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Internship Report on An analysis of Non-performing loans of Uttara Corporate Branch of Janata Bank Limited Exam Roll: 142378 Internship Report on An analysis of Non-performing loans of Uttara Corporate Branch of Janata Bank Limited Prepared For Chairman Internship Placement Committee Prepared By Exam Roll Number: 142378 4th year, 8th semester Batch Number: 24, BBA Program Academic Session: 2014-15 Institute of Business Administration (IBA-JU) Jahangirnagar University Savar, Dhaka-1342 06 July, 2020 Letter of Transmittal 06 July, 2020 Chairperson Internship Placement Committee, Institute of Business Administration, Jahangirnagar University Savar, Dhaka- 1342. Subject: Submission of Internship Report. Dear Sir, With due respect and humble submission, I would like to inform you that I have completed my Internship Program in Uttara Corporate Branch of Janata Bank Limited from December 01, 2019 to March 01, 2020. It is my pleasure to submit the Internship Report on “An analysis of Non-performing loans of Uttara Corporate Branch of Janata Bank Limited” as a partial fulfillment of 8th semester of BBA program. This report comprises of a brief overview of Janata Bank Limited, my internship sponsor organization and comparative analysis of NPLs of Uttara Corporate Branch of Janata Bank Limited to Janata Bank Limited and Banking industry. I hope that, the readers of this report can have an idea about how Uttara Corporate Branch of Janata Bank Limited are performing compared to Janata bank Limited and Banking industry of Bangladesh. I have tried my level best to prepare the report worthwhile with my limited knowledge. I therefore, hope that, you will be kind enough to accept this report and make necessary assessment. Thank You. Regards, Exam Roll Number: 142378 4th year, 8th semester 24th Batch, BBA Program Academic Session: 2014- 2015 i Declaration I do hereby declare that the internship report entitled as “An analysis of Non-performing loans of Uttara Corporate Branch of Janata Bank Limited” has been prepared on the basis of three months Internship activities on the titled organization and it is an original work done by me. The report is a unique one which is not submitted to anywhere for any academic purpose. The data and information which are mentioned here are also collected and organized by myself. I am solely responsible for any kind of misleading or manipulation of data or information in this report. Finally, this report is submitted to the Institute of Business Administration, Jahangirnagar University for the partial fulfillment of the requirements of the Degree of Bachelor of Business Administration. Exam Roll Number: 142378 4th year, 8th semester 24th Batch, BBA Program Academic Session: 2014- 2015 Major: Finance Institute of Business Administration Jahangirnagar University ii Certificate of the Supervisor This is to certify that Exam ID: 142378, Batch: 24th, Academic Session: 2014-2015, a student of BBA program, Institute of Business Administration, Jahangirnagar University, has completed internship program on “An analysis of Non-performing loans of Uttara Corporate Branch of Janata Bank Limited” under my supervision. I have gone through the report and it seems satisfactory to submit for the award of the Degree of Bachelor of Business Administration. I wish his/her success in life. (Sign of Supervisor) ………………………………… Name of the Teacher: Ms. Tasnima Aziza Designation: Associate Professor Institute of Business Administration Jahangirnagar University iii Acknowledgement At first, I must show our gratitude to almighty Allah for giving me energy, strength and capabilities to prepare this report. I want to express gratitude to my respected supervisor Ms. Tasnima Aziza, Associate Professor, Institute of Business Administration, Jahangirnagar University for her inspiring guidelines, valuable suggestion, constructive criticism and constant help throughout the work and in preparation of this report. I also express my warm gratitude and cordial thanks to Mr. Mohammad Ali (Principal officer), Janata Bank Limited, Uttara Corporate Branch for giving me his valuable time and corporation during the internship period and providing various data, information thus enabling me to prepare the Internship report. Without his support I would not be able to gain knowledge about Non-performing loans and provide information in this report. Finally, I want to convey my gratitude to all of the faculty members of IBA-JU, the writers of many articles as well as the employees of Uttara Corporate Branch of Janata Bank Limited who helped me reach this point and make this report. iv Table of Contents Executive Summary...................................................................................................................................... ix 1.0 Introduction ............................................................................................................................................ 1 1.1 Background of the study ..................................................................................................................... 1 1.2 Origin of the study .............................................................................................................................. 1 1.3 Objectives of the study ....................................................................................................................... 1 1.3.1 Broad objective: ........................................................................................................................... 1 1.3.2 Specific objectives: ....................................................................................................................... 1 1.4 Methodology of the Study .................................................................................................................. 2 1.5 Scope of the study: ............................................................................................................................. 3 1.6 Limitations of the Study: ..................................................................................................................... 3 2.0 Literature Review .................................................................................................................................... 4 3.0 Organizational Overview......................................................................................................................... 5 3.1 History of Janata Bank Limited ........................................................................................................... 5 3.2 Corporate Vision and Mission ............................................................................................................. 6 3.3 Corporate Slogan: ............................................................................................................................... 6 3.4 Contribution of JBL in the Banking sector ........................................................................................... 6 3.5 Organization Organogram .................................................................................................................. 7 3.6 Corporate Information: ....................................................................................................................... 8 3.7 Products and Services offered by Janata Bank Limited ...................................................................... 9 3.8 Awards and Recognition ................................................................................................................... 10 3.9 JBL’s Corporate Social Responsibilities ............................................................................................. 10 3.10 Janata Bank Limited: Uttara Corporate Branch .............................................................................. 11 3.11 Working Segments of Uttara Corporate Branch ............................................................................. 11 4.0 Project Part ........................................................................................................................................... 12 4.1 Non-performing loans ....................................................................................................................... 12 4.1.1 Causes of Non-performing loans ............................................................................................... 12 4.1.2 Effects of Non-performing loans ................................................................................................ 13 4.2 Analysis and Findings ........................................................................................................................ 14 4.2.1 Data Analysis .............................................................................................................................. 14 v 4.2.1.1 Status of NPLs of Banking industry of Bangladesh.............................................................. 