vice President

Executive Vice President

Senior Vice President

First Vice President

ENTRY LEVEL Senior Asstt. Vice President ENTRY LEVEL

Asstt. Vice President

Senior Principal Officer

Management Trainee Principal Officer

Management Trainee Executive Officer

Senior Officer Probationary Officer

Officer

Junior Officer

Trainee Asstt. Officer Assistant Officer

Computer Trainee Computer Operator

Cashier Trainee Cashier

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2.4 Mission & Vision

Mission

Aspire to be the most admired financial institution in the country, recognized as a dynamic,

innovative and client focused company that offers an array of products and services in the search

for excellence and to create an impressive economic value.

Vision

Mutual Trust Bank's vision is based on a philosophy known as MTB3V. We envision MTB to

be:

1. One of the Best Performing Banks in Bangladesh

2. The Bank of Choice

3. A Truly World-class Bank

2.5 Products & Services of MTBL 1. Accounts Services

Account Balance Information

Transaction Details Information

Customer Feedback & Complaint

2. Card Services

Debit & Credit Card Activation

Card Transaction Details

Card Block, Lost & Stolen Report

Credit Card Balance Inquiry

Card Cheque Activation & Block

Card Replacement

Credit Card Application Status Inquiry

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Credit Card Payment Inquiry

Credit Card Statement Inquiry

Card Dispute Resolving Request

Customer Feedback & Complaint

E-statement Enrollment Request

Email Address Update Request

Complaint regarding E-statement

3. Value Added Services

Internet Banking & SMS Banking related information

Internet Banking User Unlock

Internet Banking Password Recovery

Internet Banking Access change

Internet Banking Mobile number change

Internet Banking User Type change

Complaint regarding Fund Transfer or Mobile top up

Complaint regarding SMS Banking

4. Services

Remittance Send & Receive Inquiry

Exchange House Related Inquiry

NRB Account Balance & Transaction Details

5. Product Information

Deposit Product Information

Loan Product Information

Cards Product Information

NRB Product information

SME Product Information

Value Added Services Information

Application for New Credit Card

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CHAPTER-03

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Overview

Of The Banking Service Of

Mutual Trust Bank Ltd.


3.1 General Banking service:

Customer Service. Accounting Opening. Remittance. Instrument issued by bank. IBS/OBC Collection. Locker Service. Cash & Account Department. Clearing. Transfer.

3.2 Types of Accounts: General Products are:Current Deposit: Interest Rate 0.00%

Individual Account. Joint Account. Proprietor Ship Account. Limited Company Account.

Savings Deposits: Interest Rate 5.25%


Short Term Deposits: Interest Rate 6.00%


Fixed Deposits: Fixed deposit is one, which is repayable after the expiry of a predetermined period fixed by him. The period varies from 1 month to 12 months. These deposits are not repayable on demand but they are with draw able subject to a period of notice.

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3.3 Instrument issued by bank:

Instruments are:

Pay order. Demand Draft. T.T.

3.4 IBC/OBC:

By OBC (Outward Bills Collection), we mean that those cheques drawn on other banks which are not within the same clearing house. Officer gives OBC seal on this type of cheques and later sends a letter to the manager of the branch of the some bank located in the branch on which cheque has been drawn. After collection of that bill branch advices for the concerned branch in which cheques has been presented to credit the customer account through Inter Branch Credit Advice (IBCA).

3.5-1 TRANSFER

Transfers play a vital role in banking sector. So now we have to know what transfer is:

Basically transfer is a type of register maintaining matter. In this register officer write down every day transactions in Debit and Credit side then the officer calculate both the side of the register if both side shown same amount.

3.5-2 Clearing:

Clearing is one of the magical parts of banking. Every bank has an officer of clearinghouse who is work with Bangladesh Bank clearing house. Actually most of major client deposit their account in different kinds of bank cheques. Clearing officer check all the cheques and deposit slip very carefully and then he received the cheque. After that the clearing officer posting all the cheques in computer software which is recognized through Bangladesh Bank computer department. Then clearing officer seal all the cheques in advance date after that the officer endorsement all the cheques and sign all the cheques.All the cheques are posted in the computer by branch wise.

3.6 Foreign Remittance

Foreign remittance is the transfer of foreign currency from one country to another country. In another word, foreign remittance means, remittance in foreign currency that are received in and made out abroad. Actually, foreign remittance is purchase and sale of freely convertible foreign currencies as permissible under exchange control regulations of the country. Foreign remittance

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is very important for the country as valuable foreign exchange is involved in the transfer mechanism. Foreign remittance takes place in two ways-

Figure 3: Foreign Remittance

Inward Remittance

Any person can remit funds to another through Inland remittance by using the following means of remitting funds with charges

Pay order (PO). Demand draft (DD). Telegraphic Transfer (T.T). Mail Transfer.

