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Demographic Characteristics of SME Customers of SME Financing in National Bank Ltd.
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Demographic Characteristics of SME Customers of SME Financing in NBL
Demographic Characteristics of SME Customers of SME Financing in NBL
Prepared forMs. Sumaiya Zaman
Lecturer ULAB School of Business
Prepared byKamrun Naher
ID# 051011026ULAB School of Business
University of Liberal Arts Bangladesh (ULAB)
Aug27, 2009
August 27, 2009
Ms. Sumaiya Zaman
Lecturer
ULAB School of Business
University of Liberal Arts Bangladesh.
Dear Madam,
The report entitled “Review on SME Finance in NBL and Its
Performance Analysis” is submitted as a requirement for the partial
fulfillment of internship of BBA program at ULAB.
I would like to thank you with deep gratitude and cordial respect for
your warm co-operation to prepare this report. Your advice and
direction are really praise worthy which helped me a lot to learn
about the techniques of making a good report. In my view, this
report paper will help me to enrich my knowledge about the credit
function and operation in Financial Banking Institution of
Bangladesh. I have carefully used the information from annual
report, web site and from office sources.
I tried my best and worked with utmost sincerity to make this report
paper. It would be kind of you, if you please accept this report
paper.
Thanking you.
Sincerely yours,
_____________
Kamrun Naher
ACKNOWLEDGMENT
To accomplish the objectives of the report, the assistance and contributions of a
multitude of people need to be acknowledged. Firstly, I am highly grateful to NBL
Limited for allowing me to work on their company and access to different
information.
Secondly, I am greatly thankful to Ms Sumaiya Zaman, Lecturer, ULAB School of
Business for assisting me in understanding the internship report procedure and for her
valuable guideline.
Special thanks to Mr. Md., Kabir VP, Head of SME,NBL Ltd. for his kind and
invaluable support.
I would like to thank Mr.Mamunur Rahman , Senior principal Officer, NBL Ltd., my
institutional supervisor for his advice, ideas and guidelines regarding selection of the
topic and organization of the project work.
Lastly, I would like to thank all the Deputy Managers and Officers in SME Division,
NBL Ltd. for their great support and help in making my report.
Contents
Chapter & Title Page
Letter of Transmittal………………………………………………………… I
Acknowledgement…………………………………………………………… II
Executive Summary ………………………………………………………... IX
1.0 Introduction
1.1 Title……………………………………………………………. 1
1.2 Background…………………………………………. 1
1.3 Objective……………………………………………………... 1
1 .3 .1 Broad Ob jec t i ves………………………… 1
1.3 .2 Spec i f i c Ob jec t i ves……………………… 1
1.4 Scope of the Study…………………………………………… 2
1.5 Methodology…………………………………………………... 2
1.5.1 Sources of Information…………………………….. 2
1.5.1.1 Primary Data……………………………………… 2
1.5.1.2 Secondary Data………………………………….. 3
1.6 Limitations of the Study……………………………………… 3
2.0 Organization Part
a. 2.1 Overview of Industrial and Infrastructure Development Finance Company (NBL) Limited………………………………
2. 4
i. 2.1.1 The journey of
NBL……………………………...3. 4
i. 2.1.2 NBL at
Present…………………………………..4. 5
i. 2.1.3 Departments of
NDL…………………………….5. 5
i. 2.1.4 NBL-At a
Glance…………………………………6. 9
i. 2.1.5 Shareholding 7. 10
Structure……………………………
i. 2.1.6 Services Offered by
NBL……………………….8. 11
i. 2.1.7 Comparative Performance (as on 31.12.2008)..
9. 16
a. 10.
11.3.0 Project Part 12.
3.1 Definition of Small and Medium Enterprises (SMEs)………
3.2 An Overview On SME Finance In Bangladesh…………….
3.3 An Overview on Services of SMEs in INBL……………….
3.4 Scenario of SMEs Division in NBL…………………………
3.4.1 Places of Business that SME Division in NBL providing facilities………………………………3.4.2 Age limit of the SMEs clients…………………..
3.4.3 Forms of Business that SME Division in NBL providing facilities………………………………3.4.4 Scenario of SME’s Products in NBL………...3.4.5 Purpose of having SME facilities fromNBL..3.4.6 Nature of Business that SME Division in NBL provides Finance………………………………3.4.7 Years of Startup of the Business……………..
3.4.8 Total Revenue (Yearly) of the Client’s Business………………………………………………..
3.4.9 Total Asset (Excluding lands & buildings) of the Business……………………………………………
3.4.10 Number of Employees in Clients Business 3.4.11 Clients having Loan from any other
organization……………………………………………. 3.4.12 Clients having any other Sources of Income
3.4.13 Reasons of having finance from SME in NBL……………………………………………………3.4.14 Ranking between NBL, AB, ULC, BRAC Bank & Eastern Bank according to their SME Service…………………............................................
3.5 Recovery Performance of SMEs in NBL………………… 3.5.1 Reasons for Overdue and Default …………………
3.5.1.1 Change in Local & Foreign Policy…………… 3.5.1.2 … FINANCIAL PERFORMANC
……………….. 3.5.1.3 Poor Performance in Business………………. 3.5.1.4 Political Instability……………………………... 3.5.1.5 Insufficient Fund……………………………….
3.5.1.6 Client’s Relation with the Organization……
3.5.1.7 Clients Unwillingness…………………………
3.5.2 Yearly Recovery Performance SMEs in NBL……. 38
3.5.2.1 Lease Finance………………………………… 38
3.5.2.2 Term Finance………………………………….. 39
3.6 Sector-wise Recovery of lease finance and term loan…… 41
04. Findings & Recommendations………………………………………… 42
4.1 Findings……………………………………………………….. 424.2 Recommendations……………………………………………. 43
05. Conclusion………………………………………………………………. 44References…………………………………………………………………… 45
Table 1 : NBL– at a glance…………………………………………………………………… 9
Table 2 : Shareholding Structure of NBL…………………………………………………….. 10
Table 3 : Main Players of SME Finance Providing Organizations in Bangladesh …………….. 22
Table 4 : Places of Clients Business ………………………………………………………….. 26
Table 5 : Age Limits of Clients…………………………………………………………………. 26
Table 6 : Forms of Business ……………………………………………………………………. 27
Table 7 : SME Products in NBL……………………………………………………………… 27
Table 8 : Comparison of Factoring Charges between NBL, AB& ULC………………….. 28
Table 9 : Purposes of having SME facilities……………………………………………………. 29
Table 10 : Nature of Clients Business…………………………………………………………… 29
Table 11 : Startup year of Clients Business……………………………………………………… 30
Table 12 : Total Yearly Revenue of Clients Business…………………………………………… 31
Table 13 : Total Assets Value of Clients………………………………………………………… 31
Table 14 : Number of Employees in Clients Business…………………………………………… 32
Table 15 : Loans from other Organizations……………………………………………………… 32
Table 16 : Other Sources of Income……………………………………………………………... 33
Table 17 : Type of Sources of Income ………………………………………………………….. 33
Table 18 : Reasons of having loan from SMEs in NBL ……………………………………… 33
Table 19 : Ranking between NBL,AB , ULC, BRAC Bank, Eastern Bank…………………. 34
Table 20 : Yearly Recovery Rate of Lease Finance……………………………………………… 39
Table 21 : Yearly Recovery Rate from Term Loan……………………………………………… 40
Table22 : Sector-wise Annual Recovery Rate of NBL ………………………………………... 41
LIST OF TABLES
LIST OF FIGURESFigure 1 : Departments Of NBL…………………………………………………… 07
Figure 2 : Organogram of NBL…………………………………………………… 08
Figure 3 : Shareholding Structure of NBL………………………………………… 11
Figure 4 : Deposit composition of NBL…………………….................................... 14
Figure 5 : Investment Mix of NBL………………………………………………... 14
Figure 6 : Sources of Funds of NBL………………………………………………. 14
Figure 7 : Sector wise Portfolio of NBL………………………………………….. 15
Figure 8 : Profit after tax …………………………………………………………... 16
Figure 9 : Profit after tax of NBL…………………………………………………. 16
Figure 10 : Paid-up Capital ………………………………………………………….. 16
Figure 11 : Paid-up Capital of NBL….……………………………………………. 16
Figure 12 : ROE………………………………………………………………………. 17
Figure 13 : ROE of NBL…......................................................................................... 17
Figure 14 : ROA……………………………………………………………………… 17
Figure 15 : ROA of NBL……………………………………………………………. 17
Figure 16 : EPS……………………………………………………………………….. 18
Figure 17 : EPS of NBL…………………………………………………………….. 18
Figure 16 : Total Assets……………………………………………………………… 18
Figure 19 : Total Assets of NBL…………………………………………………… 18
Figure 20 : Total Debt………………………………………………………………... 19
Figure 21 : Total Debt of NBL……………………………………………………… 19
Figure 22 : Total Debt to Asset Ratio………………………………………………… 19
Figure 23 : Total Debt to Asset Ratio of NBL……………………………………… 19
Figure 24 : Commencement of the Operation Years ………………………………… 20
Figure 25 : Domestic factoring Process……………………………………………… 25
Figure 26 : Places of Business………………………………………………………... 26
Figure 27 : Age limit of the clients…………………………………………………… 26
Figure 28 : Forms of Business………………………………………………………... 27
Figure 29 : Proportion of SME Products……………………………………………... 27
Figure 30 : Purpose of the facilities………………………………………………….. 29
Figure 31 : Nature of Clients Business……………………………………………….. 30
Figure 32 : Startup year of Clients Business…………………………………………. 30
Figure 33 : Total Yearly Revenue of Clients Business………………………………. 31
Figure 34 : Total Asset (Excluding lands & buildings) of the Business…………….. 31
Figure 35 : Number of Employees in Clients Business……………………………… 32
Figure 36 : Any other loan from other organization………………………………….. 32
Figure 37 : Other source of income…………………………………………………... 33
Figure 38 : Type of Income Source…………………………………………………... 33
Figure 39 : Why NBL………………………………………………………………. 34
Figure 40 : Ranking between NBL, AB, ULC, BRAC Bank & Eastern Bank…... 34
Figure 41 : Yearly Recovery Rate Lease Finance……………………………………. 39
Figure 42 : Yearly Recovery Rate from Term Loan………………………………….. 40
Appendix A : Questionnaire
Appendix B : Annual Reports of NBL(2006, 2007, 2008 )
Appendix C : Annual Reports of NBL(2006, 2008)
Appendix D : Performance at a Glance (NBL)
Appendix
EXECUTIVE SUMMARY
Financial Banking Institutions are a new dimension for Bangladesh’s economic
growth. Efficient services from these companies can push up the industrial growth.