14 4.2.1.1.1 Trend of total amount of NPLs..................................................................................... 14 4.2.1.1.2 Trend of growth of NPLs .............................................................................................. 16 4.2.1.1.3 Trend of NPL ratio ........................................................................................................ 17 4.2.1.1.4 Trend of Provision maintenance ratio ......................................................................... 18 4.2.1.2 Status of NPLs of State-owned banks of Bangladesh ......................................................... 19 4.2.1.2.1 Trend of total amount of NPLs..................................................................................... 19 4.2.1.2.2 Trend of growth of NPLs .............................................................................................. 20 4.2.1.2.3 Trend of NPL ratio ........................................................................................................ 21 4.2.1.2.4 Trend of Provision maintenance ratio ......................................................................... 22 4.2.1.3 Status of NPLs of Janata Bank Limited and Uttara Corporate Branch of Janata bank limited ........................................................................................................................................................ 23 4.2.1.3.1 Trend of total amount of NPLs..................................................................................... 23 4.2.1.3.2 Trend of growth of NPLs .............................................................................................. 24 4.2.1.3.3 Trend of NPL ratio ........................................................................................................ 25 4.2.1.3.4 Trend of Provision maintenance ratio ......................................................................... 26 4.2.2 Summary of Findings.................................................................................................................. 27 5.0 Conclusion & Recommendation ........................................................................................................... 28 5.1 Recommendation:............................................................................................................................. 28 5.2 Conclusion: ........................................................................................................................................ 28 References .................................................................................................................................................. 29 APPENDIX A vi List of Illustrations Table 1 & Figure 1: Trend of total Amount of NPLs by the categories of banks 15 Table 2 & Figure 2: Trend of the growth of NPLs by the categories of banks 16 Table 3 & Figure 3: Trend of NPL ratio by the categories of banks 17 Table 4 & Figure 4: Trend of Provision maintenance ratio by the categories of banks 18 Table 5 & Figure 5: Trends of total Amount of NPLs by SCBs 19 Table 6 & Figure 6: Trend of the growth of NPLs by SCBs 20 Table 7 & Figure 7: Trend of NPL ratio by SCBs 21 Table 8 & Figure 8: Trend of provision maintenance ratio 22 Table 9 & Figure 9: Trend of total Amount of NPLs by JBL and Uttara Corporate Branch of JBL 23 Table 10 & Figure 10: Trend of the growth of total Amount of NPLs by JBL and Uttara Corporate Branch of JBL 24 Table 11 & Figure 11: Trend of NPL ratio by JBL and Uttara Corporate Branch of JBL 25 Table 12 & Figure 12: Trend of provision maintenance ratio by JBL and Uttara Corporate Branch of JBL 26 vii List of Abbreviations NPLs Non-performing loans NPL ratio Non-performing loan ratio PMR Provision maintenance ratio JBL Janata Bank Limited ABL Agrani Bank Limited RBL Rupali Bank Limited SBL Sonali Bank Limited SCB State-owned commercial bank PCB Private commercial bank FCB Foreign commercial bank BB Bangladesh Bank BPRD Banking Regulation & Policy Department BDBL Bangladesh Development Bank Limited BBL Basic Bank Limited DFI Development Financial Institution viii Executive Summary This report aims to provide findings on the position of NPLs of Uttara Corporate Branch of Janata Bank Limited compared to Janata Bank Limited and Banking industry of Bangladesh. The report is prepared within the broader framework of the Internship Program as an integral part of the BBA program of Institute of Business Administration, Jahangirnagar University. The Introduction part of the report is focused on the background of the study along with relevant methodology where quantitative research approaches and Judgmental sampling technique have been used in this report for selecting 03 types of banks out of the banking industry and 04 State-owned banks out the entire state-owned banks. Objectives of the study have been categorized into two sections -Broad and Specific. Furthermore, the introductory part has been concluded by focusing on Scopes and Limitation of the study to establish the viability of the topic. To achieve the objectives of the report, ratio analysis technique has been adopted as research methodology. Based on Non-performing loan ratio and Provision maintenance ratio, Uttara Corporate Branch of Janata Bank Limited has been evaluated with Janata Bank Limited and Banking industry of Bangladesh. The next part of the report is Literature review where relevant literature has been discussed in a nutshell. The third part of the report is Organizational overview that focuses on Janata Bank Limited and its inception along with specific Mission and Visions. Then a detailed listing of its Products and Services has been given to focus on its wide range of activities. Moreover, its Performance, Awards and Recognitions and Corporate Social Responsibilities have been described briefly followed by a detailed Organogram. A brief overview of Uttara Corporate Branch of Janata Bank Limited has also been discussed. The latter part of the report is project part where quantitative research methodology approach has been used towards achieving the objective of the report. The project part starts with introducing some basics regarding NPLs i.e. its definition, causes and effects. After that, present scenario of NPLs on Different categories of banks (SCBs, PCBs and FCBs), different SCBs (JBL, ABL, SBL and RBL) and Uttara Corporate Branch of Janata Bank Limited with Janata Bank Limited has been compared based on trends of total NPLs, its growth, NPL ratio and Provision Maintenance Ratio. The final portion of the report emphasized mainly on Findings and Recommendations of the report. It has been found that Uttara Corporate Branch of Janata Bank Limited is in better position compared to Janata Bank Limited and slightly behind than the banking industry in terms of NPL ratio while Uttara Corporate Branch of Janata Bank Limited along with Janata Bank Limited has been able to book the required level of provisions but our banking industry is struggling to maintain it. This report can be a potential guide and encourage other researchers to further study on this topic and provide an insight to the investors and the regulatory body about the existing status of Non-performing loans in our country. ix 1.0 Introduction 1.1 Background of the study A bank is a financial institution whose main objective is the mobilization of fund from surplus unit to deficit unit. In the process of acceptance & provision of loan, banks create money. This characteristic feature sets bank apart from other financial institution. A bank can influence the money supply through lending and investment. A bank is also an economic institution whose objective is to earn profit through exchange of money & credit instruments. Commercial bank is one which is concerned with accepting deposits of money from the public, repaying on demand or otherwise and withdrawal on demand or otherwise and employing the deposits in the form of loan and investment to meet the financial needs of business and individuals of the society. Loans are treated as assets for banks that earn interest which is considered as profit. A Nonperforming loan (NPL) is a loan that is in default or close to being in default (Wikipedia). NPLs shrink the profit of banks as the principal amount or interest payments of loan are being delayed or not paid by the borrowers. While thousands of studies have been previously conducted to study various aspects of NPLs in Bangladesh and globally. But no study was found regarding NPLs of Uttara Corporate Branch of Janata Bank Limited. This report has tried to analyze the position of NPLs of Uttara Corporate Branch of Janata Bank Limited with Janata Bank Limited and banking industry of Bangladesh. 1.2 Origin of the study The internship program is a part of the BBA program of Institute of Business Administration, Jahangirnagar University. As per this requirement, students need to attach themselves in an organization for a period of three months to earn real life experience of how organization works. After the three-months program, students need to submit an internship report using their experiences and knowledge gained during this period. As an intern in Uttara Corporate Branch of Janata Bank Limited, the writer of this report has gained various insights and knowledge about Non-performing loans which led him believe that Uttara Corporate Branch of Janata Bank Limited is doing better in terms of Non-performing loans management. This report will be prepared to understand if his idea has merit. 