Outward Remittance

Remittance from our country to foreign countries is called outward foreign remittance. On the other word, sales of foreign currency by the authorized dealer or formal channels may be addressed as outward remittance. The authorized dealers must utmost caution to ensure that foreign currencies remitted or released by them are used only for the purposes for which they are released. Out ward remittance may be made by appropriate method to the country to which remittance is authorized. Most outward remittance is approved by the authorized dealer on behalf of Bangladesh Bank.

Outward remittance may be made for following purposes:

Travel Medical treatment Educational purpose

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Remittance (Inward & Outward )InwardOutward


Attending seminar etc. Balance amount of F.C account. Profit of foreign companies. Technical assistance New exporters up to USD 6,000/- for business promotion

Foreign Remittance Process

Fund transfer from one country to another country goes through a process which is known as remitting process. Suppose a local bank has 200 domestic branches. The bank has corresponding relationship with a foreign bank say-‘X’, and maintaining “Nostro Account” in US $ with the bank. Bangladeshi expatriates are sending foreign remittances to their local beneficiary, through that account. Now, when the Bangladeshi expatriates through other banks of different countries remit the fund to their “Nostro Account” with “X”, then the local bank’s Head Office international division will receive telex message and the remittance section will record the advice and generate the advice letter to the respective branch of the bank. The branch will first decode the test, verify signature and check the account number and name of the beneficiary and intimate the beneficiary accordingly. But sometimes the complexity arises, if the respective local bank has no branch where the beneficiary maintains his account. Then the local bank has to take help of a third bank who has branch there.

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CHAPTER-04

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Theoretical OverviewOf SME Banking


4.0 SME Banking Overview 4.0.0 SME- Background

Small and Medium-size Enterprises (SMEs) have been playing a pivotal role in terms of

economic growth, employment generation, and industrialization (e.g. through entrepreneurship

development). Although the role of SMEs is different at different stages of economic

development, their role is particularly important for developing countries and LDCs. SMEs

development in agriculture and non-agriculture sector in developing countries and LDCs is

strategic for employment generation and rural development.

4.0.1 Definitions & Different Forms

SMEs are characterized on the basis of size, investment and employment in most countries

across the world. Here small enterprises are those which have employed less than 50 persons and

have an investment of less than Tk. 250 million. On the other hand, medium industrial units are

those which have investment between Tk. 250 million and 500 million with the number of

employed workers ranging between 50 and 99.

SMEs do not have any common and universally acceptable definition used in Bangladesh. The

practice of different institution/agencies is to define SMEs keeping their own perspectives and

strategies in view. For policy purposes, it is important therefore to adopt a uniform definition of

SMEs to facilitate regular monitoring of growth and structural change in the sector and evaluate

the impact of policies based on comprehensive information covering the entire SME sector. The

Government of Bangladesh has categorized SME into two board classes-

i. Manufacturing enterprise – where an enterprise would be treated as small enterprise if, in

current market prices, the replacement cost of plant, machinery and other parts/components,

fixtures, support utility, and associated technical services by way of capitalized costs (of turn-key

consultancy services, for example), etc., excluding land and building, were up to Tk. 15 million;

On the other hand, an enterprise would be treated as medium enterprise if, in current market

prices, the replacement cost of plant, machinery and other parts/components, fixtures, support

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utility, and associated technical services by way of capitalized costs (of turn-key consultancy

services, for example), etc., excluding land and building, were up to Tk. 100 million;

ii. Non-Manufacturing activities (trading or other services)- where an enterprise should be

treated as small if it has less than 25 workers, in full-time equivalents; oppositely, an enterprise

should be treated as small if it has between 25 and 100 employees.

Different Legal Forms of SMEs

SMEs can be formed in different legal formats. According to CRISIL Ratings Agency SMEs can

be registered in the following legal forms;

Figure 4: Different Legal Forms of SMEs

In Bangladesh, although there are other forms of SMEs, mainly the SMEs are observed to be

formed as proprietorship concern. Generally, food processing, hand loon factories, leather and

tannery, ceramic, light engineering, electrical and electronics, handicrafts, specialized textiles

and garment units fall in the category of medium and small enterprises. There are also 10000 of

cottage industrial units and a large number of handloom and power loom factories in the country.

Despite having huge potential to flourish, the growth of SMEs in Bangladesh is being impeded

by multifarious problems; both are micro and macro levels.

4.0.3 Several studies on SME & CRM

Karmel and Bryon (2001) depicted closer relation of the SMEs with the equity and capital

markets in USA through GDP and SME’s growth is higher in Europe than USA. Through

efficient use of capital higher price earning share, higher return on equity, higher return on assets

etc. Variables can enhance the SMEs growth and profitability.

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SME

Private Limit Company Public Limited Company Partnership Firm

Proprietorship A Registered Trust A Registered Society

Different Legal Forms for SMEs


Credit risk Management is the core part of a financial institution and on every step of the

procedure the key points should be remind while assessing credit risks. Besides the key

challenges like strategic decisions faced in each steps of the process needed to be taken so that

the probability of risks may be mitigated. Moreover a new design of CRM cycle can be

developed for efficiency. Infosys.