SME financing provides the industries a scope to invest with Collateral.
As all FBIs are providing SME facility by borrowing fund from Commercial banks,
the cost of financing facility is higher than direct borrowing. Only for this reason
many firms are not stepping forward to avail lease facilities, event though in all other
manners it is convenient. In this situation some FBIs enjoy the low cost funding from
institutions like CBSF, Bangladesh Bank and are providing relatively cheaper
financing facilities to the SME clients.
Lease financing is a very enormous step in industrial growth. Government support
and proper knowledge and information will help the citizens to avail lease facilities
from these established financial companies. In developed countries the lease financing
has a major contribution in the industrial as well as economic growth. So for the
growth of the country, FBI can play a vital role in the future.
The purpose of the report is to obtain an overview of the SME Financing Process of
NBL and analyze its effectiveness. For that Leasing Process of NBL needs to be
compared with other – Financial Banking Institution(s) specifically with IDLC,
IPDC and ULC (United Leasing Company).
The execution of SME financing process differs from FBI to FBI depending on the
organizational structure and Credit Policy of respective FBI or financing Company.
The execution of the financing process may differ in involvement of different
departments. But in any case the whole process has to go through 14 elementary
steps based on component activity of the Leasing Process. They are Preliminary
Contact and Inquiry, Application for Lease Facility Visiting the borrower and
Discussion, Analyze the Application, CIB Report and Bankers Report, Prepare and
Submit Credit proposal for the Board, Approval of Credit Proposal, Sanction of
Lease, Documentation, Security & Payments, Procurement of Lease Equipment,
Installation and Delivery, Disbursement and Execution (commercial operation),
Monitoring.
The client applies for required facility through letter. These required facility can
vary from different sort of equipments for manufacturing their products to vehicles
or expansion projects. The letter generally consists of brief description about the
asset to be procured, its price and reason for procurement along with its lease
period. NBL collect necessary information to analyze the proposal prepare the
Board Memo for approval by the Board members. After approval NBL sends an
offer letter to the client. The offer letter contains acquisition cost, lease period, per
month rental and other terms & conditions to be applied if the agreement is done.
The client accepts the offer and submits an accepted offer letter. If the client agrees
to the terms & conditions of the offer letter, they sign & seal the offer letter as
accepted and send it back to NBL. Then Agreement and necessary documents are
prepared and duly signed. After that lease asset is procured by NBL and given to the
client for delivery, installation, and trial run after that disbursement and execution is
done and commercial operations begin.
In NBL from preliminary contact and Inquiry to initial monitoring is done by
Department execute and all the steps after that monitoring take the responsibility. In
ULC Relation ship Manager is involved in marketing. Their responsibility is limited
up to approval of the credit proposal. Then Operations department carry out
Documentation and final execution. Monitoring department maintains the rental
payments.
After approval process time of NBL is competitive and shorter in most cases than
the average. But before approval NBL requires more time in 4 activities than the
average. Approval of proposal is showing the largest difference and apply, visit and
memo preparation is showing fairly same amount of deviation from average in a
significant level.
IDLC possess the shortest length of the process. Most of its activity requires less
time than other to be completed. In case of ULC and IPDC, they are also lacking in
few activities. But in total they have shorter process length than NBL.
1.0 Introductory Part
1.1 TITLE
“Review on SME Finance in NBL and Its Performance Analysis”
1.2 BACKGROUND
This report is a requirement for successful completion of the Internship of BBA
program. Exposure to the business world and acquiring practical work experience was
the primary objective of this assignment. I was attached with Industrial and
Infrastructure Development Finance Company Limited (NBL) for my internship. The
topic was selected and approved by Ms. Sumaiya Zaman.
1.3 OBJECTIVES
The basic purpose of the report is to see the overall SME Finance and its performance
of NBL
1 . 3 . 1 B r o a d O b j e c t i v e :
The broad objectives of the report are-
To understand and reveal the steps of processing of SME finance of
NBL.
To show the overall picture of recovery management of SME of NBL.
1 . 3 . 2 S p e c i f i c O b j e c t i v e s :
The Specific objectives are -
Analyze yearly recovery performance of SME products.
Identify classified and unclassified clients for SME of NBL.
Analyze sector wise client overdue and recovery rate for SME products.
Recommend some effective steps for better performance through
improved recovery system.
1.4 SCOPE OF THE STUDY
The report is on the lending process, criteria for sanctioning lease, term loans and
other products of SME as well, and sector wise recovery performance of lease, term
loans and other products of NBL. It is beyond the scope of the report to look into all
the financial services of Lease finance and Term loan provided by SME of NBL. So
the report has chosen only some of the selected activities and recovery process of
SME of NBL. To understand the entire process thoroughly, the report has also looked
into the selected sector wise investment and recovery rate of Lease finance and Term
loan activities of NBL.
1.5 METHODOLOGY
1 . 5 . 1 S o u r c e o f I n f o r m a t i o n
1 . 5 . 1 . 1 P r i m a r y D a t a
The report will be based on primary data collected from NBL. Primary data will be
collected to draw the procedural workflow of SME operation. The following
instruments will be used:
Interview: Interview of the assistant mangers and officers of NBL will be
undertaken to draw the procedural workflow of lease finance and term loan.
Officers from the monitoring and recovery department will also be
interviewed for collecting information regarding the overdue rates and
recovery performance of NBL.
Survey: A questioner was prepared to collect information about SME service
in NBL from clients.
Observation: Observation technique is going to be used to perform SWOT
analysis and to follow & draw the procedural workflow of Lease finance and
Term loan operation
Analysis : Only the files of selected individual clients (case Files) will be
chosen randomly from the stock of files of NBL, which will be examined and
analyzed to find out the number of Lease finance and Term loan approved by
the departments and the related data to carry on the project part.
Information Collected from NBLFinancing process SME Division
Financial Statement Annual Report Fin. & Acc. Dept.Total Investment Fin. & Acc. Dept.
Sector wise investment Fin. & Acc. Dept.Recovery Rate Monitoring and
Recovery Dept.
Collection of Information
1.5.1.2 Secondary Data
Some of the data and information will be collected from the secondary sources. These
sources are the audited financial statements of NBL for the year 2006, 2007, and 2008
respectively. Web site of NBL will also be used to collect data and information.
1.6 LIMITATION OF THE STUDY
The following limitations are apparent in the report:
Source of information may be confidential. That’s why I could not compare the
recovery process of NBL with other leasing company, as collection of information
was quite difficult from other companies.
Clients did not provide all the information and they fill up the questioner properly
which made me difficult to collect information properly.
2.0 Organization Part
2.1 OVERVIEW OF INDUSTRIAL AND INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY (NBL) LIMITED
2.1.1 The journey of NBL
The National Bank Limited (NBL) has a prolonged and glorious heritage in the
banking industry in Bangladesh. It is the pioneer in the local private commercial was
inaugurated on March 1983 under the supervision of Bangladesh Bank. A glorious
fact of the National Bank Limited is its approval as first private commercial bank
from Bangladesh Bank in our country.
Economic development activities in the post liberation period required service from
private commercial Banks. To fulfill this demand as well as to improve the
commercial banking ser-vice in Bangladesh, the National Bank Limited emerged as a
private limited company. The National Bank Limited is a remarkable addition to the
private sector branch banking in Bangladesh. Aiming at offering commercial banking
service to the customer's door around the country, the National Bank Limited
established 105 branches up to this year. This is the highest number for any private
commercial bank operating in Bangladesh. This organization achieve customer's
confidence immediately its establishment in domestic and international markets.
NBL took participation in Nepal Arab Bank Limited; Nepal in 1995. Under a
technical service agreement, NBL is extending management services to NBIL, in
1997. Bank opened a representative office in Yangoon, Myanmar. NBL is proud to
be, first private Bank in Bangladesh who introduce credit card (Master Card) both
local and international. The Bank has made agreement with Western Union
Remittance services for speedy transfer of money allover the world.