1.3 Objectives of the study 1.3.1 Broad objective: The primary objective of this report is to analyze the Non-performing loans of Uttara Corporate Branch of Janata Bank Limited. 1.3.2 Specific objectives: To achieve this broad objective, some specific objectives to be fulfilled: To analyze the position of NPLs of Uttara Corporate Branch of Janata Bank Limited to Janata Bank Limited. To analyze the position of NPLs of Uttara Corporate Branch of Janata Bank Limited to banking industry of Bangladesh. Page 1 of 29 1.4 Methodology of the Study Methodology describes the manner in which data is collected, analyzed and interpreted. This report is based on quantitative research methodology, all based on secondary data. I have collected the information/data from the following sources, which has helped me to make this report. The sources are: Secondary sources: The secondary data sources used for this study were annual reports of JBL, SBL, ABL, RBL and BB retrieved from respective websites, different publications, articles, reports, websites and officials from Uttara Corporate Branch of Janata Bank Limited. Time preference: The time frame of the report is between 2014 to 2018. Sampling: The Judgement Sampling is the non-random sampling technique wherein the choice of sample items depends exclusively on the investigator’s knowledge and professional judgment. Judgmental sampling technique is used in this report for selecting 03 types of banks out of the banking industry and 04 Stateowned banks out the entire state-owned banks. Scheduled banking industry of Bangladesh can be segregated into 04 types. They are- SCBs, DFIs, PCBs and FCBs. As DFIs don’t operate like conventional commercial banks, so the researcher has excluded them from this research. There are 06 state-owned banks in Bangladesh. Due to the unavailability of the adequate data, the researcher has excluded BDBL and BBL from the analysis and JBL, ABL, SBL and RBL have been selected. Instruments used for analysis: The report has been prepared predominantly based on ratio analysis technique. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. Ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. Financial ratios are usually expressed as a percent or as times per period. Ratio analysis (NPL ratio and Provision maintenance ratio) is used to analyze the trend of NPLs of Uttara Corporate Branch of Janata Bank Limited to Janata Bank Limited and Banking industry of Bangladesh. Growth rate technique has also been used somewhere to further analyze the report. Microsoft Excel 2016 was used as an analysis tool. NPL ratio: NPLs ratio is one of the most relevant indicators of the financial soundness of the banking system (IMF, 2006, p. 85), which identifies problems with asset quality in the loan portfolio. The more deteriorated is the quality of the credit portfolio of the bank the more is that indicator. NPL ratio dictates the amount of Nonperforming loans to Total loans. It represents the percentage of loan of a bank that has become nonperforming that doesn’t earn interest or principal or both. The less the NPL ratio is, the better the bank is performing efficiently in terms of its credit management. International standard of NPL ratio is ≤ 2%. NPL ratio=Non-performing loans/ Total outstanding loans and advances *Gross NPLs ratio as NPL ratio has been used in this study where Gross NPLs ratio is Gross NPLs to Total loans. Page 2 of 29 Provision Maintenance Ratio: Loan loss provisions are used as a cushion to adapt to the expected loss resulted from the missed payment of installment on a bank’s loan portfolio; it is interchangeably known as provision for bad debts (Ozili & Outa, 2017). A loan loss provision is an expense set aside as an allowance for uncollected loans and loan payments. This provision is used to cover a number of factors associated with potential loan losses, including bad loans, customer defaults, and renegotiated terms of a loan that incur lower-than-previously-estimated payments. (Investopedia) According to the instruction of Bangladesh Bank, every bank has to book required level of provision against non-performing loans. Provision is the specified amount of money that banks have to keep against Non-performing loans. Provision maintenance ratio (PMR) states whether the bank maintained to book the required level of provisions or not. If PMR ≥100%, the bank is said to book the required level of provisions. Provision Maintenance Ratio= Provision maintained/ Provision required Growth rate: Growth rate measures the rate at which something, in particular an economy or business, grows (Increase or Decrease). Growth rate= (Xt-Xt-1/ Xt-1) Where, t= Loan amount of current year and t-1= Loan amount of previous year 1.5 Scope of the study: As no other study was conducted based on comparative analysis of NPLs of Uttara Corporate Branch of Janata bank Limited to Janata bank Limited and banking industry of Bangladesh prior to this study, so this report will serve as a guide for investors and market authorities to understand the position of Uttara Corporate Branch of Janata Bank limited compared to Janata Bank Limited and banking industry and will help to make a decision before investing in it. 1.6 Limitations of the Study: It is obvious that every study has some limitations. On the way of preparing this report, the following problems are faced that may be termed as limitations of the study: Large scale analysis is not possible due to constraints & restrictions posted by the banking authority. This study completely depended on official records and annual reports. Duration of the study was too short to have a sound understanding of the Non-performing loan. Lack of data on relevant context. Due to pandemic situation, adequate communication with the supervisor was hampered. Page 3 of 29 2.0 Literature Review Banks that perform poorly in credit risk rating face several challenges. One of these challenges is nonperforming loans or default loans they have to face. According to a study by Brown Bridge (1998), most of the bank failures were caused by non-performing loans. Many of the bad debts were attributable to moral hazard; the adverse incentives on bank owners to adopt imprudent lending strategies in particular insider lending and lending at high interest rates to borrowers in the riskiest segments of the credit markets. Hennie (2003) defined non-performing loans as those loans which were no longer generating income. It was further supported by Fofack (2005) who defined NPLs as those loans for which the principal and/or interest had been left unpaid for at least ninety days. Banks should identify them and take the necessary steps to eliminate the NPLs from the industry. However empirical studies show that several variables cause NPLs in banks in all over the world. In the majority of studies investigated the determinants of NPLs either macroeconomic or bank-specific determinants. The exception includes Bercoff et al. (2002) who combine bank-specific and macroeconomic variables to explain the vulnerability of the Argentinean banking system over the 1993-1996 period. They strongly claim that non-performing loans are affected by both bank-specific factors and macroeconomic factors. In some studies, the relationship between NPLs and bank-specific factors has been clearly shown and so it can be said that the amount of non-performing loans of a specific bank is somewhat dependent on the effectiveness of the bank's policies, internal culture and efficiency of its employees. Pullicino (2016) suggests that the dramatic changes in lending interest rates are associated with the level of NPLs, because high lending interest rates will broaden the debt burden of borrowers eventually causing loan defaults. Shinkey (1991) stated that the bank’s lending policy has a significant influence on NPLs. Before the lending decision banks need to evaluate the probability of default along with cost and benefit analysis. Adhikary (2007) on his research paper found that the banking sector of our country greatly affected by the large amount of NPLs which continuously influences the economic development. According to him, the main factors responsible for the massive growth of NPLs are lack of effective monitoring & supervision, political pressure, weak legal infrastructure, and ineffective NPLs recovery strategies. Messai and Jouini (2013) examine the role of both macroeconomic and bank-specific factors on NPLs in 85 banks in Italy, Greece, and Spain, respectively, for 2004- 2008 and find unemployment rates, real interest rates, and poor credit quality to positively influence NPLs. Roy et al. (2014) analyzed the determinants of macro-economic variables on the non-performing loans of local private commercial banks of Bangladesh. The data range from year 2004 to 2013 covering 18 scheduled banks. Macro-economic variables