Despite all the constraints of SMEs financing, banks and financial institutions have been

providing finance to the SME sector and the volume of finance is showing an increasing trend.

Most importantly the share of private sector banks in disbursement of credit to the SME sector

has been increasing in recent years comparatively at a higher rate than the NCBs and state owned

DFIs “The Daily New Nation”.

4.1.0 SME & SME Banking

SME- a short form of Small and Medium Enterprises, is now a demanding sector in any part of

the world. As because, SMEs causing an increase of income (GDP) of the economy of a country

as well as helping in reducing and expanding other governmental and social issue. Governments

of the developing countries like Bangladesh have undertaken some expansion and beneficial

measures to enhance SMEs to sustain. Even developed countries like USA, UK, India and Japan

etc are now placing more emphasis on the expansion of the SME sector. SME banking refers of

providing financial facilities through creating different financial packages like deposits, saving

deposits for individual or business person, term deposits, cards facilities, credit deposits etc. To

the SMEs to run business efficiently, so that increasing of income will contribute more in social

or governmental issue like employment generation and thus reducing poverty etc. But as, Credit

Risk Management department works alone with providing financial facilities, financial

institutions finds some risks or issues on providing access of financing to the SMEs. For having

insight, the following parts include an idea on SME and SME banking.

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4.1.1 Scenario of SME and SME banking in Bangladesh

In recent surveys on SMEs in Bangladesh, available information shows that SMEs are increasing

rapidly in Bangladesh, especially since the 1990s. The data on the number of establishments

show that small enterprises grew by 4.6 percent per year over the period FY78 to FY03, while

medium enterprises grew by 6.4 percent during FY 82-FY 03. With special emphasis given to

the development of SMEs, it is likely that these growth rates have continued and probably

increased in recent years. The number of small enterprises increased to 55,916 in 2001 from

24,590 in 1981 (Source: PAU, BB).

In case of the contribution of the SMEs sector to the GDP of the economy, manufacturing SMEs

contribute the highest proportion of 38 percent to GDP; followed by agricultural SMEs (24

percent) and SMEs in wholesale and retail trade and repair activities (23 percent)

4.1.2 Importance of SMEs

In view of the present scenario of all over the world, SMEs are seems to be a very important

sector for developing country especially for the countries of Asia-Pacific region. Because

developing countries like Bangladesh through SMEs, employment increases, the resources are

well-used, as well as it contributes on the GDP of economy through increasing the income

deriving from the SMEs. Here are some reasons for the importance of SMEs-

SMEs are engines of growth for the economies over the world. Globally, SMEs constitute

about 95% of the industrial units in most countries; most of the countries’ GDP and exports are

significant.

A vibrant SME sector is essential for creating a competitive and efficient market.

Because-

Small businesses act as the seed-bed for the development of entrepreneurial skills and

innovations.

The smaller size of SMEs makes them flexible in their approach and ensures expeditious

decision making.

SMEs lower the cost of goods services significantly owning to lower overheads.

SMEs fit regional imbalance of growth, exploit local raw materials and talent.

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SME sector is the largest provider of employment in most countries, especially of new

jobs.

Thus the survey brought out the fact that the large untapped potential for expansion in

manufacture and production could be exploited (or contributing more significantly to the national

economy).

Therefore, Government of Bangladesh pointed SMEs as the trust sector and most important and

gainful sector for enhancing ‘pro-poor economic growth’. And so, refocus on SME financing is

being made every year to access finance to the SMEs properly.

4.1.3 Issues and Challenges Faced by SMEs

Though SMEs have inherent strengths, even it creates importance in contributing the economy of

most of the countries; still there are some issue and challenges that the SMEs are facing. These

are-

Lack of adequate finance- In Bangladesh, a number of financial and non-financial

institutions are providing financial facilities to the SMEs. But still the SMEs are not having

adequate finance.

Lack of adequate infrastructure- The infrastructure of the developing countries like

Bangladesh is not well supportive.

Lack of manpower- From Bangladesh scenario, SMEs are facing the following issue due

to high cost of the oil and other materials worldwide and thus employees those works from early

age for financing problem do not get proper education.

Raw materials & Technology- For expansion and development of SMEs operation

adequate resources are needed. But high cost of raw materials and technologies are not reaching

to this business entity.

Marketing- In present, to run business effectively and efficiently, marketing knowledge

and use of it is important. Though most of the SMEs are run by the employees who are less

educated, cannot access or run the business with efficiency.

Apart from these there are several other issues like, Government policies and regulation, Tariffs

and trade barriers, Low bargaining power, Low level of transparency and Low emphasis on

corporate governance etc. are also challenging to SMEs to operate.