The National Bank limited provides financing in capital market, Credit line and
project financing, investment counseling, Underwriting any guarantee, Port folio
management etc along with traditional banking service, Sanchay Prokalpo and Bonus
Deposit scheme are- - praiseworthy banking service for the middle and lower income
group. Recently, this organization has taken operational decision of two projects:
Consumer Credit scheme and Credit Card marketing to widen its service and
customer base. The National Bank Limited is always emphasizing the improvement of
banking service and betterment of living standard of the general people of
Bangladesh.
2.1.2 NBL at present
NBL has been able to create a special image at home & abrode by introduction
different banking products, at the infancy of our garments Industry during the
Eighties. NBL pioneered allowing the entrepreneurs back to back LC facility without
any margin, thereby helping the Industry thrives to its present position. This foolhardy
but unique & generous endeavor of the bank has not only paved the way for
enrichment of the Country’s foreign exchange. In the history of development &
expansion Of garments Industry in Bangladesh, NBL name will remain engraved in
Golden letters.Presently, NBL is working with an efficient and active management
team. The management team is headed by the Managing Director of the company.
The major activities of NBL are divided into three distinctive departments. They are
Operations, Structured Finance and Finance & Accounts.
2.1.3 Departments of NBL
Operations Department: The operations department is being headed by the
Executive Vice President of the company. This department is responsible for
attracting new clients, maintaining the existing ones, providing the desired
financial services to the clients and monitoring the progress of the services as
well. The operations department is divided into three distinctive branches.
They are Corporate Finance, SME and Monitoring & Recovery.
The Corporate Finance department is headed by an AVP (Assistant Vice
President) and the AVP is the only person in this sub wing who reports
directly to the EVP (Executive Vice President) – Operations and also to the
Managing Director. The other members of the department are two Managers,
one Deputy Manager, four Assistant Managers and four Management
Trainees. Normally, there are team consisting of two persons in the corporate
finance department and each team is responsible for attracting new clients,
maintaining the existing ones, providing the desired financial services to the
clients and monitoring the progress of the services as well.
NBL started SME financing in the year 2006. This department is headed by an
AVP and the AVP directly reports to the Head of Operations. There is also a
Recovery and Monitoring wing and it is headed by a Manager. He directly
reports to the Head of Operations.
Structured Finance: Structured Finance department is headed by a Vice
President and the VP is directly responsible to the Managing Director. NBL is
active in syndication market and has acted as lead arranger to a number of
syndication facilities for large loans arranged by it. Structured Finance
encompasses syndicated fund arrangement including cross-border syndication
and other financial advisory services.
Finance & Accounts: Finance & Accounts department is being headed by an
Assistant Vice President of the company. He is also the Company Secretary of
NBL. This AVP is directly reportable to the Managing Director. Though this
department is very thinly staffed the activities are not that simple. To ensure
coordination and avoid any kind of conflict within, the department has been
divided into two separate sections.
The Head of Operations is the center of most of the activities in NBL. Since
treasury, recovery and monitoring, corporate finance, SME finance all these
departments is directly under him/her, the Head of Operations basically
directly responsible to carry out the mandate given by the board of directors
regarding policy and guidelines of providing credit facilities to the clients.
Even though there is a structured finance department, the operation
department also arrange syndicated credit facilities for its’ corporate clients.
DEPARTMENTS OF NBL
ORGANOGRAM OF NBL
NBL
CORPORATE FINANCE
OPERATIONS FINANCE & ACCOUNTS
STRUCTURED FINANCE
SME
MONITORING & RECOVERY
TREASURY
Figure 01(Source: internal)
Board of Directors
Managing Director
Head of Operations
EVP
Head of Structured
Finance (VP)
Head of Accounts &
Admin (AVP)
Head of SME Financing
(AVP)
Manager (0)
DeputyManager (1)
Assistant Manager(1)
Manager (1)
Deputy Manager(2)
Head of Corporate
Finance (AVP)
Manager (0)
Deputy Manager (3)
AssistantManager (0)
Manager (1)
Deputy Manager (1)
Assistant Manager (3)
Management Trainee (3)
Head of Treasury (0)
Manager (0)
DeputyManager(1)
Assistant Manager (1)
Head of Recovery
& Monitoring (0)
Manager (0)
DeputyManager(1)
AssistantManager (2)
ManagementTrainee (0)
Sr. Officer (0)
Assistant Manager(4)
ManagementTrainee (0)
Sr. Officer (1)
Officer (5)
Officer (0)
Figure 02(Source: internal)
2.1.4 NBL– at a glance
Name National bank limited
Registered Office 48, Dilkusha Commercial Area, Dhaka - 1000
Authorized capitalTk. 1,000,000,000.00 ( 10,000,000 shares of
Tk. 100 each)
Paid up capitalTk. 256,496,000.00 ( 2,564,960 shares of Tk.
100 each, fully paid up in cash)
Operating revenue (2007) Tk. 772.07 million
Operating profit (2008) Tk. 142.37 million
Net profit (2008) Tk. 84.44 million
Book value per share Tk. 170.35
EPS Tk. 32.88
Table 01: NBL -At a Glance (Source: http://www.nbl.com)
2.1.5 Shareholding Structure
NBL is being represented by various institutional shareholders except for one. Among
the 15 shareholders there is only one individual shareholder who is Md.Matiul Islam,
the present Chairman of the company. Apart from this individual, rests of the
shareholders are various financial institutions both from the public and private sector.
The shareholding structure of NBL is shown below:
Name Of The Shareholder Percentage
Public Sector 21.2766%
Janata Bank 7.0992%
Sonali Bank 7.0992%
Investment Corporation of Bangladesh 7.0992%
Private Sector 78.7234%
Arab Bangladesh Bank Limited 7.0992%
Bank Asia Limited 7.0992%
BRAC Bank Limited 7.0992%
The City Bank Limited 7.0992%
Mutual Trust Bank Limited 7.0992%
Dhaka Bank limited 7.0992%
One Bank Limited 7.0992%
Southeast Bank Limited 7.0992%
Eastland Insurance Co. Limited 7.0992%
National Life Insurance Co. Limited 7.0992%
Pragati Insurance Co. Limited 7.0992%
Md. Matiul Islam 0.7092%
Table 02: Shareholding Structure of NBL(Source: Annual Report of NBL2008)
Figure 03(Source: Annual Report of NBL2008)
2.1.6 Services Offered by NBL
NBL started its journey with an enriched package of diverse financial services. The
company is aware that in financial markets different clients demand for different types
of financial services. Therefore to attract new clients and retain the existing ones NBL
offers a broad array of financial services. NBL realizes very well that unless it can
quickly respond to the assorted needs of the customers it will be hard to maintain
substantial profit margin in this era of severe competition.
Lease Finance: The leasing provides financial flexibility to enterprises for
procurement of capital assets without blocking their own funds. NBL procures
the necessary machinery and equipment used by the clients under leasing
arrangement. Lease rentals which include both interest and principal payments
are tax deductible expenditure. The documentation requirement also is simple,
convenient and less time consuming.
Term Loan: NBL provides both short term and long term loans for capital
expenditure. The longer maturity loans can reduce the size of installment
payments and help improve the cash flow of the enterprises. Fully amortized
equal payment or decreasing payment schedule can also be arranged to ease
repayment of debt obligations. NBL also provides loan facilities to meet
working capital requirements.
Structured Finance: NBL is active in the syndication market and has acted as
lead managers to a number of syndication facilities for large loans arranged by
it. With 10 Banks as promoter-shareholders & with a Board of Directors
comprising of the Chief Executive and policy makers of these financial
institutions, NBL is in a unique position to arrange syndication facilities by
tapping the resources of its own promoters. NBL‘s professional staff members
have the expertise and capability of providing best advice & services on the
financial viability of projects, and the credibility of the project sponsors. NBL,
as a lead arranger, does all the necessary documentation and execute &
administer the syndicated finance
SME Finance: NBL promotes small and medium entrepreneurs in
manufacturing and service industries through its SME Finance Scheme. The
aim is to provide quality service to the entrepreneurs with potential and
innovative ideas.
Home Loan: NBL provides Home Loan for the middle and lower income
people to purchase or construct flat/apartment for personal living only in 6 city
corporation area including Tongi, Gazipur, Savar and Narayangonj.
Deposit Scheme: NBL encourages Term Deposits for a period of 6 months
(institutions only) or one year and/or above. It offers attractive terms and
returns to the depositors as well as total security. The minimum amount of
deposit is Tk.50, 000/- and there is no maximum limit. The depositors will be
allowed to take loans & advances against deposits. The fund raised from
deposits is prudently utilized in various financial activities.
Advisory Services: NBL has a management team with Professional Bankers,
Chartered Accountants, MBAs, Engineers, Economists and Financial
Analysts. The expert team provides consultancy services and carries out
feasibility studies, technical and financial evaluation, market research, market
risk analysis etc. if necessary NBL may also appoint well reputed professional
from the market for this purpose.
Other Financial Services: It basically includes Bill discounting, Work order
finance, Underwriting and mutual fund etc.