i.e. GDP growth, inflation and interest spread are selected as the determinants of non-performing loans. Page 4 of 29 3.0 Organizational Overview 3.1 History of Janata Bank Limited Janata Bank Ltd. was born as the first hundred percent Bangladeshi owned Bank in the public sector. From the very inception it is the firm determination of Janata Bank Ltd. to play a vital role in the national economy. After independence in 1971, all banks were nationalized and reorganized into distinct new banks in terms of Nationalization order 1972 of Bangladesh Bank, which was promulgated on 26 March, 1972. Following the order, the erstwhile United Bank Limited and Union Bank Limited were merged and renamed as Janata Bank. Later on, the bank was corporatized and renamed as Janata Bank Limited on 15 May, 2007 with a mission to be the largest commercial bank in the country. The board of directors is composed of 9 members. The directors, independent by nature, are representatives from both public and private sectors with high professional and academic backgrounds. JBL has a large branch network, spreading over both urban and rural areas. The bank provides quality service, lucrative and innovative products. The bank’s business activities in general conform to social, ethical and environmental standards as well as norms of corporate governance. Subsidiary Organizations of Janata Bank Limited: Janata Bank Limited (JBL) has three Subsidiary Organizations: Janata Capital and Investment Limited. Janata Exchange Company SRL, Italy. Janata Exchange Company Inc. (JECI), USA. Janata Capital and Investment Limited. Following the guidelines of Bangladesh Bank, JBL has converted its merchant Banking unit into a separate subsidiary company titled Janata Capital and Investment Limited (JCIL) with the objectives to undertake full-fledged merchant banking operations namely, issue management and underwriting and portfolio management. The authorized capital of this subsidiary is BDT 5,000 million and paid-up capital is BDT 2,000 million. The company started working on 26 September 2010. Janata Exchange Company SRL, Italy. Apart from JCIL, Janata Exchange Company SRL, Italy with a paid up capital of 0.06 million Euros was established on 18 January 2002. It started its journey with a branch only in Rome. Later on, another branch was set up at Milan. Janata Exchange Company Inc. (JECI), USA. Janata Exchange Company Inc. (JECI), USA with a paid up capital of US $1.00 million has been established in 2014 and functioning with a corporate office-1 in New York, USA. Page 5 of 29 3.2 Corporate Vision and Mission VISION “To become the effective largest commercial bank in Bangladesh to support socio-economic development of the country and to be a leading bank in South Asia.” MISSION “Janata Bank Limited will be an effective commercial bank by maintaining a stable growth strategy, delivering high quality financial products, providing excellent customer service through an experienced management team and ensuring good corporate governance in every step of banking network” 3.3 Corporate Slogan: With the new journey, Janata Bank Limited has started its new slogan to add a new dimension in their service. The slogan is “Your Committed partner in progress” that indicates its continuous improvement to create the excellent service condition for the clients so that they can thrive. 3.4 Contribution of JBL in the Banking sector Banking sector of Bangladesh is being operated by 57 banks having more than 9 thousand branches. Along with contributing to the socio-economic development of the country, JBL has earned 9,788.96 million operating profit in 2018. Contribution of Janata Bank Limited: (BDT in million) SL. Components Amounts Growth 1 Total Assets 866,046.48 7.45% 2 Deposits 675,548.45 4.02% 3 Loans and Advances 533,707.16 16.13% 4 Import 220,413.70 53.51% 5 Export 114,681.00 (18.04%) 6 Foreign Remittance 76,078.10 5.63% 7 Branches (number) 913 0.10% 8 Manpower (number) 11,849 (4.37%) Page 6 of 29 3.5 Organization Organogram Chairman Managing Director General Manager Deputy General Manager Assistant General Manager Senior Principal Officer Principal Officer Officer Sub Accountant Senior Clark Page 7 of 29 3.6 Corporate Information: Name of Company Janata Bank Limited. Registered Office Janata Bhaban, 110, Motijheel C/A Dhaka-1000, Bangladesh. Legal Status Public Limited Company. Date of Incorporation 21 May 2007. Date of Commencement of Business 31 May 2007 Authorized Capital Tk. 30,000 Million. Paid up Capital Tk. 23,140 Million. Face value per share Tk. 100 per share. Shareholding Pattern 100% Share owned by the Government of the Peoples Republic of Bangladesh. Chairman Luna Shamsuddoha CEO & Managing Director Mr. Md. Abdus Salam Azad (F.F.) Chief Risk Management Officer Khondker Sabera Islam Company Secretary Hussain Yeahyea Chowdhury Total Number of Branches 913 Subsidiaries Dhaka Janata capital and investment Ltd. Janata Exchange Company srl. Italy Janata Exchange Company Inc. New York, United States of America (USA) Number of Employees 11,849 (As on 01.02.2019) Number of Exchange House 76 Fax 88-02-9564644, 9560869 E-mail md@janatabank-bd.com Website https://www.jb.com.bd/ Swift Code JANBBDDH Page 8 of 29 3.7 Products and Services offered by Janata Bank Limited Products and services are the core assets of any organization. JBL is playing the most momentous role in offering particular services to different clients through the country. Their products and services are: PRODUCTS Deposit Loans and advance Current Deposit Savings Deposit Special Notice Deposit Fixed Deposit Schemes Agriculture Loans Working Capital Loan Rural Credit Tannery Trading JBL Commercial Real Estate Loan JBL House Construction and Apartment Purchase Loan Consumer Financing Education Loan Janata Care-Health Care Loan Janata Support-Special Loan for Pension Holder Special Loan (Women Entrepreneur, Micro businesses etc.) SERVICES e-Service Modern Banking ATM Online Banking Automated Branch Banking JB Remittance Green Banking JB PIN Cash e-GP Payment Service House Building/ Flat Loan for Govt. Employee OMIS (ERP) PMIS BEFTN User Manual Page 9 of 29 3.8 Awards and Recognition Asian Banking Awards-2004 & 2005 Quality Recognition Award-2009 Best Bank Bangladesh-2006, 2007, 2008 & 2009 Western Union (Worldwide Money Transfer C.) Asia Pacific- Productive Location Champion 2010 The Bank of the Year Awards-2002, 2003, 2004, 2007, 2008 & 2011 ICMAB Best Corporate Award-2011, 2012 & 2014 Performance Excellence Award-2013 Foreign Remittance Award-2014 The Asian Banking and Finance Award-2014 ICAB Nation Award-2016 ICMAB Award-2017 3.9 JBL’s Corporate Social Responsibilities JBL sees CSR activities as a critical component of continuous improvement, like the overall effort to be a more socially responsible and sustainable organization. Being one of the leading state-owned commercial banks in Bangladesh, Janata Bank Limited, with its branches has also realized its responsibilities to the society and is contributing to the amelioration of the social life of the destitute people, infra-structure, environment etc. In the past, JBL contributed in calamity relief operations for the landslide victims in Chattogram, SIDR affected people of the shoreline areas and for the flood affected people across the country. Page 10 of 29 Some CSR activities of JBL are given in the followings: Education & Research Health & Treatment Poverty reduction & rehabilitation Combat against natural calamity Try to bring the marginal farmers and the poor out of the grip of loan Preservation of history, tradition, culture and sports Preservation of environment Expansion of technology Invention Others. 3.10 Janata Bank Limited: Uttara Corporate Branch Name Branch Name Address Number of Employees Deposit (2019) Profit( 2019) Total Loans and Advances (2019) AD ratio Janata Bank Limited Uttara Corporate Branch Sector-06, Road-12, House-05, NZ Center (1st & 2nd Floor), Dhaka-1230. 