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4.1.4 Risk Involves in Leading to SMEs:

Today, access to credit is recognized as a ‘right’ of people globally. But it seems availability of

finance is thought to be a major constraint to formation and growth of SMEs in Bangladesh.

Banks are reluctant to expand their SME credit portfolio because they do not consider SME

lending an attractive and profitable undertaking. This is so because SMEs are regarded as high

risk borrowers because of their low capitalization, insufficient assets and their inability to

comply with collateral requirements of the banks. Administrative costs are also higher because

close monitoring and supervision the SME operation becomes necessary.

Although all these facts, banks and financial institutions have been providing finance to the SME

sector and the volume of finance is showing an increasing trend.

4.1.5 Recent Developments

In the FY10 budget, the government announced provisions to keep the income of manufacturing

SME articles free from taxes and defined SMEs as entities having an annual turnover not

exceeding Tk.2.4 million, which was 2.0 million earlier. The BB has also adopted a preferential

lending policy to remove obstacles from the way of accessing needed finance by the SMEs. In

order to insure cost effectiveness, BB has given permission to the scheduled banks to open SME

service centers to receive application and disburse, monitor, and recover loans to the SME sector.

The banks have also been allowed to use the SME service centers to receive and deliver foreign

remittance and open separate desks for women entrepreneurs in the SME sector. For promoting

small enterprises, BB has directed the banks that at least 40 percent of their total targeted loan for

the SME sector should be earmarked for financing small entrepreneurs. BB has also expanded its

spectrum of SME financing by including broadband and IT having enormous possibilities within

the service sector activities.

The above developments indicate that financing from formal source to SMEs is growing at a

faster rate in recent years. Since access to finance is one of the key constraints of the SMEs, it is

expected that higher flow of institutional credit would enable the SME sector to expand at a

faster pace with positive impact on growth acceleration and employment generation in the

country.

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CHAPTER-05

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SME Banking At Mutual Trust Bank Ltd.


5.1 SME Banking- The Mutual Trust Bank Limited

Among all the functional areas, SME banking is emerging area for the bank. To serve SME

clientele, recently bank has established 16 SME centers with 85 branches. It is also providing

different banking facilities like- LC, STRL, BG, STL, OD etc. with specialized product namely-

In the year 2010, major initiatives were taken to re-launch SME banking. Organization and

processes are being restructured with focus to enhance business.

The segment of the bank has divided in two parts for efficient and smooth operation. The

segments are namely- SMEM (for medium enterprises) and SMES (for small enterprises). The

bank is providing complete banking solution to SMEs by devising both cash and non-cash based

products appropriate and fit to support the requirements of the concerned businesses. The namely

products above mentioned are the PPG based funded products served to the small

businesses. The needs for medium enterprises are fulfilled through multiple products in the conventional manner.

5.2 SME Scenario up to 2010

MTB SME division started it expedition from 2007. It is progressing toward providing our corporate service for urban, semi urban and rural customer. SME is a growing area of the country and MTB’ strong commitment to this sector is demonstrate by the fact that it offers one of the lowest lending rate in the market for SME client. MTB has accomplished a lot in 2010, with the expansion and diversification of various line especially linkage with micro level customers, sharecroppers, marginal farmers, hawar area beneficiaries’ potential organizational enterprise.

5.3 Special attention for women entrepreneur

In Bangladesh, the women are the most disadvantage group in acceding the finance facility of commercial banks. Women entrepreneur need for bank finance and other banking service depend on customers need to ensure good repayment of loan.

MTB deigned its first women entrepreneur product MTB Bhagyabati. After lunching the product the bank arranged a workshop jointly with SME Foundation for better understanding of access to bank finance for women entrepreneurs. The product MTB Bhagyabati is running successfully. A good number of success stories inspired MTB to design another separate and special product for women entrepreneur who are involved in the manufacturing sector. The product is named MTB Gunabati.

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These to product are design to aid women entrepreneur actual need to develop their business, some special feature are offered to women entrepreneurs in these to product, like low interest rate, collateral free, very small amount of processing system and flexibility in repayment system, sometime give grace period depend on business nature.

MTB women entrepreneurs’ cell in providing all type of support to the women entrepreneurs like arranging workshop for bank financing knowledge, link up with other training, support the women entrepreneur to attend local and international fair to display their product, running business advisory service and dealing with legal issues.

5.4 MTB focused on SME banking Division with products

Since inception of structured SME lending. MTB has given top most priority to rural SMEs. MTB has 67 branches (including 12 SME/Agri branches), all SME/agri branches of them are located in rural area, where there is limited access to modern banking facilities as well as access to credit. Say, they have opened MTB Dhanbari SME/agri branches, MTB Gaffargaon SME/agri branches, where there is no branch of other private bank.