Deposit composition of NBL
Figure 04 Investment Mix of NBL
(Source: Annual Report of NBL2008)
Sources of Funds of NBL Figure 05
(Source: Annual Report of NBL2008)
Figure 06(Source: Annual Report of NBL2008)
Deposit Composition
10.90%6.57%
80.91%
1.62%
Customer Deposits Insurance Companies Banks Financial Institutions
Investment Mix
33.86%
0.04%66.10%
Direct Finance Factoring & Investment in shares Lease
Sources of Funds
39%
0%
1%
34%
2%
1%
6%
16%
Long Term Loans Zero Coupon Bond
Lease Advance & Security Deposit Long Term Deposit
Refinance Bangladesh Bank Money Market Borrowing
Money Markte Borrowing Short Term Deposit
Industry wise loans &Advance
(Source: Annual Report of NBL 2008)
Other Local, 3.60%
Paper and Plastic products, 6.01%
Power & Electricity Co., 6.26%
Printing, Packaging, Publishing, 0.32%
Housing, 0.19%
Ispat Industry, 1.10%
Marbel Industries, 1.62%
Glass Industry, 3.75%
Information Technology, 0.22%
Food & Beverage, 4.17%
Entertainment, 2.97%
Engineering, 7.30%
Consumer Finance, 0.16%
Construction & Development, 1.81%
Commercial &Road Transport, 4.86%
Chemical, 11.78%
Bank/Fis, 1.10%
Cement Industries, 2.34%
Air/Water Transport, 1.92%Agriculture, 3.58%
Professional & Self employed, 1.12%
Spinning & Weaving and Dying etc., 3.34%
Tele Communication & Infrastructure, 2.44%
Textile & RMG, 14.40%
Trading & Manufacturing, 13.64%
2.1.7 Comparative Performance (as on 31-12-2008)
In this section the performance of the Industrial and Infrastructure Development
Finance Company Ltd (NBL) is compared with that of ILFSL, Premier Leasing BIFC
and IPDC, IDLC as on 31-12-2008.
Profit after tax:
Profit after Tax
84117
4677
133
303
0
50
100
150
200
250
300
350
NBL ILFSL PremierLeasing
BIFC IPDC IDLC
profit(BDT Million)
Nam
e o
f th
e N
FB
I
Series1
Figure08 Figure09(source:Annual (Source:http://www.dsebd.org/ipo/NBL.pdf) of NBL2004,05,06,07,08)
Among the 5 NBFIs IDLC has the highest profit and NBL is in 4th position. But if we
see the last 4 years profit of NBL, it increased 47% in 2007 and 17% in 2008
comparing previous year
Paid up capital
371230 305 293
648
200
0
100
200
300
400
500
600
700
NBL ILFSL PremierLeasing
BIFC IPDC IDLC
NFBI
BDT
in m
illio
n
Series1
Figure10 Figure11(source Annual (source:http://www.dsebd.or/ipo/NBL.pdf) Report of nbl)
Comparing with other 4 NBFIs NBL is in the 2nd position in case of paid-up capital
and IPDC in 1st position and comparing with last 4 years paid-up capital of NBL
increased every year.
Profit after Tax
84
4959
72
17%
-17%
18%
47%
0
10
20
30
4050
60
70
80
90
1 2 3 4
Years
Pro
fit
(BD
T i
n M
illi
on
)
-30%
-20%
-10%
0%
10%20%
30%
40%
50%
60%
Gro
eth
Rate
(%
)
Profit after Tax Growth
Return on Equity:
Figure12(source:http://www.dsebd.org/ipo/NBL.pdf)
Figure 13 (Source: Annual Report of NBL
A measure of a corporation's profitability that reveals how much profit a company
generates with the money shareholders have invested. That means the percentage of
profit that the company earned with the money shareholders has invested on it. Here
IDLC & NBL has more percentage than others represent that they are relatively good
for both the company and shareholders and the last four years ROE of NBL was able
to generate more profit with invested money.
Return on Asset:
ROW
1.28% 1.39% 1.54%
2.07%1.85%
2.37%
0.00%0.50%1.00%
1.50%2.00%2.50%
NBL
ILFS
L
Prem
ier
Leas
ing
BIFC
IPDC
IDLC
NFBI
Ratio Series1
Figure(source:http://www.dsebd.org/ipo/NBL.pdf Figure 15(source:Annual Report of
NBL)
ROE
24%17.00%
11.00%19.00%
8.00%
25.00%
0%
10%
20%
30%
NB
L
Pre
mie
rLe
asin
g
IPD
C
NBFI
RA
TIO
Series1
Earnings per Share:
ROA gives an idea as to how efficient management is at using its assets to generate
earnings. Here BIFC and IDLC had a highest and NBL had lowest percentage of
ROA in year 2008 compared to others. The last four years ROA of NBL shows that
last year there was no growth. It is important to the total assets is increasing. The
company acquiring more assets but it is probably reluctant to use assets for increasing
its profit.
3351
1526 21
152
020406080
100120140160
Price per sher(BDT)
NBL ILFSLPremierLeasing
BIFC IPDC IDLC
NFBI
EPS
Series1
Figure17Figure16 (source:Annual Report of (source:http://www.dsebd.org/ipo/NBL) NBL2004,05,06,07,08)
The portion of a company's profit allocated to each outstanding share of common
stock. EPS serves as an indicator of a company's profitability. Here, IDLC is in an
advantageous position with having highest EPS among the six companies and NBL is
in 3rd position but from last four years its EPS increases.
Total Assets:
Figure 19 (source: Annul Report of NBL)
Figure18(source:http://www.dsebd.org/ipo/NBL.pdf)
Total Assets (Tk. in million)BDT(million)
65898482
2925 2604
7195
14424
02000400060008000
10000120001400016000
NBL ILFSL PremierLeasing
BIFC IPDC IDLC
NFBI
BDT
IN M
illio
n
Series2
Comparing with the other companies NBL is in 4th position but comparing with last
four years asset of NBL it increased.
Total Dedts
3012
7792
2533 2189552
12916
0
2000
4000
6000
8000
10000
12000
14000
NBL ILFSL PremingLeasing
BIFC IPDC IDLC
NFBI
BD
T(M
illi
on
)
Series2
Figure20(source:http://www.dsebd.org/ipo/NBL.Pdf) Figure21
(source:AnnualReport of NBL)
One of the most important factors of a company is how much debt the company is
carrying. Less debt of a company indicates that it can afford the debt if it runs into
financial trouble. Comparing to the competing companies IIDFC had 3 rd highest
number of debt and in past four years its debt increased.
Total Debt to Total Assets Ratio
Total Debt to Total Assets Ratio
91.23%91.86%86.56%
84.10%
76.74%
89.54%
65.00%70.00%75.00%80.00%85.00%90.00%95.00%
NFBI
Rati
o
Series2
Figure22 (Source:http://www.dsebd.org/ipo/NBL.pdf Figure23 (source:Annual Report of NBL)
total Depts of IIDFC
2389
4657
3677
6011
54%
138%
-49%
63%
0
1000
2000
3000
4000
5000
6000
7000
1 2 3 4
Years
BD
T (
Mil
lio
n)
-100%
-50%
0%
50%
100%
150%
Gro
wth
Total Debts Growth
Debt ratio is used to measure a company's financial risk by determining how much of
the company's assets have been financed by debt. It’s better to have a position of debt
ratio near 0.5. If a company has less debt than its equity it can utilize its equity to pay
it’s debts in future and there is an opportunity of getting loans easily. From the above
table we can say that all of the three companies are having more or less very high
percentage of debt ratio and also NBL’s ratio increased comparing last four years.
Findings:
If we see the commencement year of NBL, IDLC, IPDC, BIFC, ILFSL and Premier
Banking Company NBL started its journey in 2001 and IPDC in 1983 and IDLC in
1985. As a new member of the NBFI industry NBL is doing better job.
commence ment of operation Year
2001
1996
20011998
19831985
1970
1975
1980
1985
1990
1995
2000
2005
NBL ILFSL PremierLeasing
BIFC IPDC IDLC
NFBI
Yea
r
Series2
Figure 24(Source:http://www.dsebd.org/ipo/NBL.pdf)
3.0 Project Part
3.1. Definition of Small and Medium Enterprises (SMEs)
There is no indefinite definition of SMEs. It depends on investment level and number
of workers, technologies and technical complexities of production, degrees of skills
demanded from workers and managers, end use of products and so on, which varies
from country to country. According to the definition of Bangladesh Bank circulation
published on 26/05/2008 Small Enterprises are those enterprises which
maintain/follow the following criteria:
Service Concern: The range of the total fixed asset has been set at Tk 50,000
to Tk 5.0 million, excluding land and building, and the number of employees
less than or equal 25.
Trading Concern: A small enterprise in trading should have a total asset
worth Tk 50,000 to Tk 5.0 million, excluding the value of land and building,
and the number of employees less than or equal 25.
Manufacturing Concern: The total asset for a small enterprise in the
manufacturing sector has been set at Tk 50,000 to Tk 15.0 million, excluding
land and building, and the number of employees less than or equal 50.
According to the same circulation of Bangladesh Bank circulation Medium
Enterprises are those enterprises which maintain/follow the following criteria:
Service Concern: The range of the total fixed asset has been set at Tk 5.0
million to Tk 10.0 billion, excluding land and building, and the number of
employees less than or equal 50.
Trading Concern: A small enterprise in trading should have a total asset
worth Tk 5.0 million to Tk 10.0 billion, excluding the value of land and
building, and the number of employees less than or equal 50.