42 575 crore 9.08 crore 40.25 crore 7% 3.11 Working Segments of Uttara Corporate Branch Working segments of the Uttara Corporate Branch are given below: Cash General Customer Banking Service Credit Page 11 of 29 Remittance 4.0 Project Part 4.1 Non-performing loans A Non-performing loan (NPL) is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 90 days, but this can depend on the contract terms. (Wikipedia) The definition of Non-performing loans (NPLs) followed by IMF (International Monetary Fund) is: “A loan is nonperforming when payments of interest and principal are past due by 90 days or more, or at least 90 days of interest payments have been capitalized, refinanced or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons to doubt that payments will be made in full.” (Wikipedia) The definition of NPL was changed twice in last 10 years in Bangladesh. Initially, the general definition of NPL was that when an account becomes 6 months past due, it becomes a diligent loan. In accordance with the definition of Bangladesh Bank (BB) a “Defaulting debtor” means: “Any person or institution served with advance, loan granted in favor of him or an institution involving interest or any portion thereof, or any interest which has been overdue for six months”. (As per Section 5 (cc) of Bank Company Act 1991) In 2012, Bangladesh Bank changed this definition in line with BASEL II and defined a loan to be default or non-performing when it becomes 3 months or 90 days past due (Source: BB: BPRD circular 14 dated September 23, 2012). NPLs in Bangladesh are classified as substandard, doubtful, and bad or loss, which are calculated based on uniform criteria. A loan is substandard if it is overdue for 3 months or more but less than 9 months, doubtful if overdue for 9 months or more but less than 12 months, and bad or a loss if it is overdue for 12 months or more. (Source: BB: BPRD circular No. 03 dated April 21, 2019) 4.1.1 Causes of Non-performing loans Non-performing loans has turned out to be the soft spot for the banking industry of Bangladesh these days. “Recent bankruptcy, successive loss of SCBs and banking scamps have arisen from the adverse impact of NPLs”-according to many economists and analysts. Some of the principal causes of NPLs in the banking industry are presented below: Bank-specific factors: From the study of Patwary & Tasneem (2019) and Field Survey Report on “Study on credit risk arising in the Banks from loans sanctioned against inadequate collateral’’ conducted by Bangladesh Bank (2017), common bank-specific factors behind NPLs in Bangladesh were revealed as follows: Corruption: One of the major building blocks of NPLs in our banking industry is corruption. Corruption along with nepotism exhibited by top level management in sanctioning and disbursing loans in favour of corrupted individuals and politically exposed person (PEPs) makes the loan vulnerable. Sometimes managers fall prey to PEPs disburse loans without proper or adequate credit assessment without assessing the viability of the project or the proper valuation of collateral which ultimately becomes defaulted. Page 12 of 29 Bank lending policy: Bank lending policy plays an important role in NPLs. Few banks especially SCBs often cross lending exposure above the prescribed limit by Bangladesh Bank to single borrowers that ruins the loan portfolio of the banks. Again sometimes banks select wrong borrowers who grant loan from banks by using false documents. Again banks in practice don’t follow entirely and efficiently prescribed guidelines for managing NPLs i.e. The Bankruptcy Act, Money Loan Court Act etc. Inefficiency of employees: In our banking industry, many bankers don’t have adequate knowledge about the risk assessment factors of loans thus can’t diversify the risk of loan. High interest rate: Higher interest rate accompanied by various other service charges and also some hidden charges increase the amount of installments of borrowers that serves as one of the prime factors to loan default. Ineffective monitoring and supervision: In many instances, performing loans becomes defaulted due to lack of proper monitoring. Some clients divert their funds for other activities rather than serving their sole concern. If the monitoring system was good and proper action was taken from the beginning period when the bank comes to know about the loan to be defaulted, the NPLs amount wouldn’t be as large as it is now. Even ineffective NPLs recovery strategies have made the situation worsened. Macroeconomic-specific factors: From various studies, dominant macroeconomic-specific factors behind NPLs are revealed such asGross Domestic Product (GDP): GDP growth rate is one of the most important factors which influences the ratio of NPL in Bangladeshi banking sector. Low NPL ratio is associated with an economy which is expansionary (Carey,1998). Increasing number of GDP growth rate indicates the economic growth in the country. Positive economic growth indicates people have more income that helps them to pay the loan as a consequence the ratio of NPL decreases and vice-versa. Inflation rate: The rate at which the level of prices for goods and services is increasing and the purchasing power is decreasing, is called Inflation rate. The impact of inflation rate on NPL basically depend on the economic condition of a country. It can be negative or positive. The impact of inflation on the change of NPL can be either positive or negative depending on the economic condition and some other firm-specific factors (Rajha,2016). When inflation rate increase, the real value of income decrease. Low level of income effects on repaying ability of loans. There borrowers unable to pay loan when inflation rate rises. So, there are positive relation between inflation rate an NPL. Unemployment rate: When unemployment rate rises in a country, it influences the cash flow of people. Unemployment leads to low level of income or zero income. Low level of income is one of the cause of not repaying loan which is borrowed. So, it does influence NPL ratio positively. (Louzis et al., 2012) 4.1.2 Effects of Non-performing loans From the study of Deep Majumder (2014) some adverse effects of Non-performing loans are observed as follows: We all know that the primary mechanism of banks is providing loans and receiving deposits. Loans and advances tend to be the income generating assets for banks. The interest rate spread between Page 13 of 29 loans and deposits is the amount that banks account as profit. In case of defaulted loans, banks lose either interest or principal or both amount which ceases its profit. So, NPL ceases banks’ profit. Sound banking industry is one of the preconditions of economic development of a country. Growth of industries and businesses to escalate the economic development of a country largely depends on its banking sector. Poor banking sector is the hindrance to rapid and sustainable development of a country. If a country’s banking sector collapses, eventually the entire economy collapses. Due to NPL, banking sector becomes unprofitable. Banks maintain strict rules and regulations to disburse loans. As a consequence, many SME founders become deprived of getting the loan that badly impacts the economic growth. NPL can lead to efficiency problem for the banking sector. It is found by a number of economists that failing banks tend to be located far from the most-efficient frontiers, because banks do not optimize their portfolio decisions by lending less than demanded. If loanable funds are blocked as NPL, banks will not have enough reserve for issuing future loans, which will affect the economy in multiple ways. For example, it will hinder employment generation. The scarcity of loanable funds for private sector will widen the rich-poor gap in society. The rising trend of NPL will also have a negative impact on the banks’ profitability. Provisioning against defaulted loans will also jeopardize the financial health of many institutions. Banks have to keep provisions against their non-performing loans as per the central bank’s guidelines. The provision amounts are kept aside from the banks’ profits. When provisioning amounts become higher than the profits of a bank, it has to keep provision amounts from its capital, which can result in capital shortfalls. Capital shortfalls in turn hamper trade activities with overseas banks. NPL affects opening of LC (Letter of Credit). International importers always choose healthy condition of the exporter's bank. Worse health condition of the bank affects the opening of new LCs. Low rate of LCs makes low bank earning. 4.2 Analysis and Findings 4.2.1 Data Analysis 4.2.1.1 Status of NPLs of Banking industry of Bangladesh 4.2.1.1.1 Trend of total amount of NPLs Scheduled banks of Bangladesh are categorized into 04 types and they are- SCBs, PCBs, FCBs and DFIs. As DFIs don’t operate like conventional commercial banks, so the researcher has excluded them from this research. Page 14 of 29 Table 1: Trend of total Amount of NPLs by the categories of banks (In Million Taka) Bank Categories Years 2018 2017 2016 SCBs 486,960 373,300 310,300 PCBs 381,400 294,000 230,600 FCBs 22,870 21,500 24,100 Total 939,110 743,030 621,720 Source: Annual Reports of Bangladesh Bank (2014-18) 2015 272,800 253,300 18,200 594,000 2014 227,600 184,300 17,100 501,600 Figure-1 Trend of total Amount of NPLs by the categories of banks (In Million Taka) In Million Taka 1000000 800000 600000 400000 200000 0 2018 2017 SCBs 2016 PCBs Years FCBs 2015 2014 Total Source: Annual report of Bangladesh Bank (2014-18) Table 1 and Figure 1 show the fluctuation in the total amount of NPLs (In million taka) by the categories of banks (SCBs, PCBs and FCBs) to banking industry of Bangladesh at 1-year interval from 2014 to 2018.Looking from an overall perspective, it is readily apparent from table 1 and graph 1 that, with the exception of FCBs where increase was slow and steady, SCBs and PCBs experienced a considerable jump. In addition to that, NPLs went up sharply in overall banking industry. SCBs had the highest amount of NPLs throughout, while PCBs overtook FCBs and FCBs was generally lowest. Looking first of all at the overall leader, SCBs, the total amount of NPLs was 227,600 million in 2014 and rocketed in 2018 amounting 486,960 million. In contrast, FCBs had