MTB has developed specific loan product to serve the different sector of SMEs, renewable energy, agriculture, women entrepreneurs etc. the product are briefly described below:

MTB Gunabati: designed to finance the women led SMEs ho are engaged in only manufacturing business that is 100% pre-financed by SME foundation. E apply single digit rate of interest, i.e. 9% p.a under the MTB Gunabati loan scheme.

MTB Bhagyabati: designed for the women entrepreneurs which is 100% re-finance by Bangladesh bank.

MTB Mousumi: designed to finance the SMEs who are engage in seasonal business. MTB Krishi: the loan scheme to finance in the agri sector and it subsector. MTB Revolving Loan: designed to meet working capital requirement to support their

continuous growth. It is a CC (H) & Revolving type Loan. MTB Digoon: the product design on the basis of FDR. MTB Small Business Loan: designed for all type of small business requirement. MTB Microfinance: designed for the NGO (MF-NGO) the supply wholesele credit for

onward lending their beneficiary members in the form of micro credit.

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5.5 MTB SME market strategy, why different?

MTB SME division drives to promote customer friendly service from grassroots level to urban Customer by ensuring faster service with low cost. MTB explore and finance innovative and ecofriendly projects and provide banking access to untouched market. MTB have linkage programs with local and international organization to reach the banking services in proletariat level all over the country. Our counseling service to the custoner has positive impact on improving their capacity building which enable them easy access to credit.

5.6 Activities in 2014

To reach MTB visions and mission, MTB SME division arranged many training programs, workshop, fairs and visited rural based customer. Some momentous programs are, Barguna model inaugurated by Dr. Atiur Rahman, Governor of Bangladesh Bank and “MTB Gunabati” pre financed by SME foundation, the programs are attended by Mr. Dilip Barua, Honorable Minister, Ministry of industries, training and discussion with farmer about Krishi loan and solar irrigation at Bodogsasa, Noga, MTB SME division attended ICC conference, on energy for growth, fast renewable energy finance training course, MRA international conference, renewable energy technology in agriculture and economy.

5.7 MTB SME outlook 2015

MTB SME Activities are running fast to develop country’s SME market and overall economic growths. During the last fiscal year 2014 MTB has disbursed BDT 4698.60 million, including agri loan. In 2015 MTB planned to finance the potter/kumars who are engaged in clay modeling, marking earth area and various items. Pottery items are very creative, fashionable. It’s huge demand in the market.

For sustainable agri. sector need to develop the integrated model for agri. financing, MTB has planned to develop the new model. MTB has started groundwork and got positive feedback from the concerned parties. Under this model all the farmers in a particular farming land, say farmers of 200 or 300 acre land will have access to agri. credit in every sowing season for purchasing better seed, fertilizer, patricide etc. and repaying the loan after harvest.

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CHAPTER-06

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SME Performance


6.1 SME Performance

Usually, in CRM, HOCRM monitors all the works performed by the RMs. To monitor efficiently, MTBL introduced software called LPTS (Loan Proposal Tracking System) where each RMs have to put all the information of loan proposal like- receive date, call report date, application date, limit amount, maturity etc.But in this part the performance is measured to assume the situation of SME not in accordance with LPTS but the % amount of regular loan transaction and NPL as well as the efficiency of MTBL.

In the first 3 months, MTBL’s SME segment of CRM division has approved a good number of credit proposals. In January 2014, the amount was about Tk. 6377.15 million that decreased in February to Tk. 4010.27 million. But again it recovered to Tk. 7406.3 million in March 2014.

Approval amount for SME in first 3 months ’14.

But in 2014 the first three months shows a decreasing position of proposal returned and proposal declined. Because an increasing trend of declining or returning proposals indicates loosing income from loan disbursement.

Again, in case of efficiency of CRM’s management, amount of proposal under process in first 3 months in 2014 shows increasing trend. In March, Tk. 1983.12

Million in amounts of proposals under process has increased. It means it is taking time to assess the proposal due to some queries that arises while assessing and so the graph interprets inefficiency of the management; but comparing to approved proposal it shows an efficient management procedure as the approved amount is higher i.e. Tk. 7406.3 million in March 2014 in figure 7 then the amount of Proposal under process showed in above graph.

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6.2 ANALYSIS

This chapter focuses on the analysis part that is done to verify the actual financial performance of CBL. In this part 4 types of analysis are performed.

Performance Analysis Trend Analysis Marketing Analysis SWOT Analysis

Each and every part has been determined with clarity. In performance analysis, the evaluation has been made in comparison with the Industry average situation. Industry data has been collected from the BB source. SWOT analysis for MTBL has also been done and pointed out briefly.

6.2.1 Performance Analysis

Performance analysis explains an institution’s financial position that is depended upon various factors as like assets utilization, capitalization, loan disbursement, cash management etc. even managerial decisions like credit decisions derived from credit risk management. In this analysis section, performance analysis is executed to determine the MTBL’s financial performance to industry and SME NPL situation.

