Comparative Analysis Of SME Financing In Bangladesh

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1.1:  Historical Background of BASIC Bank Limited
The BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) establishes as a banking company under the companies Act 1913 launched its operation in 1989. It was incorporated under the Act on the 2nd of August, 1988.The Bank started its operation from the 21st of January, 1989 .It is governed by the Banking Companies Act 1913.The Bank was established as the policy makers of the country felt the urgency for a bank in the private sector for financing Small Scale Industries (SSIs). At the outset, the Bank started as a joint venture enterprise of the BCC Foundation with 70 percent shares and the Government of Bangladesh (GOB) with the remaining 30 percent shares. The BCCI, the Government of Bangladesh took over 100 percent ownership of BASIC on 4th June 1992.Thus there is state-owned. However, the Bank is not nationalized; it operates like a private bank as before. Basic Bank is unique in its objectives. It is blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loan able funds shall be invested in small and cottage industries sector. Coping with the competitive and rapidly changing financial market of the country, BASIC Bank Limited maintains close connection with its clients, the regulatory, the shareholders (Government of Bangladesh), other banks and financial institutions.
1.2: A Bird’s Eye View
                                                                                                                                                               Year 2009 was a fairly stable year for the Bank in the face of severe competition in the Banking industries and changing govt. and national economic scenario. Though the operating profit is little bit less than previous year, the Board of Directors were satisfied with the overall performance of the Bank, particularly for maintaining quality of assets and improving stability and capital position.
Figure: Key Facts at a glance.
1.3: Vision of BASIC Bank Limited
To be the Bank of 1st choice by creating exceptional value for its clients, investors and employees. BASIC Bank is unique in its objectives. It is a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loan able funds shall be invested in small and cottage industries sector. The vision of BASIC is –
Blend of development and commercial banking
To employ funds for profitable purposes in various fields with special emphasis on small scale industries. To search for newer avenues for investment and develop new products to suit such needs.
To establish linkage with other institutions which are engaged in financing Micro Enterprises. To cooperate and collaborate with institutions entrusted with the responsibility of promoting and aiding SSI sector. On-line banking which is at a final stage and provide new products for the clients and retain Bank’s present position as number one Bank of the Country in terms of “CAMEL” rating by Bangladesh Bank.
1.4: Mission of the Bank
Bank aspires to be the most admired financial institution in the country, recognized as a dynamic, innovative and client focused company, that offers and array of products and services in the search for excellence and to create an impressive economic value.
  • Offer term loans to small scale enterprise.
  • Engaged in full-fledged commercial banking service.
  • Finances in micro credit program for the poor for generation of employment and income through linkage with Non-Government Organizations. Presently bank has a linkage with 22 numbers of Non-Government Organization.
1.5: Organizational Goals
The goals of BASIC Bank Ltd. are unique in blending development financing and commercial banking. The memorandum and Articles of Association of BASIC Bank Limited stipulate that at least 50% of its loan able fund will be used for financing small and medium scale industries.
Basic Bank’s Ambitions:
  • BASIC Bank Limited dedicated their service to the nation through active financial participation in all segments of economy, small industries, trade, commerce and service sector etc.
  • The Banks main manifest to progress as an institution par excellence to customer satisfaction.
  • Govt. Banking has change rapidly and BSIC as worked hard to adapt to these changes.
  • To pay a vital role in human development and employment generation.
  • To undertake project promotion to identify profitable areas of investment.
  • To search for newer avenues for investment and develop new products to suit such needs.
  • To establish linkage with other institution which are engaged in financing micro enterprise?
  • BASIC keeping pace with the changing environment.
  • To corporate and collaborate with institutions entrusted with the responsibility of promoting and aiding SSI sector.
  • Deep commitment to the society and growth of national economy.
1.6: Corporate Strategy
Financing establishment of small units of industries and business and facilitate their growth
Small Balance Sheet size composed of quality assets.
  • Steady and sustainable growth.
  • Investment in a cautious way.
  • Adoption of new banking technology.
  • To employ funds for profitable   purposes in various fields with special emphasis on small scale industries.
  • To undertake project promotion on identify profitable areas of investment.
  • To search for newer avenues for investment and develop new products to suit such needs.
  • To establish linkage with other institutions which are engaged in financing micro enterprises.
  • To cooperate and collaborate with institutions entrusted with the responsibility of promoting and aiding SSI sector.
1.7: Organizational Structure
To achieve its organizational goals, the Bank conducts its operations in accordance with the major policy guidelines laid down by the Board of Directors, the highest policy making body. The management looks after the day-to-day operation of the Bank.
Board of Directors
As stated earlier the government holds 100 percent ownership of the Bank. The Government of Bangladesh appoints all the Directors of the Board. The former Member of Parliament is the Chairman of the Bank. Other Directors of the Bank are high Government and central Bank executives.
The Managing Director is an ex-officio member of the Board of Directors. There are at present 10 Directors including the Managing Director.
The Managing Director is the head of management. The two General Managers and Departmental Heads in the Head office assist him. BASIC is different in respect hierarchical structure from other banks in that it is much more vertically integrated as far as reporting to the Chief executive is concerned. The Branch In-Charge of the Bank report direct to the Managing Director and, for functional purposes, to the Heads of Departments. Consequently, quick decision making in disposal of assess is ensured.