far lower amount 17,100 million in 2014 and 22,870 million in 2018. PCBs had 184,300 million NPLs at the beginning of the period and ended up having a considerable jump of 381,400 million. However, banking industry went up sharply from 501,600 million to 939,110 million from 2014 to 2018. Page 15 of 29 4.2.1.1.2 Trend of growth of NPLs Growth rate measures the rate at which something, in particular an economy or business, grows or shrinks. Growth rate of Non-performing loans = (Xt-Xt-1/ Xt-1) Where, t= NPLs amount of current year and t-1= NPLs amount of previous year Average growth rate= (a1 + a2 + …. + an) / n where, where ai = ith observation, n = Number of observations Table 2: Trend of growth of NPLs by the categories of banks (In Percent) Bank Categories 2018 2017 2016 2015 2014 SCBs 30.45 20.30 13.75 19.86 37.03 PCBs 29.37 27.49 -8.96 37.44 28.79 FCBs 6.37 -10.79 32.42 6.43 31.54 Source: Author’s calculation from annual report of Bangladesh Bank (2014-18) Average Growth Rate 24.28 22.83 13.19 Figure-2 Average Growth Rate of NPLs by the categories of banks (in percent) 30 Percent 25 20 15 Average Growth Rate 10 5 0 SCBs PCBs FCBs Categories of Banks Source: Author’s calculation from annual report of Bangladesh Bank (2014-18) Table 2 and Figure 2 present the average growth rate of NPLs (In percent) by the categories of banks (SCBs, PCBs and FCBs) of Bangladesh at 1-year interval from 2014 to 2018. According to the table 2 and graph 2, it is clearly apparent that SCBs had the highest average growth rate while FCBs experienced considerably lowest average growth rate and PCBs were close to SCBs. Looking first of all the overall leader, SCBs had an average growth rate of NPLs of 24.28%. In contrast, FCBs had readily the lowest average growth rate of NPLs of 13.19%. However, PCBs average growth rate stagnated at 22.83% close to that of SCBs. (Please see screenshot A01, Appendix A) Page 16 of 29 4.2.1.1.3 Trend of NPL ratio NPL ratio represents the percentage of loan of a bank that has become non-performing that doesn’t earn interest or principal or both. The less the NPL ratio is, the better the bank is performing efficiently in terms of its credit management. International standard of NPL ratio is ≤ 2%. NPL ratio=Non-performing loans/ Total outstanding loans and advances Table 3: Trend of NPL ratio by the categories of banks (In Percent) Bank 2018 2017 2016 Categories SCBs 30 26.5 25.1 PCBs 5.5 4.9 4.6 FCBs 6.5 7 7.8 Total 10.3 9.3 9.2 Source: Annual report of Bangladesh Bank (2014-18) 2015 2014 21.5 4.9 7.8 8.8 22.23 4.98 7.3 9.7 Figure-3 Year Trend of NPL ratio by the categories of banks (In Percent) 2014 2015 2016 2017 2018 0 5 10 15 20 25 30 Percent Total FCBs PCBs SCBs Source: Annual report of Bangladesh Bank (2014-18) Table 3 and Figure 3 detail changes in the NPL ratio (In percent) by the categories of banks (SCBs, PCBs and FCBs) to banking industry of Bangladesh at 1-year interval from 2014 to 2018. From the table 3 and graph 3, it is pretty perceptible that, PCBs experienced almost flat growth, FCBs and banking industry experienced slight growth and SCBs experienced rapid increase of NPL ratio. SCBs had the highest overall NPL ratio throughout the study period, while FCBs crossed PCBs and PCBs were lowest. Looking first of all at the overall leader, SCBs had NPL ratio of 22.83% in 2014 and jumped considerably to 30% in 2018.In contrast, PCBs had far lower levels of NPL ratio at 4.98% in 2014 and 5.5% in 2018. FCBs maintained decent NPL ratio throughout the study period (2014-2018). At the beginning of the period it was 7.3% and experienced a gentle decrease at 6.5% at the end of the study period. While banking industry experienced a slow and steady rise from 9.7% to 10.3% in 2014 and 2018. Page 17 of 29 4.2.1.1.4 Trend of Provision maintenance ratio A provision is usually an amount that is set aside from a company’s profits, usually to cover an expected liability or a decrease in the value of an asset, even though the specific amount of the same might be unknown. Banks maintain provisions against expected losses that may arise against default loans from their operating profit. Provision maintenance ratio (PMR) states whether the bank maintained to book the required level of provisions or not. If PMR ≥100%, the bank is said to book the required level of provisions. Provision Maintenance Ratio= Provision maintained/ Provision required Table 4: Trend of Provision maintenance ratio by the categories of banks (In Percent) Bank Categories 2018 2017 2016 2015 2014 SCBs 72.8 61.9 65.1 PCBs 103.8 107.5 103.6 FCBs 106 105.8 102.5 Total 88.4 84.7 84.9 Source: Annual report of Bangladesh Bank (2014-18) 67.5 100.5 102.5 86.1 105.2 106.1 105.9 97.2 Figure-4: Percent Trends of Provision maintenance ratio by the categories of banks (In Percent) 120 100 80 60 40 20 0 2018 2017 2016 2015 2014 Year SCBs PCBs FCBs Total Source: Annual report of Bangladesh Bank (2014-18) Table 4 and Figure 4 are the tabular and graphical representation of Provision maintenance ratio (In Percent) by the categories of banks (SCBs, PCBs and FCBs) to banking industry of Bangladesh at 1-year interval from 2014 to 2018. From the table 4 and figure 4, it is clearly evident that PCBs and FCBs maintained requisite provisions while SCBs failed to maintain the standard during the study period. However, Provision maintenance ratio of SCBs plummeted from 2014 to 2015, remained stagnated from 2015 to 2017 then rose gradually from 2017 to 2018. While, PMR of banking industry of Bangladesh stayed almost stable from 2014 to 2018. Page 18 of 29 4.2.1.2 Status of NPLs of State-owned banks of Bangladesh 4.2.1.2.1 Trend of total amount of NPLs There are 06 state-owned banks in Bangladesh. Due to the unavailability of the adequate data, the researcher has excluded BDBL and BBL from the analysis. Table 5: Trends of total Amount of NPLs by SCBs (In Million Taka) Name of SCB Years 2018 2017 2016 JBL 179,984.5 75,995.5 59,359.8 ABL 69,930 55,700 68,040 SBL 121,883 149,302 109,115 RBL 41,400.7 45,820.6 34,848.5 Source: Annual reports of JBL, ABL, SBL and RBL banks (2014-18) 2015 43,181.7 46,400 86,849 23,417.6 2014 37,375.67 39,660 86,437 15,194.2 Figure-5 In Million Taka Trends of total Amount of NPLs by SCBs (In Million Taka) 200000 150000 100000 50000 0 2018 2017 2016 2015 2014 Year JBL ABL SBL RBL Source: Annual reports of JBL, ABL, SBL and RBL (2014-18) Table 5 and Figure 5 are the tabular and graphical representation of the trends of the total amount of NPLs (In million taka) by State-owned banks (JBL, ABL, SBL and RBL) of Bangladesh at 1-year interval from 2014 to 2018. From the table 5 and figure 5, we can see that, except JBL, other SCBs experienced fluctuation during the study period. Overall, SBL had the highest amount of NPLs except year 2018 when NPLs of JBL rocketed, while JBL overtook ABL and RBL succeeded to keep its NPLs lowest during the study period. From 2014 to 2017, total amount of NPLs climbed significantly among all SCBs except ABL. In 2018, the total amount of NPLs of JBL rocket from 75,995.5 million to 179,984.5 million. Total amount of NPLs of JBL, ABL, SBL and RBL subsequently was 37,375.67, 39,660, 86,437 and 15,194.2 in 2014 and 179,984.5, 69,930, 121,883 and 41,400.7 in 2018. So, overall SBL had the highest and RBL had the lowest amount of total NPLs during the study period but there was a rapid and rocketing trend experienced by JBL during the study period. Page 19 of 29 4.2.1.2.2 Trend of growth of NPLs Growth rate measures the rate at which something, in particular an economy or business, grows or shrinks. Growth rate of Non-performing loans = (Xt-Xt-1/ Xt-1) Where, t= NPLs amount of current year and t-1= NPLs amount of previous year Table 6: Trend of the growth of NPLs by SCBs (In Percent) Name of SCB 2018 2017 2016 2015 2014 JBL 136.84 28.03 37.47 15.53 17.64 ABL 25.55 36.83 46.64 16.99 10.78 SBL -18.36 -18.14 25.64 0.48 -16.70 RBL -9.65 31.49 48.81 54.12 -15.55 Source: Author’s calculation from the annual reports of JBL, ABL, SBL and RBL (2014-18) Figure-6 Trend of the growth rate of NPLs by SCBs (In percent) 150 Percent 100 50 0 JBL ABL -50 SBL RBL Name of SCBs 2018 2017 2016 2015 2014 Source: Author’s calculation from the annual reports of JBL, ABL, SBL and RBL (2014-18) Table 6 and Figure 6 are the tabular and graphical representation of the trend of the growth of NPLs (In percent) by State-owned banks (JBL, ABL, SBL and RBL) of Bangladesh at 1-year interval from 2014 to 2018.From table 6 and graph 6 we can conclude that JBL and ABL always had the positive growth rate while SBL and RBL experienced both positive and negative growth rate of NPLs from 2014 to 2018. Except JBL, rest of the SCBs’ growth was fluctuating; there was a steep rise in NPLs of JBL in year 2018. Let’s have a look at the overall leader, JBL, had a growth rate at 17.64% in 2014 but it climbed rapidly in 2018 amounting 136.84%. Contrarily, SBL had far lower levels at -16.70% in 2014 and -18.36% in 2018. ABL had 10.78% growth of NPLs at the beginning of the period and 25.55% in 2018 while RBL had 15.55% growth in 2014 and -9.65% at the end of the period but RBL