MTBL’s Business Segment-wise NPL Position:

MTBL provide credit facilities through its different segments as shown in the Graph 6-6. But the NPL position for 30th June 2014 shows deteriorate situation. Because, the Corporate and the SME-M segment has a highest amount of Bad/loss loan respectively Tk. 80.45 million and Tk. 77.65 million. But others situation are not in danger. MTBL should take necessary action for recover the bad/loss loan amount.

In total, the NPL amount in 30th June 2014 is Tk. 260.85 million. From comparing with each Business segment, Corporate has the highest NPL Tk. 137.99 million, then SME-M Tk. 95.23 million and SME-S Tk. 10.81 million. The below Graph 6-6 shows the percentage of these NPL’s to total NPL amount.The NPL target of MTBL was 5% in 2014. In 2013, MTBL’s target was below 6% but unfortunately the ratio was at last 6.30%.

6.2.2 Trend Analysis

Trend analysis is a forecasting technique that relies primarily on historical time series data to predict the future. For this research report the trends are discussed for the credit related factors like total loan disbursements, position of unclassified and classified loans amount etc. For this trend analysis related data of loans and advances of MTBL for 5 years are shown in below table-

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Table 6: Trends for 5 years of Loan related factors (Tk. in million)

Particulars 2009 2010 2011 2012 2013Total Loans and & Advances

Unclassified Loans

SME Loan

Classified Loans & Advance

Sub-Standard

Doubtful

Bad/Loss

17027.84

15228.14

-

1799.70

15.32

51.53

1732.85

23326.34

21994.70

278.29

1331.64

51.29

207.80

1072.55

30789.022

28579.29

908.235

2209.73

100.45

175.95

1933.33

26788.47

25117

2287.87

1671.84

348.08

129.86

1193.90

34420.94

32251.14

505.98

1169.81

286.73

461.79

421.29

Unclassified Loans & Advances

In the above Table, it seems MTBL’s unclassified loan and advance in increasing. If we take a closer look then we can find that there is an upward trend in the unclassified loans and advance, it is good sign for them, and the Mutual Trust Bank’s unclassified loan in 2013 stood 32251.14 million which is higher than the previous 4 years. This indicates that the Mutual Trust Bank follows a good credit policy and they are careful to give any low quality loan.

SME Loans and Advance

SME Loans are the credit types that arises when the dues arises, still MTBL includes these loans as unclassified loans.

From 2010 to 2013 the amount of SME loans increases but in 2013 suddenly it fell down to Tk. 505.98 million from the peak point Tk. 2287.87 million in the year 2009 from the above Table 6. Through it has decreased, the previous years’ increasing situation shown an upward trend of MTBL’s SME loans which should need to monitor so that it would not get worse further.

Classified Loans & Advance or (Non-performing Loan)

MTBL’s Non-performing Loan has decreased over the last 5 years. In first 3 years the amount of NPL fluctuates and in 2009 it reached to peak at Tk. 2209.73 million and then suddenly decreased. In 2011 NPLs decreased to Tk. 1169.81 million. That means the City Bank performed successfully their lending operation over the last couple of years.

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Sub Standard Loans and Advance

Trend of Sub-standard Loans & Advance of MTBL over 5 years

Sub-standard is another category of NPL that due for 6 months or above unfortunately the MTBL’s Sub-standard Loans and upward trend which is not a good sign for MTBL.SS loans reached to peak point in the year 2012 in Tk. 348.08 million but started to decrease that was Tk. 286.73 million in the year 2013.

Trend of Doubtful Loans & advance over 5 years of MTBL

Over the last five years the MTBL’s Doubtful loans and advance has also increased. This is a signal for the bank to take immediate action about these loans and advance. Through for the first four years it has decreasing trend, but sudden increase at Tk. 461.79 million in 2013 from Tk. 129.86 million changed the trend to upward.

Bad/Loss Loans and Advance

Trends of Bad/Loss Loans & Advance of MTBL over 5 years

There is a downward trend in the amount of MTBL’s bad/loss Loans amount the last five years. Among the years they reduced their Bad/Loan from Tk. 1933.33 million which was at peak point in the year 2011 to Tk. 421.29 million. It is a good sign for the bank’s reputation. This indicates that their risk management technique is very good.

Trends of the Provision against Classified and Unclassified Loans & Advance of MTBL

According to BB, all banks keep a provision for all kind of loans in a required rate. In the below Table, the provisions for Unclassified loans decreased in the year 2013 but for NPL’s increased in the same year.

Trend of 5 years of Loan related factors (Tk. In millions)

Particulars 2009 2010 2011 2012 2013Provision for classified Loans& Advance (As on 31 December)

Provision for Unclassified Loans & Advance (As on 31 December)

943.91

149.66

413.87

250.79

943.26

334.03

462.78

500.83

779.80

420.20

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That means in the last five years they emphasized more on classified loans and advance and deemphasized on unclassified loans and advance. As a result they succeeded in monitoring the NPLs but failed to maintain the unclassified loans.