Manufacturing Concern: The total asset for a small enterprise in the
manufacturing sector has been set at Tk 15.0 million to Tk 20.0 billion,
excluding land and building, and the number of employees less than or equal
150.
3.2 AN OVERVIEW ON SME FINANCE IN BANGLADESH
SMEs more or less start their operations using their own funds or family finance.
Normally these firms face significant problems in operating their operations, and
often lose their investment in the past. But now a day, SMEs can secure their
investment by getting loan easily from Banks and NBFIs. At present 38 commercial
and specialized banks and NBFIs provide SME Financing facilities at 10%-16.5%
interest rate.
The main players of SME Finance providing
organizations are:
Banks NBFIsAB Bank Ltd Industrial Promotion and Development
Company of Bangladesh Ltd. (IPDC)Bank Asia Ltd IDLCBrac Bank Ltd ULCBASIC Bank Phoenix
City Bank Ltd Uttara Finance and Investment Ltd.Dhaka Bank Ltd GSP Finance Company (Bangladesh) Ltd.Dutch Bangla Bank Ltd Prime Finance ltd.Eastern Bank Ltd Bay Leasing and Investment Ltd.Mercantile Bank ltd. Peoples Leasing and Financial services
Ltd.National Credit and Commerce Bank Ltd Bangladesh Industrial Finance Company
Ltd.Prime Bank Ltd Midas Financing Ltd.Premier Bank Ltd Bangladesh Finance and Industrial
Company Ltd.Pubali Bank Ltd NBL LtdShah Jalal Bank Ltd Islamic Finance and Investment Ltd.South East Bank Ltd Fareast Finance and Investment Ltd.Standard Bank Ltd Premier Leasing International ltd.Sonali Bank LtdJanata Bank LtdAgrani Bank Ltd
Table 03: Main Players of SME Finance Providing Organizations in Bangladesh(Source: http://www.bangladesh-bank.org)
3.3 AN OVERVIEW ON SERVICES OF SMEs IN NBL
NBL at present provide different types of lease and loan facilities to its clients. The
principal focus of the Company is on business of lease financing of capital goods for
industries such as plant, machinery, equipment, office equipment, power and energy
equipment etc. but they also provide short, medium and long term loans to its clients
as well. Though NBL provide other services to its clients but the main focus of the
project is on Lease finance and term loan procedures and their recovery management.
The different types of lease finance and term loan provided by NBL is given below:
(1) Lease finance: A lease is a contract. By its terms the owner of an asset (the
lessor) gives another party (the lessee) the exclusive right to use the asset, usually for
a specified period of time, in return for the payment of rent. Under the lease finance
scheme the obvious advantage to the lessee is the use of an asset without having to
buy it. For this advantage, the lessee incurs several obligations. First and foremost is
the obligation to make periodic lease payments, usually monthly or quarterly. Also the
lease contract specifies who is to maintain the asset. There are two types of lease
facilities that are financed by SME Division. They are:
o Direct Lease: Under direct leasing, a company acquires the use of an asset it
did not own previously. Terms and Conditions for Direct lease are::
Tenure: 3-5 years for lease
Ownership of the leased asset should be in the name of NBL
Insurance should be first party insurance (cover all the risks associate
with the leased asset).
o Sale and lease back: Under the sale and lease back agreement a firm sells an
asset to NBL, and after that NBL lease it back to the specific firm. Usually the
asset is sold at approximately its market value. The firm receives the sales
price in cash and the economic use of the asset during the basic sales period.
In return, it contracts to make periodic lease payments and give up title to the
asset. As a result, the lessor realizes any residual value the asset might have at
the end of the lease period, whereas before, this value would have realized by
the firm. The terms and conditions are the same as direct lease. The sale and lease
back mechanism may be understood from the following diagram:
Ownership of Lessee’s existing machinery
Price of machinery in cash
Lessee Lease agreement NBL
Monthly lease rentals
(2) Loan finance: Loan financing is another lucrative product offered by NBL. It
provides both long and short term financing to its prospective clients. NBL provides
two types of loan. They are:
Term loan: It is basically given to the client to meet capital expenditure as
well as working capital requirement. In case of term lending SME provide
three types of loan based on the duration. Those are:
Short-term loan is for “Less than 1 year” years.
Mid-term loan is for “1 to 3” years.
Long-term loan is for 3 and above years.
Time loan: The functions of time loan are as it is term loan but basically it is
taken only for 1 to maximum 2 years. The client of term loan paid IDCP
(Interest during Construction Period) instead of installments. The IDCP is
usually paid quarterly and after the end of the lending period the principal
amount will be paid fully by the clients.
(3) Factoring: Factoring of Accounts Receivable is a mode of financing receivables
arising out of supply of goods or delivery of services on credit. This revolving
financing facility enables the suppliers/service providers to realize the maximum
portion of the payment soon after the delivery is made to the buyer.
FINANCIAL PERFORMANCE
Commercial banks should maintain a minimum capital adequacy ratio of 8%, the
established specialized banks at least 10%, but new specialized banks and those with
not very satisfactory performance at least 20%.
2005 2006 2007 2008Capital Adequacy Ratio (%) 9.21 9.44 9.43 11.18Loan loss provision to Total Loan Ratio 1.77% 1.07% 0.74% 0.35%
9.21
9.44
9.43
11.18
0 2 4 6 8 10 12
2005
2006
2007
2008
C apital Adequac y ratio
This ratio expresses capital as a proportion of total risk-weighted assets. Both capital
and assets should be fairly stated with the appropriate loan loss provisions and
intangible assets having been deducted. As a commercial NBL, NBL maintain more
than 8% capital adequacy ratio for last few years. From 2005 to 2008 it exists from
9.43% to 11.18%.
L oan los s provis ion to total loan R atio
1.07%0.74%
0.35%0.95%
0.00%0.50%1.00%1.50%
2005 2006 2007 2008
Loan Loss provision decreases from last few years. In 2005 it was 1.77% but in 2008
it was .95%. Though Loan loss provision decreases, in 2008 it increase compared with
last two years.
The growth of assets is good for NBL Average growth is more than 20% over last five
years.
20% 22%27%
0%
10%
20%
30%
2006 2007 2008
G rowth of As s ets
In 2008 total assets was Tk. 191,362,349,717 and in 2006 it was Tk. 150,252,820,801. Growth was 27% and 22% consequently.
2005 2006 2007 2008Profit Expense ratio (%) 63% 61% 52% 66%Earnings per Share (Tk.) 519 488 368 43.14Efficiency Ratio (%) 35.65 38.99 44.92 37.72Profit After Tax(Tk. In mn) 1013.65 1125.82 1400.59 2049.05
NBL management team tries to minimize their operating expense and maintain the
quality management team for better service provide.NBL tries to increase their profit
by reducing operating cost. In 2008 profit expense ratio was 66% which was 30% in
2003. For increasing the bank branches and business as well operating expense also
increases. But a certain level of operating expense helps to organization to make
profit.
P rofit E xpens e R atio
63% 61% 52%66%
0%
50%
100%
2005 2006 2007 2008
Earning per share is Tk. 43.14 in 2008, but in 2006 and before 2006 it was around Tk.
300 to 500. In 2008 authority divides their share into 10 times, for that reason and also
for unpleasant economic condition EPS is Tk. 43.14.
Efficiency ratio is 37.72% in 2007 and 44.92% in 2006.NBL holds almost 9% market
share with 40% average efficiency ratio. NBL team incurred Tk. 2049.05 million in
the FY 2008. And company’s average performance is better over last few years.
E ffi c ienc y R atio
36.65%
38.99%
42.92%
37.72%
32.00% 34.00% 36.00% 38.00% 40.00% 42.00% 44.00%
2005
2006
2007
2008
6.1.4 Earnings Ability
Earnings are the first line of defense against the risks of losses in banking; as well as
losses arising from credit risk, interest rate risk, liquidity risk or currency risk.
2005 2006 2007 2008Return on assets (%) 1.1 1 1.03 1.2
Return on equity (%) 15.15 13.51 13.42 13ROI (%) 9% 9% 10% 10%Net income per staff 191,038 181,526 187,772 243,182
The ratio (ROA) of profit before tax to average total assets essentially is an indication
of management ability to generate income and its ability to control expenses. The
variations in this ratio could be due to a number of factors including a portfolio shift
to higher or lower yielding assets, an increase or decrease in the level of interest rates,
or an increase or decrease in fees and other income not related to the employment of
assets. NBL’s ROA increases over last few years. From 2005 to 2008 it increased
from .53% to 1.2%.
1.1 1 1.03 1.20.09 0.09 0.1 0.1
15.1513.51 13.42 13
0
2
4
6
8
10
12
14
16
2005 2006 2007 2008
R OA
R OI
R OE
ROE also increases during last few financial years. Average ROE is almost 13% over
last five years.
This ratio ROI relates interest earned on securities to total book value of securities
held by a bank. Government securities are held primarily for liquidity purposes while
other securities are held for getting benefit from their tax-free status.
Net Income per staff shows the NBL market position and management performance.
It also shows the earning capability of the company. Net income per staff comes from
Tk. 83759 to Tk. 243182 from FY 2005 to FY 2008.
Net inc me per s taff(T K .)