Figure: Organizational Structure
1.8: Resource & Capabilities
BASIC Bank Limited  is well prepared to and capable  of meeting the demand for a broad range of banking services. It has got adequate resources, both human and physical, to provide the customers with the best possible services.
Physical & Technical Resources
A great deal of investment for developing the physical resource base of the Bank has been made. The Bank  has its presence in all the major industrial and commercial hubs of Bangladesh in order to cater to the needs of industry and trade. At present, there are twenty-seven conveniently located branches throughout Bangladesh. There are ten branches in the capital city of Dhaka, six in Chittagong and one each in  Narayanganj, Narsingdi, Rajshahi, Saidpur, Bogra, Khulna, Jessore, Sylhet, Moulvibazar, Comilla, Barisal and Sirajganj
Human Resources
BASIC has a well-diversified pool of human resource, which is composed of personnel with high academic background. Also, there is a positive demographic characteristic. Most employees are comparatively young in age yet mature in experience. As at end 2008 the total employee strength was 735. The Bank follows a strict   recruitment policy in order to ensure that only the best people are recruited. The Bank, so far, has recruited four batches of entry-level management staff, all of  whom have got excellent academic background.
  1. Training: Intensive training program, on a regular basis, is being imparted to employees of both management and non-management levels to meet the challenges in the banking industry and to help employees to adapt the changes and new working conditions. Human resource is the main driving force and quality human resources are the key sources for the success of today's banking business. Keeping this view in mind and recognizing the importance of training for professional excellence BASIC Bank Ltd. has established its own training institute in 2005 with modern facilities. During the year 2008, a total of 602 employees of the Bank were provided with training in various fields. Out of them 11 employees participated in training courses held abroad. In 2007 total 122 employees of various stages were given promotion which is almost 17.00 percent of total employees of the bank.
  1. Recruitment of new officers: The Bank follows a strict recruitment policy in order to ensure that only the best people are recruited. The Bank, so far, has recruited four batches of entry-level management staff, all of whom have excellent academic background. BASIC Bank Limited is unique in its objectives. It is a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loan able funds shall be invested in small and cottage industries sector.
Monetary & Financial Resources
Like any other financial intermediaries, BASIC  Bank Limited is no exception in performing its core functions viz. Mobilization of fund and utilizing such mobilized fund for profitable purposes. 
  1. Mobilization of fund:  The main sources of fund for the bank are:
  1. Deposit: Deposit is the mainstay of the Bank's sources of funds. Following usual
Practices, it collects deposit through:


ii) Utilization of funds:
BASIC Bank Limited utilizes its funds in accordance with its organizational goals and corporate strategy. Main use is for lending to industrial and trade sectors. Maintenance of cash and statutory liquidity reserve with the Bangladesh Bank covers 20 percent of demand and time liabilities. Placement of funds in Nostro Accounts to handle foreign trade and investment in money market is also done as usual
1.9: Major Features and Benefits
  • Govt. banking has changed rapidly and BASIC as worked hard to adapt to these changes.
  • The bank’s main manifest during force for the banks progress as an institution par excellence to customer satisfaction.
  • Fully computerized accounts maintenance.
  • Well decorated and air conditioned facilities.
  • To pay a vital role in human development and employment generation.
  • A fully operational computer network which is currently being implemented .The work of Local Area Network (LAN) and Wide Area Network (WAN) installation having reliable and secured communication between the branches and the Head Office is in progress to facilitate Any Branch Banking and ATM Services.
  • Money counting & Money checking machine making cash transactions easy, security and prompt.
  • The bank look forward with excitement and a commitment to bring greater benefits to customers.
  • Eighteen out of twenty seven branches are authorized dealers of foreign exchange. This facilities speedy disposal of transaction of export and import trades.
  • A group of professional bankers to render personalized services.
  • BASIC dedicated their service to the nation through active financial participation in all segments of economy, small Industries, trade, commerce and service sector etc.
  • BASIC keeping pace with the changing environment.
  • Deep commitment to the society and the growth of national economy.
1.10: Progress at a Glance (2005-2009)
YEAR 2009 2008 2007 2006 2005
From the Balance Sheet (Million Taka)
Authorized Capital 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00
Paid-up Capital 1455.30 1309.77 1247.40 945.00 810.00
Reserve and Surplus 2468.65 1681.39 1349.17 1294.00 916.14
Shareholders' Equity 3923.95 2,982.60 2,596.58 2,239.00 1,726.14
Fixed Assets 232.65 228.36 196.11 154.52 135.78
Total Assets 45699.56 46,651.53 38,773.91 29,417.09 27,136.37
Deposits 34501.69 38,368.23 31,947.98 24,084.65 22,325.58
Long- term Debt 2875.16 1708.4 1385.81 830.06 937.51
Loans and Advances 29261.53 27,269.13 22,263.35 19,000.00 15,339.35
Placement & Investment 12244.91 15,653.2 13,560.92 8,212.23 10,236.82
From the Income Statement (Million Taka)
Gross Income 5162.30 5,060.29 3,549.51 2870.32 2,228.21
Gross Expenditure 3593.96 3,526.18 2,741.37 1,858.69 1,599.77
Profit before Tax 1568.34 1534.11 808.14 1,011.62 628.44
Profit after Tax 648.85 549.95 282.96 554.14 285.49
Tax Paid (Cumulative) 4225.37 3,538.09 2,790.98 2,245.16 1,777.70
Others (Million Taka)
Import Business 33976.6 27,359.77 21,266.57 17,804.27 14,094.96
Export Business 19887.7 22,270.87 16,794.96 15,463.74 11,097.23
Financial Ratios (Percentage)
Capital Adequacy Ratio 13.48 12.02 12.91 11.98 11.66
Capital Fund to Deposit Liabilities 11.37 7.81 9.23 10.34 10.36
Liquid Assets to Deposit Liabilities 24.67 47.70 49.10 40.42 58.01
Loan to Deposit Liabilities 84.81 71.07 69.69 78.89 69.74
Earning Assets to Deposit Liabilities 116.44 114.69 109.70 112.99 114.56
After Tax Return on Average Assets 1.41 1.30 .83 1.94 1.23
Net Profit to Gross Income 12.57 10.87 7.97 19.31 12.81
Interest Magin Cover 135.79 137.08 176.80 211.72 214.56
After Tax Return on Equity 18.79 19.68 11.70 27.82 17.75
Source: Annual Report 2009, BASIC Bank