NPL/Total*100

Same calculation is done for Unclassified Loans. The below Table 7, the situation is positive as the ratios for NPL to Total loan is in decreasing trend.

Table 7: Trends for 5 years of Loan related factors (%)

Particulars 2009 2010 2011 2012 2013Non Performing Loans to Total Loans & Advance

Unclassified Loans to Total Loans & Advance

10.57

89.43

5.71

94.29

7.18

92.82

6.24

93.76

3.40

93.70

Classified Loan (NPL) to Total Loan

From the below table, it seems that the MTBL’s classified loan amount decreased in last three years comparing to Total Loans and advances MTBL disbursed which increased in the year 2013. It means, the CRM division of MTBL is well efficient in managing NPL’s.

Classified Loan to Total Loan over 5 years in MTBL (Tk. In millions)

Particulars 2009 2010 2011 2012 2013Classified Loans or Non Performing Loan (NPLs)

Total Koans & Advance

1799.70

17027.84

1331.64

23326.34

2209.73

30789.022

1671.84

26788.47

1169.81

34420.94

Unclassified Loan to Total Loans and Advance

Below Table shows an increasing situation of unclassified loans for MTBL for the 5 years. Comparing with total loans unclassified amounts increased as it is seen in the year 2013 i.e. Tk. 32251.14 million. It can be said a positive trend exists in between the unclassified loans to total loans.

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Unclassified Loan to Total Loan over 5 years in MTBL (Tk. in Millions)

Particulars 2009 2010 2011 2012 2013Unclassified loans and advance

Total loans and advance

15228.14

17027.84

21994.70

23326.34

28579.29

30789.022

25117

26788.47

32251.14

34420.94

As in above Table, the shows an increasing trend of unclassified loans to total loans of MTBL for the 5 years. From the Table, in year 2013, the ratio amount is higher i.e. about 9% but afterwards it went down and again started to recover from the year 2014. Though the trend is upward, it can be judged that the CBL is efficient in managing risk but it should also be careful for wealth and profit maximizatio

6.2.3 Marketing Analysis

In my point of view this is the weakest part of the bank. Currently they are not focusing on the marketing strategies; basically the bank has both functions commercial and loaning. But the whole focus is on the loaning function, they are totally neglecting the commercial one. They don’t have any kind of marketing or advertising campaign and they are not advertising through any king of media.

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6.2.4 SWOT Analysis

Every organization is composed of some internal strengths and weaknesses and also has some external opportunities and threats in its whole life cycle. This following will briefly introduce the customer to The MUTUAL TRUST Bank Limited’s internal strengths and weaknesses, and external opportunities and threat.

Strengths Stable source of fund. Strong Liquidity position. Concentrated market. Wide network of branches. Experienced top management. Diversified product line.

Weaknesses Deposit is lower than advance. Officer has limited experience and training. Small market share in Banking-business. Long-term credit is not sufficient. Relatively high overhead expense. Problem in Delivery.

Opportunities Favorable regularity environment. Private sector development. Credit card business. SME and Agro based industry loan. Can increase the advertising of the Bank.

Threats Deposit as well as quality assets. Market pressure for lowering the interest rate. Shrinkage in export, import and guarantee. Poor business due to economic slump and war. Frequency in Currency Devaluation. Emergence of Competitors. Govt. Pressures to reduce interest rate.

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CHAPTER-07s

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Findings, Conclusion,

&


Major Findings of the Study

Out of my problems, cumbersome procedure by Government agencies, taxation and other charges promoting lack of documentation or incorrect documentation done by SME department, inconsistent government policies discouraging entrepreneurs to develop long-term vision, lack of formal technical education, non-internalization of new technologies, lack of basic infrastructure, finance, marketing etc. and most important of all, these factors discouraged commercial banks and other loaning institutes to extend financing to SME sector. Some of the other problems are described below:

Poor record keeping by SMEs, particularly the accounting information. Lengthy and cumbersome application procedures, which discourage SME. Poor operational performance. The limited knowledge of financing options for the SMEs. Stringent collateral requirements and other banking regulations. Lack of skills in banks for identifying needs and structuring the delivery of financial

assistance to SMEs Lack of marketing practicing in bank to promote their product. Approval from the head office takes weeks. No promotion campaigns run by SME department, like sponsorship etc. There was lack of understanding between the credit and commercial department. Less focus on customer convenience because use to wait for the cash teller to come and

facilitate him.

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CONCLUSION

The report is aimed at studding and understanding the SME and various product offered by the MUTUAL TRUST Bank Limited to its clients. In addition, the report also studies how the bank has managed credit risk on behalf of SME.

The MUTUAL TRUST Bank Limited is in leading position in financial Institutional sectors in Bangladesh. The financial performance of the bank is recent years SME growth is pretty well.