191,038 181,526 187,727243,182
-
100,000
200,000
300,000
2005 2006 2007 2008
6.1.5 Liquidity Risk
The acquisition of deposits and other funds is a necessary condition for the expansion of loans and investments beyond the amount permitted by the use of equity only. Maintaining adequate liquidity is a key constraint on the bank's profit-making capacity.
A Bank always has to maintain liquid money for meet up their customer obligation.
Though Bank is a service company, and most of the dealing related with people and
money so management should reserve enough liquid money for emergency customer
requirement.
C as h R atio
16.78% 16.99% 17.76%
10.27%
0.00%5.00%
10.00%15.00%20.00%
2005 2006 2007 2008
Cash ratio shows the liquidity position of the bank. The more percentage of ratio the
less liquidation of the company.
Inves tment to depos it ratio
86.36%86.89%
85.77%
87.13%
85.00%85.50%86.00%86.50%87.00%87.50%
2005 2006 2007 2008
2005 2006 2007 2008Cash ratio 16.78% 16.99% 17.76% 10.27%Investment to deposit ratio (%) 86.36 86.89 85.77 87.13
Place of Business73%
6% 3%9% 9%
0%10%20%30%40%50%60%70%80%
Place Name
%
In 2008, cash ratio of NBL is 10.27%. And in 2005 it was 22.68%. For decreasing the
result of ratio shows the good liquidity of the company.
Investment Deposit also show the company’s cash position. The result of this ratio
shows that, MBL invest more than 85% from their deposit.
3.4
Scenario of
SMEs Division in NBL:
3.4.1 Places of Business that SME Division in NBL providing facilities:
Table04: Table04:place of clientsBusiness
Figure26 (source survey)
Interpretation:
Mainly NBL is providing SME Finance facilities to those businesses which are
located in Dhaka, Narayangonj, Gazipur, Savar, Norshindhi and Chittagong. Through
out the survey I have found that they mainly provide finance to those businesses in
Dhaka city.
3.4.2 Age limit of the SMEs clients:
Table 05: Age Limits of Clients
Place Percentage Dhaka 73%Narayangonj 6%
Place Percentage Dhaka 73%Narayangonj 6%Norsindhi 3%Savar 9%Gazipur 9%
Age Limits Percentage21-30 7%31-40 60%41-50 23%51-Above 10%
Figure 27 (Source: survey)
Proportion of SMEs Products
57%
39%
4%
Lease Finance
Term Loan
Factoring
F orms of the bus ines s
10%
37%
53%
P roprietors hip
P artners hip
L imited C ompany
Figure 28 (Source: survey)
Interpretation:
From this figure I have been found that most of the SMEs clients are in the age limits
of 31-40 which represents that in Bangladesh people around 31-40 involve in various
business activities.
3.4.3 Forms of Business that SME Division in NBL providing facilities:
Forms PercentageProprietorship 53%Partnership 10%Private limited Company
37%
Table 06: Forms of Business
Interpretation:
From this figure, it can be said that SME Division in NBL provides finance mostly
proprietorship business which is 53% of total clients, then partnership which are 37%
and 10% is partnership.
3.4.4 Scenario of SME’s Products in NBL
Facility No. of ProjectsDisbursement
AmountPercentage
Lease Finance 125 153,318,000.00 57%
Term Loan & Time Loan
41 103,773,312.00 39%
Factoring 02 11,125,230.00 4%Total 168 268,216,542 100%
Table 07: SME Products in NBL
Figure 29(Source: survey)
Interpretation:
Lease Finance: Lease finance is a popular financial facility among small and medium
enterprise. SME authority gives lease finance to procure machineries, generator,
delivery van, private car for purpose etc. According to the chart, 57% of total
investment has been disbursed as lease finance. The number of projects of lease
finance is 125 among 168 projects. Apparently, SME authority is used to providing
lease facility in a larger scale. Here, any security is not required because NBL keeps
the ownership of the leased asset. And the client takes insurance policy covering all
risks. In case of car and delivery van, the registration is held in the name of NBL. At
the end of the maturity,NBL transfers ownership of the leased asset to the client.
Term & Time Loan: Basically term loans are given to various small and medium
enterprises to meet working capital requirement. Often enterprise needs money to
purchase raw material, construction of factory or office building, expansion of
business, meeting various expenses etc. There are three types of term loan in the SME
division, short term, medium term and long term. Maturity 1-2 years is short term, 3-4
years is mid term and 5 years is considered as long term. According to the chart, 39%
of total investment has been given as term loan and the number of term loan projects
is 41 among total 168 projects. It is necessary to mention that SME authority demands
security to give term loan. They ask the client to mortgage his land, building or
apartment as security. Without mortgage SME division of NBL does not provide any
term loan.
Factoring: NBL is providing factoring facilities through SME Division since 2008.
At present two clients namely Spirited Associates Ltd. And Electrocom Ideas &
Technologies Ltd are enjoying this facility. Factoring services are also being provided
Purpose of the Facility
0% 0%
38%
15%
47%
0%5%
10%15%20%25%30%35%40%45%50%
Pupose
%
Figure 30(Source: survey)
by other NBFIs like IDLC, ULC, Lanka Bangla Finance Company etc. Comparison of
interest rate and other charges among NBL, ULC & IDLC is given below:
Company Name Interest Rate Service Charge (on bill amount)
VAT(on service charge)
NBL 18% 0.5% 15%ULC 15%-16% 0.25%-0.3% NillIDLC 14.5%-15.5% 0.25%-0.40% Nill
Table 08: Comparison of Factoring Charges between NBL, IDLC & ULC (Source: Internal)
To cope up with the current competition and also to grab more market share in
factoring services, NBL needs to restructurise its existing charges of factoring.
To cope up with the current competition and also to grab more market share in
factoring services, NBL needs to restructurise its existing charges of factoring.
3.4.5 Purpose of having SME facilities from NBL:
Purpose PercentageTo manage your working capital 38%To buy transports/ machineries for your business 47%To expand your business 0%To start up a new business 0%Others 15%
Table 09: Purposes of having SME facilities
Interpretation: Most of the clients come
to have finance to buy vehicles or
machineries and to manage working
capital.
3.4.6 Nature of Business that SME Division in NBL provides Finance:
Nature of Business Percentagea. Light engineering 0%
Figure 31 (Source: survey)
b. Plastic Manufacturing 3%c. Food processing 3%d. Garments & Textile 7%e. Knitting & Embroidery 11%f. Garments Accessories 10%g. Handicrafts 0%h. Printing & Packaging 18%i. Poultry 3%j. Clinic & Diagnostic center 3%k. Hotel & Restaurant 7%l. Educational institution 0%m. Others 35%
Interpretation:
Basically SMESs in NBL provides finance Light engineering, Handicrafts, Plastic
Manufacturer, Printing & Packaging, Food processing, Poultry, Garments & Textile,
Clinic & Diagnostic center, Knitting & Embroidery, Hotel & Restaurant, Garments
Accessories, Educational institution and many more like distributors, shipping,
courier services etc. According to my survey I have found that SMEs in NBL prefers
providing finance to printing and packaging industries.
3.4.7 Years of Startup of the Clients Business:
Nature of bus ines s a0%
b3%
c3% d
7%
e11%
f10%
g0%
h18%i
3%
j3%
k7%
l0%
m35%
a
b
c
d
e
f
g
h
i
j
k
l
m
Figure 32 (Source: survey)
Figure 33 (Source: survey)
Table 11: Startup year of Clients Business
Interpretation: From this figure it is clear that SME Division in NBL provides
finance to those businesses which has experience of business for at least 2 years. But
it gives importance to those businesses which had experience of business for last 5
years.
3.4.8 Total Revenue (Yearly) of the Client’s Business:
Total revenue (BDT Lac)
Percentage
4-23 32%24-53 18%54-73 11%74-93 4%94-113 14%114-500 21%
Table 12: Total Yearly Revenue of Clients Business
Interpretation:
32% clients of the total number of clients have revenue between 4-23 lac which shows
that to get finance from SME in NBL you must have 4 lac revenue yearly.
3.4.9 Total Asset (Excluding lands & buildings) of the Business:
Asset Value(BDT)
Percentage
2-61 lacs 56%62-121 lacs 20%
122-181 lacs 7%
182-241 lacs 7%
242-300 lacs 10%
Years of Startup
Percentage
1991-1995 14%1996-2000 10%2001-2005 48%2006-2008 28%
Figure 34(Source: survey)
Figure 35 (Source: survey)
Table 13: Total Assets Value of Clients
Interpretation:
As the figure shows that the asset value of SMEs in NBL clients are minimum Tk. 2
lac and maximum 3 corers. So, for being a SMEs client in NBL one must have at least
asset valuing 2 lac Tk.
3.4.10 Number of Employees in Clients Business:
Table 14: Number of Employees in Clients Business
Interpretation: To being the client of SMEs you must have at least 5 employees in
your organization. In NBL most organizations have 51-750 employees. The survey
represent that most clients of SMEs in NBL are medium enterprises.
3.4.11 Clients having Loan from any other organization:
Table 15: Loans from other Organizations
Number of
Employees
Percentage
5-25 20%
26-50 10%51-Above 70%
Any other loan from other organization
Percentage
Yes 37%No 63%
20%10%
70%
0%
10%
20%
30%
40%
50%60%
70%
%
5-25 26-50 51-Above
Number of E mployees
Number of E mployes s In C lients B us ines s
Figure 36 (Source: survey)Interpretation:
Most of the clients of SMEs in NBL do not have any other loan from other
organization.