had more positive growth of NPLs compared to SBL from 2015 to 2017. (Please see screenshot A02, Appendix A) Page 20 of 29 4.2.1.2.3 Trend of NPL ratio NPL ratio represents the percentage of loan of a bank that has become non-performing that doesn’t earn interest or principal or both. The less the NPL ratio is, the better the bank is performing efficiently in terms of its credit management. International standard of NPL ratio is ≤ 2%. NPL ratio=Non-performing loans/ Total outstanding loans and advances Table 7: Trend of NPL ratio by SCBs (In Percent) Name of SCB JBL 2018 33.72 2017 16.54 2016 14.73 2015 12.34 2014 11.69 ABL 17.67 17.45 25.59 18.95 16.87 25.08 16.43 25.61 12.15 SBL 26.26 35.28 28.38 RBL 16.73 22.17 19.90 Source: Annual reports of JBL, ABL, SBL and RBL (2014-18) Figure-7 Year Trend of NPL ratio by SCBs (In Percent) 2014 2015 2016 2017 2018 0 5 10 15 20 25 30 35 40 Percent RBL SBL ABL JBL Source: Annual Reports of JBL, ABL, SBL and RBL (2014-18) Table 7 and Figure 7 detail changes in the NPL ratio (In percent) by state-owned banks (JBL, ABL, SBL and RBL) of Bangladesh at 1-year interval from 2014 to 2018. From table 7 and figure 7 we can conclude that the SBL had the highest and JBL had the lowest NPL ratio to total loans except for the year 2018. NPL ratio to total loans of JBL, ABL, SBL and RBL was 11.69, 16.87, 25.61 and 12.15 percent respectively at the end of 2014. The NPLs ratio to total loans of JBL, ABL, SBL and RBL was 33.72, 17.67, 26.26 and 16.73 percent respectively at the end December, 2018. If we look at the gross NPL ratio in SCBs we can see an upward trend for JBL and fluctuating trend for ABL, SBL and RBL. Page 21 of 29 4.2.1.2.4 Trend of Provision maintenance ratio Provision is the specified amount of money that banks have to keep against Non-performing loans. Provision maintenance ratio (PMR) states whether the bank maintained to book the required level of provisions or not. If PMR ≥100%, the bank is said to book the required level of provisions. Provision Maintenance Ratio= Provision maintained/ Provision required Table 8: Trend of provision maintenance ratio by SCBs (In Percent) Name of SCB 2018 100 79.24 JBL ABL Years 2016 101.07 80.09 2017 100.21 84.98 2015 100.41 93.95 2014 101.73 86.13 SBL 100 101.51 100 100 100.03 RBL 56.19 50.88 37.29 100 100 Source: Author’s calculation from the annual reports of JBL, ABL, SBL and RBL (2014-18) Figure-8 Trend of provision maintenance ratio by SCBs (In Percent) 2014 Year 2015 2016 2017 2018 0 20 40 60 80 100 120 Percent RBL SBL ABL JBL Source: Author’s calculation from the annual reports of JBL, ABL, SBL and RBL (2014-18) Table 8 and Figure 8 are the tabular and graphical representation of changes of provision maintenance ratio (In percent) by state-owned banks (JBL, ABL, SBL and RBL) of Bangladesh at 1-year interval from 2014 to 2018. From the table 8 and figure 8 it can be seen that JBL and SBL maintained requisite provisions having PMR>100% while ABL completely failed to keep the required provision having PMR<100% and RBL has done it twice for the year 2014 and 2015 between the years 2014 and 2018. (Please see screenshot A03, Appendix A) Page 22 of 29 4.2.1.3 Status of NPLs of Janata Bank Limited and Uttara Corporate Branch of Janata bank limited 4.2.1.3.1 Trend of total amount of NPLs For the simplicity of the analysis, percent of NPLs has been used to carry out the analysis instead of the amount of NPLs of JBL and Uttara Corporate Branch of JBL Table 9: Trend of total Amount of NPLs by JBL and Uttara Corporate Branch of JBL (In Million Taka) Bank Categories JBL Uttara Corporate Branch of JBL Years 2018 Amount 179984.5 61.1 % 33.72 14.38 2017 Amount 75995.5 49.2 % 16.54 12.88 2016 Amount 59359.8 45.5 % 14.73 10.73 2015 Amount 43181.7 36.6 % 12.34 9.03 2014 Amount 37375.67 31.9 % 11.69 8.16 Source: Author’s calculation from annual report of JBL and officials of Uttara Corporate Branch of JBL (2014-18) Figure-9 Percent Trend of NPLs by JBL and Uttara Corporate Branch of JBL (In percent ) 40 35 30 25 20 15 10 5 0 33.72 16.54 14.38 2018 12.88 2017 14.73 10.73 2016 12.34 9.03 2015 11.69 8.16 2014 Year JBL Uttara Corporate Branch of JBL Source: Author’s calculation from annual report of JBL and officials of Uttara Corporate Branch of JBL (2014-18) Table 9 and Figure 9 detail changes in the amount (In million Taka) and percent of NPLs between JBL and Uttara Corporate Branch of JBL at 1-year interval from 2014 to 2018. If we look at the trends over time, we can see that NPLs in both JBL and Uttara Corporate Branch of JBL increased moderately from 2014 to 2017 and the lines were almost parallel during that time. Percent of NPLs between JBL and Uttara Corporate Branch of JBL was 11.69% and 8.16% in 2014 and 16.54% and 12.88% in 2017. In 2018, the NPLs of JBL increased dramatically by 33.72% while Uttara Corporate Branch of JBL experienced steady growth of NPLs by 14.38%. JBL had a more upward trend than Uttara Corporate Branch of JBL during the study period. (Please see screenshot A04, Appendix A) Page 23 of 29 4.2.1.3.2 Trend of growth of NPLs Growth rate measures the rate at which something, in particular an economy or business, grows or shrinks. Growth rate of Non-performing loans = (Xt-Xt-1/ Xt-1) Where, t= NPLs amount of current year and t-1= NPLs amount of previous year Table 10: Trend of the growth of total Amount of NPLs by JBL and Uttara Corporate Branch of JBL (In Percent) Bank Categories 2018 2017 2016 2015 2014 JBL 136.84 28.03 37.47 15.53 17.67 Uttara Corporate Branch of JBL 24.19 8.13 24.32 14.73 4.59 Source: Author’s calculation from annual report of JBL and officials of Uttara Corporate Branch of JBL (2014-18) Figure-10: Percent Trend of the growth rate of total amount of NPLs by JBL and Uttara Corporate Branch of JBL (In percent) 160 140 120 100 80 60 40 20 0 2018 2017 2016 2015 2014 Year JBL Uttara Corporate Branch of JBL Source: Author’s calculation from annual report of JBL and officials of Uttara Corporate Branch of JBL (2014-18) Table 10 and Figure 10 present changes in the growth (In percent) of NPLs between JBL and Uttara Corporate Branch of JBL at 1-year interval from 2014 to 2018.From the table 10 and figure 10 we can say that both JBL and Uttara Corporate Branch of JBL experienced growth in NPLs but the growth rate was erratic during the study period. JBL had always higher growth rate of NPLs than its branch except the year 2015 when the growth rate of NPLs of JBL and its branch was subsequently 15.53% and 14.73%. Growth rate of JBL and Uttara Corporate Branch of JBL was 17.67% and 4.59% in 2014 and 28.03% and 8.13% in 2017. In 2018, the growth rate of NPLs of JBL rocketed by 136.84% from 24.19%. In contrast, it jumped sharply from 8.13% to 24.19% in Uttara Corporate Branch of JBL. (Please see screenshot A05, Appendix A) Page 24 of 29 4.2.1.3.3 Trend of NPL ratio NPL ratio represents the percentage of loan of a bank that has become non-performing that doesn’t earn interest or principal or both. The less the NPL ratio is, the better the bank is performing efficiently in terms of its credit management. International standard of NPL ratio is ≤ 2%. NPL ratio=Non-performing loans/ Total outstanding loans and advances Table 11: Trend of NPL ratio by JBL and Uttara Corporate Branch of JBL (In Percent) Bank Categories Years 2018 2017 2016 2015 2014 JBL 33.72 16.54 14.73 12.34 11.69 Uttara Corporate Branch of JBL 14.38 12.88 10.73 9.03 8.16 Source: Author’s calculation from annual report of JBL and officials of Uttara Corporate Branch of JBL (2014-18) Figure-11: Trend of NPL ratio by JBL and Uttara Corporate Branch of JBL (in percent) Year Uttara Corporate Branch of JBL JBL 2014 2015 2016 2017 2018 0 5 10 15 20 25 30 35 40 Percent Source: Author’s calculation from annual report of JBL and officials of Uttara Corporate Branch of JBL (2014-18) Table 11 and Figure 11 are the tabular and graphical representation of trend of NPL ratio (In Percent) by JBL and Uttara Corporate Branch of JBL at 1-year interval from 2014 to 2018.Looking from an overall perspective, it is readily apparent that gross NPL ratio in both JBL and Uttara Corporate Branch of JBL experienced a steady rise from 2014 to 2018. The gross NPL ratio of JBL and Uttara Corporate Branch of JBL was 11.69% and 8.16% respectively at the end of 2014. Contrarily, it was 33.72% and 14.38% respectively at the end of December, 2018. From the above figure we can see that both JBL and its Uttara Corporate Branch experienced upward trend but JBL experienced a drastic shift in 2018. (Please see screenshot A06, Appendix A) Page 25 of 29 4.2.1.3.4 Trend of Provision maintenance ratio Provision is the specified amount of money that banks have to keep against Non-performing loans. Provision maintenance ratio (PMR) states whether the bank maintained to book the required level of provisions or not. If PMR ≥100%, the bank is said to book the required level of provisions. Provision Maintenance Ratio= Provision maintained/ Provision required Table 12: Trend of provision maintenance ratio by JBL and Uttara Corporate Branch of JBL (In Percent) Bank Categories Years 2018 2017 2016 2015 2014 JBL 100 