The SME sector in Bangladesh holds enormous opportunities to contribute to economic growth, and reduce poverty. The sector, however, has a very limited access to finance through the institutional source. In this context, CRM should need to be restricted and redesigned for efficient use while assessing risks in case of SME financing.

For developing the SMEs in Bangladesh, it is important to analyze the overall financial issues facing these enterprises and understand the specific features of SME firms. Because these firms are small, they find it more difficult to access institutional finance especially when they need it due to their specific information problems.

The basic function of SME department is to provide loans to Small and Medium enterprise. SME department tries to provide a friendly environment to its customers and try to win the trust of its customers. Talking about the current scenario, the financials of SME departments shows it in losses but trying to recover. It also has some internal problems like conflicts between departments. Most importantly it is not focusing on its marketing activities due to which its customer base is week. Employees of the organization are not satisfied due to lack of job security which reduces their motivational level. To be at the top SME should focus on its marketing activities and should bring something innovative to change its current position in the mind of the customer.

Overall, the bank must make a positive attempt to be more onward looking in their goals and aware of what is happening. They must also emphasize on the domestic scenario more closely and analyze any certain trends and strategies of their competitors. The bank must accept any failures and thick of them as an objective to pursue future goals instead of blaming such failures on other factors.

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RECOMMENDATION

Following are the recommendation that I would like to recommend,

Training is the key factor for development of the SME Division skills. Bank should have a regular training and development program so that a manager does know every risk matter and assessment techniques.

MTB should adapt according to the need and change in technology and should adopt the new technology like other Multinational banks are using.

Banks moves by a team effort. So, strong co-ordination with the related divisions and departments is very important. MTB should build some kind of cross functional teams in order to bridge the gap between the SME and the other department.

Adequate information and documents should prove in the SME proposal so that Risk managers can make their decision with a very minimum time.

A form should design for summarize the financials and necessary information of the clients. It would save the valuable time for the SME managers of head office.

Credit quality depends on close follow-up and monitoring of loans. The follow-up and monitoring of loans is not strong here. As a result Special Mention Accounts and deteriorating credit are increasing day by day.

SME division should focus on innovation and creative products, it should bring something new and transform their existing products so that the customer gets attract of it.

SME department should focus to improve their commercial activities because there is lot of room for them to grab customers.

Bank should develop the relationship with the customer. SME department should try to increase the number of account holders through effective means. SME department should build marketing them in order to aware the customers about them.

As various papers focuses on the SME evaluation of the banks are not appropriate and SME growth should be increased through financial assistance, the above recommendations can help in create efficiency in CRM procedure and so SME lending will be attractive for the institution

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APPENDICES


Annual Report of Mutual Trust Bank Limited. 2012-2013

Mutual Trust Bank Ltd. At a Glance

BDT Millions

SL No. Particulars 2013 201201 Paid Up Capital 2,119.58 1,766.3202 Total Capital 6,225.69 3,969.3303 Surplus in Capital Fund 1,347.91 952.5604 Total Assets 58,246.03 52,774.7705 Total Deposits 45,846.31 42,354.0706 Total Loan &

Advance39,676.12 33,883.92

07Total Contingent

Liabilities15,498.87 10,061.04

08 Lending-Deposit Ratio 85.64% 80.00%09 Classified Loans as %

Of Total Loan &Advance

2.28% 2.81%

10 Profit after Provision & Tax

988.36 820.61

11 Total Classified Loans during the year

903.97 952.76

12 Total Provision Maintained Against

Classified Loans

677.97 663.09

13 Surplus/(deficit) in provision against classified loans

9.77 2.26

14 Cost of Fund 10.62% 10.21%15 Earning assets 51,184.77 46,075.0416 Non-interest earning

assets7,061.26 6,699.72

17 Return on Investment (ROI)

11.13% 8.99%

18 Return on Asset (ROA) 1.78% 1.55%19 Income from

Investments1,043.56 857.47

20 Earnings Per Share (BDT)

46.63 46.46

21 Profit Per Share (BDT) 46.63 46.4622 Price-Earning Ratio

(Times)15.18 8.86

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Bibliography

1. Annual reports of MTBL.2. Bangladesh Bank (Nationalization) Order -19723. Bank Company Act -19914. Douglas A. Lind, William G. Marshal & Robert D. Mason, Statistics for Business & Economics

11th Edition. (USA: McGraw-Hill Book Company,1979)5. Govt. of Bangladesh, Ministry of Finance, Bangladesh Economic Review.6. Raymond V. Lesikar & John D. Pettit, Business Communication: Theory & Application, Richard

D. Irwin Inc. U.S.A -2003.

Website

www.mutualtrustbank.com www.bangladesh-bank.org

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http://www.bangladesh-bank.org/

http://www.mutualtrustbank.com/

Documents

SME (Small & Medium Enterprise) Banking of Commercial Bank.A study on Mutual Trust Bank Shahparan Branch, Sylhet