3.4.12 Clients having any other Sources of Income:
Table 16: Other Sources of Income
Type of Income source of the Client:
Other sourceof income
Percentage
Yes 37%
No 16%
Figure 24
Figure 38(Source: survey)
Figure 24
Figure 37 (Source: survey)
Table 17: Type of Sources of Income
Interpretation:
Most of the clients of
SMEs in NBL have other
sources of income. Their
income source is mainly
from service.
3.4.13 Reasons of having finance from SME in NBL:
PrioritiesReasons 1 2 3 4 5
Friendly & fair environment 1 3 7 19 0
Simple & quick processing 17 8 5 0 0
Continuous service 0 10 12 8 0Flexible terms &
conditions13 11 4 2 0
If others please mention 0 0 0 0 30
Table 18: Reasons of having loan from SMEs in NBL
Type of IncomeSource
Percentage
Business 45%Service 55%
1 1
17
0
13
23
8
1011
3
7
5
12
4 4
19
0
8
2
5
0 0 0 00
2
4
6
8
10
12
14
16
18
20
1 2 3 4 5
Why NBL
Reasons Friendly & fair environment Simple & quick processing
Continuous service Flexible terms & conditions
Interpretation:
Most of SMEs clients in NBL came here because of the simple & quick processing
and flexible terms & conditions of loan.
3.4.14 Ranking between NBL, IDLC, ULC, BRAC Bank & Eastern Bank according to their SME Service:
Priorities Name of the Organizations 1 2 3 4 5NBL 26 4 0 0 0IDLC 1 7 16 3 3ULC 2 9 6 10 3BRAC Bank 1 10 5 12 2Eastern Bank Ltd. 0 0 2 6 22
Table 19: Ranking between NBL, IDLC, ULC, BRAC Bank, Eastern Bank
Interpretation: 26% of the total ranked SMEs of NBL at number 1. Those who are
new with NBL they prefer it as number 2. According to the survey NBL is in 1 st
position.
0
26
0
10
0
16
0
10
0
12
22
0
5
10
15
20
25
30
%
1 2 3 4 5 6
NBL,ulc,Eastern BankLtd,BRAC Bank
Ranking between the following organization
Series1
Series2
Series3
BRAC Bank 2nd, IDLC 3rd, ULC 4th and Eastern Bank is in 5th position
3.5 Recovery Performance of SMEs in IIDFC
Although the company selects its clients very carefully, but some of them are not
regular in their payments. As a result the monthly overdue occur and recovery rate
decreases. Recover rate fluctuates month to month because some clients fail to pay
monthly rentals on time. The recovery rate stays below 100% because of two reasons,
these are:
Overdue
Overdue rentals directly reflect on monthly financial report NBL faces overdue when
there is insufficient fund in the clients account. Before avail lease/loan facility the
Lessee/borrower provides required number of post-dated cheques to the lessor/lender.
In due date the account department place the cheque to designated bank and transfer
the amount from client’s (Lessee/borrower) account to NBL (Lessor/lender) account.
But some time because of insufficient fund the rentals are not collected or transferred
to lessor’s/borrower’s account. Due amounts sometime collected consecutive month.
Default
When the lessor/lender is sure that the lessee/borrower will not pay the overdue as
well as future rentals that is called default.NBL faced 3 (Three) default case till today.
At present NBL is taking legal actions against the lessee/borrower. Some agreements
are predicted as default in near future.
When clients who have taken loan show reluctance to repay their monthly
installments, recovery team of credit administration department follow them up in
different ways by:
Writing letter
Calling over the telephone or mobile phone
Visiting clients’ office or home
Engaging recovery agent
Sending legal notice
Writing letter and calling over phone to the clients are frequently done by the
monitoring department. If the clients can not be reached over phone, monitoring
department send someone to visit the client’s office or home. By informing the clients
about the current status of their account, this department often writes letter to them.
But those clients who have doubtful (12-17 nos. over due) and bad loss (more than 17
nos. over due) account are pursued by Managing Director himself with the help of
legal advisor. But very fortunately NBL does not have any client who has doubtful
and bad loss account. In case of Standard (1-2 no. Overdue), SMA (3-5 no. Overdue)
and Substandard (6-11 no. Overdue) if the clients intend to come in to a mutual
understanding and again want to reschedule agreement, the monitoring team of the
institution is flexible enough to settle the overdue account of those clients without
trying to make any hassle.
3.5.1 Reasons for Overdue and Default
If the lessee/borrower fails to pay the monthly rentals or fully fail to repay all dues to
the lessor/lender, the lessor/lender can claim the assets. But most of the time
lessor/lender prefer and asked for monthly rentals rather than the leased/loan assets.
This psychology leads to lower recovery rate.
Although NBL is very selective about their clients, but the organization does not
achieved 100% recovery rate because of monthly overdue payments. There are
different reasons for any leasing company fail to achieve 100% recovery rate.
The reasons are mentioned below:
Change in Local & Foreign Policy
Poor Sector’s Performance
Poor Performance in Business
Political Instability
Insufficient Fund
Client’s Relation with the Organization
Clients Unwillingness
3.5.1.1 Change in Local & Foreign Policy
Bangladesh has trade relationship with other foreign countries. Some major
businesses are directly related with outside world. Foreign policies play a direct role
deciding the performance of a company trading doing business with that particular
country. Policies taken by a foreign country, which will not favor trade; will surely
hinder the financial performance of that company which will result in not paying the
rentals. Local policies like taxes, Interest rate etc. affect the business in the same way.
Readymade Garments would be the precise example here. Withdrawal of quota, quota
for the other countries, has already affected the RMG sector. Withdraw of
government’s incentive to the textile industries has also hindered the expansion of the
industry. As the SME Division of NBL is providing a large amount of lease facilities
in Textile and RMG industries any regulation change or other undesirable policies
directly influence the recovery rate.
3.5.1.6 Client’s Relation with the OrganizationSome clients acquired because they have strong reference and have strong relation
with the top management. In this cases some clients does not have fully sound
position in the market and in future they fail to pay the rentals in time.
3.5.1.7 Clients Unwillingness
The unwillingness to repay is another reason for declining recovery rate. Some clients
do not pay their monthly rentals until the lessor reminds them. This is the notion of
some people and this is one of the major obstacles in recovery.
3.5.2 Yearly Recovery Performance SMEs in NBL:
3.5.2.1 Lease Finance
Lease finance is one of the major products of SME. Past 5 years’ data of recovery
from lease finance shows that year-to-year fluctuation of recovery is very little and
recovery rate is satisfactory in the past five years. From 2003 to 2004, the recovery
rate decreased from 88% to 86%. Again, from 2005 to 2006, the recovery rate
increased from 86% to 93%. But from 2007 to 2008, the recovery rate has started to
decrease. In 2006 the recovery rate has significantly decreased from 93% to 81%. So
the 2006 and 2007 is the worst year of recovery from lease finance in the history of
the past five years. Election, political instability, clients’ reluctance and the transition
period of management may be the reasons of this dissatisfactory performance of
recovery in the 2007 and 2008. SME department always try hard to recover the
overdue amount. We can see the trend of recovery rate of past five years through the
following table and graph.
Yearly Recovery Rate Lease FinanceYear Opening
Receivable (Taka)
A.
Accrual Receivable
(Taka)B.
Accrual + Opening
Receivable (Taka)
C=A.+B.
Closing Receivable
(Taka)D
Recovery (Taka)E =C-D
Recovery Rate
(E/C)*100
2007 29016450 206693107 235709557 43837752 191871805 81%2008 43837752 293469691 337307443 64116090 273191353 81%
Table 20: Yearly Recovery Rate of Lease Finance (Source: internal)
3.5.2.2 Term Finance:
Term Loan is the second major products of SMEs. Past 5 year’s data of recovery
from term finance shows that year-to-year fluctuation of recovery is high and
recovery rate is not satisfactory like lease finance. It is comprehensible that in 2004
the yearly recovery rate was significantly high rather than the other four years. In
2005 it decreased from 95% to 77%. After 2005 the recovery rate of term loan
gradually started to decrease. In 2007 the recovery rate has significantly decreased
from 69% to 43%. If we do comparative analysis between lease and term finance, it is
noticeable that recovery from lease finance is far better than that of term finance. I
have found a significant reason behind it. Whenever a customer takes loan under lease
operation, he or she is not the owner of the asset. So the customer always tries to pay
the monthly rental regularly lest his or her assets should be repossessed by the
company. But the customer who takes term loan by giving mortgage does not have
this fear. That is why; repayment performance of the clients of the term loan is less
satisfactory than that of the clients of term loan. We can see the trend of recovery rate
of past four years through the following table and graph.
Yearly Recovery Rate from Term Loan
Year Opening
Receivable
Accrual (Receivable
for the Relevant
Year)
Opening Receivable+
Accrual Recovery
Closing Receivable
Recovery Rate
2007 25523643 148886487 174410130 74581074 99829056 43%2008 99829056 313571980 413401036 277202061 136198975 67%
3.6 Sector-wise Recovery of lease finance and term loan
In some sectors the leasing firms are achieving 100% recovery rate but some sectors
are not regular in their payment. This reason the overall rate decreases. Total recovery
rate does not provide any clear scenario of the organization. To analyze the recovery
management sector-wise information is more reliable. Following table display the
sector-wise recovery rate from year 2007 to year 2008 of NBL.