100.2 101.1 100.4 101.7 Uttara Corporate Branch of JBL 101 107.6 102.5 100.1 102.9 Source: Author’s calculation from annual report of JBL and officials of Uttara Corporate Branch of JBL (2014-18) Provision maintenance ratio Figure-12: Trend of provision maintenance ratio by JBL and Uttara Corporate Branch of JBL (In Percent) 110 105 100 95 2018 2017 2016 2015 2014 Year JBL Uttara Corporate Branch of JBL Source: Author’s calculation from annual report of JBL and officials of Uttara Corporate Branch of JBL (2014-18) Table 12 and Figure 12 are the tabular and graphical representation of changes of provision maintenance ratio (In percent) by JBL and Uttara Corporate Branch of JBL at 1-year interval from 2014 to 2018. From the table 12 and figure 12 it can be seen that both JBL and Uttara Corporate Branch of JBL maintained requisite provisions having PMR>100% between the years 2014 and 2018. (Please see screenshot A07, Appendix A) Page 26 of 29 4.2.2 Summary of Findings From the above analysis we have seen that Uttara Corporate Branch of Janata Bank Limited is in better position compared to Janata Bank Limited in terms of NPL ratio that means the branch is handling its loan portfolio better than Janata Bank Limited and as a consequence it has less Non-performing loans during the study period. But the branch is slightly behind than the banking industry though both Uttara Corporate Branch and banking industry yield relatively higher NPLs as the international standard of NPL ratio is 2% or less. Moreover, Uttara Corporate Branch of Janata Bank Limited has been able to book the required level of provisions along with Janata Bank Limited while the banking industry struggled to maintain it throughout the study period because of state-owned banks. From the data analysis of the previous section following findings were also revealedBanking industry of Bangladesh Among different categories of banks, SCBs had the highest and FCBs had the lowest amount of NPLs during the study period. SCBs tend to have abnormally higher amount of NPLs compared to others’ banks. Growth rate of NPLs is higher in SCBs and lower in FCBs among different categories of banks. PCBs yielded the lowest while SCBs yielded the highest NPL ratio among different clusters of banks. PCBs and FCBs maintained requisite provisions but SCBs failed to maintain it during the study period. State-owned banks of Bangladesh ABL had more NPLs than all other SCBs and RBL amounted the lowest. JBL and ABL always had the positive growth rate of NPLs while SBL and RBL experienced fluctuating growth rate during the study period. JBL was the overall leader in terms of growth rate of NPLs and SBL had the lowest growth rate among SCBs. SBL had the highest and JBL had the lowest NPL ratio among SCBs. JBL and SBL maintained required provisions among SCBs. Janata Bank Limited and Uttara Corporate Branch of Janata Bank Limited JBL had a more upward trend than Uttara Corporate Branch in terms of percent of NPLs. Growth of NPLs was abnormally higher in JBL than its branch. The trend of NPL ratio was higher in JBL than Uttara Corporate Branch. Both JBL and Uttara Corporate Branch of JBL maintained to book the required level of provisions during the study period. Page 27 of 29 5.0 Conclusion & Recommendation 5.1 Recommendation: Non-performing loans (NPLs) halts the financial soundness of banks, makes them vulnerable to bankruptcy and depresses overall economic development to a great extent. The less NPL a bank has, the better it is. Though Uttara Corporate Branch of Janata Bank Limited has been able to check NPLs compared to Janata Bank Limited and banking industry but the branch along with our banking industry has failed to follow the international standard of NPL. After discussing with bank’s officials and from the gap of literature review, the researcher has found out that following strategies can be implemented to reduce NPLs in Bangladesh: Employees should be accountable who are associated with loan sanctioning and disbursement procedure for his/her action. Banks should strictly monitor employees so that employees can’t provide any loan to counterfeit customers. Eligible employees should be hired and they should be trained up for enhancing their efficiency and accuracy to assessing risk management system of the banks. Banks should strictly follow guidelines and regulations mandated by Bangladesh Bank and they should routinely check collateral kept against loans whether it has adequate value and legal ownership. Bangladesh Bank should apply the quasi-judicial power to prevent corrupted parties or people from becoming Board of directors of a bank even if the government intervenes in it. As prevention is better than cure so banks should properly maintain loan documentation and collect sufficient data of borrower time to time and check the viability of the project before disbursing loans whether the project can generate sufficient cash flows to repay the loan. Banks should take legal actions against the scrupulous loan defaulters to recover defaulted loans. 5.2 Conclusion: Non-performing loan is a major financial factor that directly impacts the banks’ profitability, growth and its survival. Efficient credit management can lead to minimization of non-performing loans and generation of more profits through enhancing performing assets. From the above analysis of the Uttara Corporate Branch of Janata Bank Limited’s NPLs, it can be predicted that the NPLs of this branch may grow in the upcoming years as the trend of NPL ratio has always been an upward one during the study period. Every year its NPLs to total loans and advances is increasing. Secondary sources data from annual reports of BB, JBL, ABL, RBL, SBL and officials from respective branch have been used to analyze to make a comparative analysis between Uttara Branch of JBL to JBL and banking industry through NPL ratio, Provision maintenance ratio and growth rate of NPLs using Microsoft Excel 2013 software. Variables like Non-performing loans, loans and advances, provisions have been used to conduct the study. No other study on Non-performing loans at Uttara Corporate Branch of JBL was done before. As Uttara Corporate Branch of JBL tries its best to maintain regulatory norms prescribed by Bangladesh Bank despite being a branch of SCBs, it has been able to keep its NPLs within close range of banking industry of Bangladesh and performed better than overall Janata Bank Limited during the study period. Page 28 of 29 References Non-performing loan. (2020, April 30). Retrieved June 16, 2020, from https://en.wikipedia.org/wiki/Nonperforming_loan Janata Bank Limited. (n.d.). Retrieved June 16, 2020, from https://www.jb.com.bd/ Agrani Bank Limited. (n.d.). Retrieved June 16, 2020, from https://www.agranibank.org/ Rupali Bank Ltd. (n.d.). Retrieved June 16, 2020, from https://www.rupalibank.org/ Sonali Bank Limited. (n.d.). Retrieved June 16, 2020, from https://www.sonalibank.com.bd/ Bangladesh Bank. (n.d.). Retrieved June 16, 2020, from https://www.bb.org.bd/ Hanks, G. (2019, February 11). How to Calculate the NPL Ratio. Retrieved June 16, 2020, from https://bizfluent.com/how-8533153-calculate-npl-ratio.html Patwary, M. H., & Tasneem, N. (2019). Impact of Non-Performing Loan on Profitability of Banks in Bangladesh: A Study from 1997 to 2017. Global Journal of Management and Business Research: C Finance, 19(1), 1st ser., 13-27. Hossain, M. (2018). The Trend of Default Loans in Bangladesh: Way Forward and Challenges. International Journal of Research in Business Studies and Management, 5(6), 24-30. Sanjoy Kumar Sarker. (2019). “A COMPARATIVE ANALYSIS ON NON-PERFORMING LOANS (NPLs) IN THE BANKING SECTORS OF BANGLADESH.” International Journal of Research - Granthaalayah, 7(1), 297314. https://doi.org/10.5281/zenodo.2555325. Ferdous, S. (2018). “Non-Performing Loans Are Affected By Macroeconomic Factors”- Perspective of Private Bank Sector in Bangladesh”. Retrieved May 01, 2020, from http://dspace.bracu.ac.bd:8080/xmlui/bitstream/handle/10361/10691/14304020_BBA.pdf?sequence=1&isAll owed=y Emran, M. (2019, September 08). The economic consequence of non-performing loans. Retrieved May 10, 2020, from https://www.thedailystar.net/opinion/economics/news/the-economic-consequence-non-performing-loans1797394 Deep Majumder (2014). Internship Report on Non-performing Loans in Banking Sector of Bangladesh: Causes and Effect, MBA Program, BRAC University Study on Credit Risk arising in the Banks from Loans Sanctioned against Inadequate Collateral. (2017, August 29). Retrieved April 5, 2020, from https://www.bb.org.bd/pub/research/sp_research_work/srw1702.pdf Page 29 of 29 APPENDIX A A01: Trend of growth rate of NPLs by the categories of banks A02: Trend of the growth of NPLs by SCBs A03: Trend of provision maintenance ratio by SCBs A04: Trend of percent of NPLs by JBL and Uttara Corporate Branch of JBL A05: Trend of the growth of total Amount of NPLs by JBL and Uttara Corporate Branch of JBL A06: Trend of NPL ratio by JBL and Uttara Corporate Branch of JBL A07: Trend of provision maintenance ratio by JBL and Uttara Corporate Branch of JBL View publication stats