Sectors2007(%)
2008(%)
1 Services 99.84 100
2 Distribution 99.87 100
3 Processed food & allied 99.80 100
Table 21: Yearly Recovery Rate from Term Loan
_ (Source: internal)
4 Pharmaceuticals 100 100
5 Individual 94.26 98.66
6 Textile 98.78 98.77
7 Readymade Garments N/A N/A
8 Engineering & Workshop 97.25 98.39
9 Publishing & Newspaper 93.91 100
10 Cement 27.41 0
11 Medical & Diagnostics 100 100
12 Other 74.92 100
13 Toiletries 100 N/A
14 Poultry 100 N/A
15 Education 98.44 N/A
Table 22: Sector-wise Annual Recovery Rate of NBL
(Source: internal)
Above table shows that some sectors like Marine Transport, Process Food and Allied,
Pharmaceuticals, Medical and Diagnostics and Poultry sectors are very much regular
in their payments. End of each year above mentioned sectors’ recovery rate was
around 100% to 99.50%.
Moderate rated sectors are Road Transport, Services, Textile, Individual and
Education. Annual recovery rates of these sectors stay between below 100% to 90%.
Very volatile sectors are those have recovery rate in below 90%. Readymade
Garments, Engineering and Workshop, Publishing and Newspaper, Cement, Toiletries
and others recovery reached to 80%. Some of above-mentioned sectors often achieved
100% recovery rate also. In Cement the rate is lowest at 44%.
04. Findings & Recommendations
After analyzing all the information some facts are exposed and some effective
recommendations are proposed.
4.1 Findings
Although NBL and other selected organizations are engage in lease financing, but
there is also some dissimilarities in management activities. The findings from the
analysis are discussed below:
IPDC is in the leasing business from 1981 and ULC is in from 1989. Compare to
them NBL is a popular company and have less experience in Bangladesh market.
Besides leasing IPDC and ULC offer other products and services in large scale the
market. NBL has Merchant Banking and Money Market Operation but in very big
scale.
The net profit of NBL in 2008 was 12% higher than the previous year and the
growth rate was 17%. The growth of net profit of ULC was 20%.
The yearly rate of disbursement NBL is higher than ULC. In 2000 the rate was
53.76% and 7.23% respectively. In 2001 NBL take a giant leap, which gave the
company to capture a strong market position. In 2002 the rate of disbursement was
27% for NBL and 19% for ULC.
All 3 (three) organizations provide lease facilities to different sectors of the
country. As the titles do not match with each other it is difficult to identify all the
sectors where they are investing.
IPDC invest in Agro Based Projects and in Infrastructure Development, which are
absent in NBL’s portfolio.
The amount of total leased asset of NBL is 50% less than ULC. The reason is
ULC is in the business for 12 years where as NBL is in for 9 years.
The overall recovery rate does not reflect the actual scenario as some sectors
achieved the 100% recovery rate.
The total recovery rate close to each other. NBL’s recovery rate range from 93%
to 89%, where as ULC has ranged 91% to 92% and IPDC has ranged from 92% to
95%.
Sector-wise recovery helps to identify the poor performance and also indicate the
economic condition of the country.
Sector-wise recovery rate can focus on different sectors and identify the position
in the economy by indicating the nature of payments.
IPDC has separate recovery cell lead by General Manager (GM) and the rate of
recovery is the highest among 3 (three) organizations.
ULC has a recovery division under Marketing Department and the recovery rate is
not around 91% but the rate is almost stable for last 3 (three) years.
NBL does not have any recovery division or cell and the recovery rate is
fluctuating from 93% to 89%.
As NBL does not have separate recovery division or cell, for that it is very lengthy
process to take actions to collect overdue. And the problems arise that who will
take the responsibility to make liaison between the client and the company.
By recovery division management can held responsible the designated person for
un-recovered payments.
Recovery cell or division can provide extra effort to the un-recovered payments
and take necessary actions promptly to collect the dues.
4.2 Recommendations
By analyzing 6 (six) different Non-banking Financial Institutions some
recommendations are point out to make the NBL’s recovery management system
effective. The recommendations are stated below:
Separate recovery department or cell is essential for increase the recovery rate.
The recovery division must involve a person from Marketing Department and one
from Accounting Department. The Manager of Internal Control Department.
Should supervise the division. The division must report to top management
regularly.
Beside CIB and Bankers Report,NBL should collect report on payment nature
from the client’s suppliers and other who are directly related with clients business.
Industry analysis should be done during the lease processing. NBL must collect
past data related to different industry and analyze the present situation as well as
predict the future. Because most of lease are long term (2-5 Years).
Although the clients are regular in their payment, a continuous close monitoring
must be carrying on to eliminate the default risk.
Every month before payment date a person from recovery division must inform
the clients by writing or through phone or e-mail.
If the client fails to pay 3 (three) consecutive payments, the recovery cell should
inform the top management to take corrective actions.
05. Conclusion
Financial Bank Institutions are a new dimension for Bangladesh’s economic growth.
Efficient services from these companies can push up the industrial growth. Lease
financing provides the industries a scope to invest without acquiring any liability.
As all NBFI is providing SME facility by borrowing fund from Commercial banks,
because of that the cost of lease facility is higher than direct borrowing. Only from
this reason many firms are not step forward to avail lease facilities, event though all
other manner it is convenient. In this situation some NBFI enjoys the low cost funding
from Commercial Bank, Bangladesh Bank and providing relatively cheaper lease
facilities to the clients.
Lease financing is a very enormous step in industrial growth. Government support
and proper knowledge and information will help the citizens to avail lease facilities
from these established financial companies. In developed countries the lease financing
has a major contribution in the industrial as well as economic growth. So for the
growth of the country NBFI can play a vital role in the future
References
Websites:
1. Anonymous; http://www.iidfc.com/; February 15, 2009
2. Anonymous;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=928139;
February 17, 2009
3. Anonymous; http://www.dsebd.org/ipo/NBL.pdf; February 20,2009
4. Anonymous; http://www.bangladesh-bank.org/, March 01, 2009
5. Anonymous; http://www.ulc.com.bd/; April 05,2009
6. Anonymous; http://www.idlc.com/; April 05, 2009
Report:
1. Annual Reports of NBLLtd (2005, 2006, 2007, 2008)
2. Annual Reports of IDLC Ltd (2006, 2008)
Appendix: A
Questionnaire
Dear Sir / Madam:
I am a student of University of Liberal Arts Bangladesh (ULAB), assigned to do my
internship project report on SME Finance in NBL.
To help me getting more information, I need to know more about you and your
opinions about the NBL's SME Division. I would appreciate it if you would complete
this questionnaire. All the information will be treated as completely confidential and
used for academic purpose only; it will not be possible for anyone to identify the
information you give me when I write up the project report.
Thank you.
Kamrun Naher
(Intern)
Name & Designation : .................................................................................
Name of the Business : .................................................................................
Place of the business : .................................................................................
Age : A. 20-30
B. 31-40
C. 41-50
D. 50 and above.
Forms of the business : A. Proprietorship
B. Partnership
C. Limited Company
D. 50 and above.
(1) Which facility you are / going to enjoy from NBL?
a. Direct Lease Finance.
b. Sale or Lease Back.
c. Factoring
d. Term Loan
e. Time Loan
(2) For what purpose you need lease finance/ term loan?
a. To manage your working capital
b. To buy transports / machineries for your business
c. To expand your business
d. To start up a new business
e. If others, please mention .......................................................................
(3) Types of business for which you need lease finance / term loan?
a. Light engineering g. Handicraftsb. Plastic Manufacturing h. Printing & Packagingc. Food processing i. Poultryd. Garments & Textile j. Clinic & Diagnostic centere. Knitting & Embroidery k. Hotel & Restaurantf. Garments Accessories l. Educational Institution
(4) When did you start your business? (Mention the year only)..................................
(5)Annual Revenue of your business ...........................................................................
(6) Total asset value of your business excluding land and building .............................
(7) Number of employees of your organization ............................................................
(8) Do you have any other loan from other organization?Yes _______ No ______
If yes mention the name of the organization only ...........................................................
(9) Do you have other source of income?Yes _______ No ______
If yes mention the source (name of the organization and your designation) ...............................................................................................................................................
(10) Why NBL? (Please prioritize your answer)
PRIORITY
a. Friendly & fair environment .................
b. Simple & quick processing .................
c. Continuous service ................
d. Flexible terms & conditions .................
e. If others please mention ......................................................... .................
(11) Please rank the following organizations from 1 to 5 according to your priority
(1 = best, 2 = good, 3=ok, 4=bad, 5=worst)
a. NBL
b. IDLC
c. ULC
d. BRAC Bank Ltd
e. Eastern Bank Ltd.
(12) If NBL is your priority no. 1 then please go to question no. 13. If NBL is not
your priority no. 1 then please mention the reason for choosing NBL for SME loan.
........................................................................................................................................
(13) What more benefits for you went from SME Division in NBL?
a. .............................................................
b. .............................................................
c. .............................................................
d. .............................................................