1.11: Performance Analysis

Particulars 2009 2008 Change in %
1 Paid up Capital 1,455,300,000 1,309,770,000 11.11
2 Total Capital 4,293,562,623 3,374,923,929 27.22
3 Capital Surplus / (Deficit) 1,108,492,823 568,128,029 95.11
4 Total Assets   45,308,315,925 46,651,534,174     (2.88)
5 Total Deposits   34,501,698,265 38,368,237,43    (10.08)
6 Total Loans and Advances   29,261,534,342 27,269,131,180 7.31
7 Total Contingent Liabilities and Commitments  16,069,084,643 10,808,780,318 48.67
8 Credit – Deposit Ratio 84.81% 71.73% 18.24
9 Percentage of Classified Loans against total Loans and Advances 4.83% 4.59% 5.19
10 Profit after Tax and Provision   648,853,399 549,953,737 17.98
11 Amount of Classified Loans and Advances 1,412,346,626 1,251,209,878 12.88
12 Provision Kept against Classified Loan 523,394,422 415,840,591 25.86
13 Provision Surplus/ (deficit)
14 Cost of Fund 7.58% 8.36% (9.33)
15 Interest Earning Assets 40,172,871,716 44,004,968,114 (8.71)
16 Non-interest Bearing Assets 5,135,444,209 2,646,566,060 94.04
17 Return on Investment (ROI) 12.67% 9.81%            29.15
18 Return on Assets (ROA) 1.41% 1.30% 8.46
19 Incomes on Investment 761,821,420 674,076,716 13.02
20 Earnings Per Share (EPS) 44.59 37.79 17.98
21 Net Income Per Share 44.59 37.79 17.98
22 Price Earning Ratio N/A* N/A*                        –
* N/A: Not Applicable
Source: Annual Report 2009, BASIC Bank
Total Assets & total deposits both are decreased in 2009 for the economic unrest. But these can’t harm the profit after tax which is increases in 2009 than 2008 . We can see here that cost of fund decrease in year 2009 which shows negative figure in changes in percentage. Profit after Tax increases that why Return on Assets, Incomes on Investment & Earnings per Share showing high figure in 2009 than 2008.
2.1: Financial Statement Analysis
In this financial statement analysis, we have to calculate the common size balance sheet and cash flow statement. We calculate the balance sheet by converting the amount into the percentage form and the cash flow statement in the original amount in last three years. In case of balance sheet, we consider the total assets and total liabilities as the standard amount.
Common-size Balance Sheet
  (In percent)
Particular 2003 2004 2005 2006 2007 2008 2009
Property and Assets
Cash 5.02 5.33 4.18 5.33 5.48 5.66 502
Balance with other banks and financial Institutions 16.10 19.37 15.21 19.37 17.89 18.18 1611
Money at call and short notice Investment 0.68 0.41 5.79 0.41 3.40 3.17 0.68
Government 12.40 11.31 16.53 11.31 13.59 11.99 12.40
Others 0.35 0.28 0.20 0.28 0.08 0.19 0.35
  12.75 11.59 16.73 11.59 13.67 12.18 12.75
Loans and advances
Loans ,cash credit, overdrafts etc. 55.96 58.47 58.10 50.70 51.70 52.18 58.47
Bills discounted and Purchased 5.16 4.39 3.64 5.82 5.71 6.26 4.39
  61.11 62.86 61.74 56.51 57.41 58.44 62.86
Fixed Assets 0.58 0.50 0.52 0.50 1.50 0.48 0.50
Other Assets 1.27 2.08 1.04 1.07 1.49 1.64 2.08
Total Assets 100.00 100.00 100.00 100.00 100.00 100.00 100.00
Capital and Liabilities
Borrowings from other banking companies, agents etc. 5.19 4.68 4.32 3.45 3.82 3.91 4.68
Bills Payable 0.96 0.63 0.77 0.66 0.80 0.75 0.63
Deposit and other Accounts
Current Accounts and contingency accounts etc. 12.22 9.74 8.50 6.97 7.92 5.82 9.47
Saving Bank deposits 3.91 3.94 3.73 2.92 2.44 2.18 3.94
Fixed deposits 59.86 62.26 66.80 71.72 77.12 79.09 62.26
  76.00 75.67 79.03 82.72 87.48 87.09 75.67
Other Liabilities 10.05 10.90 8.21 7.91 7.85 8.22 10.90
Total Liabilities 92.22 91.87 92.33 93.64 93.30 93.60 91.87
Capital/ Shareholders' equity
Paid up Capital 2.30 3.04 3.47 2.98 3.21 2.80 3.05
Statutory Reserve 2.97 3.04 2.86 2.51 2.69 2.77 3.05
Other Reserves 1.34 0.027 0.21 0.15 0.10 0.08 0.27
Surplus in Profit and Loss Account     1.14 0.72 0.33 0.65 2.16
Total Shareholders' equity 7.77 8.12 7.67 6.36 6.69 6.39 8.46
Total capital and liabilities 100.00 100.00 100.00 100.00 100.00 100.00 100.00

At the end of the year 2009, total assets of the Bank stood at Taka 45,308.31 million against Taka 46,651.53 million in previous year registering a decrease by 2.87%. This decrease of assets caused for withdrawal of deposit of BTRC Taka 3,897.24 million over the year. The deposit of BTRC reduced to Taka 2,121.54 million at the end of 2009 from Taka 6,018.78 million at the end of previous year.

As expected, loans and advances comprised the largest share in the assets portfolio of the Bank constituting 64.03%. Investment and Balances with other banks and financial institutions were the second and the third largest constituents being 13.87% and 12.92% of the assets portfolio respectively. Money at call and short notice were 0.39% of total assets. Times to time the rate of liabilities are increases. But now the rate exists in a downward mode. The bank started its journey with paid-up capital of Taka 80.00 million in 1989 and the same had increased to Taka 1,455.30 million in 2009. The bank has decided to issue 7 bonus shares for every 20 shares and the paid-up capital of the bank would thus be raised to Taka 1,964.65 million if the proposed bonus share is approved. Due to Bangladesh Bank restriction no cash dividend has been proposed this year. However, the bank has so far paid cash dividend of Taka 537.99 million to the government.
Cash Flow Statement
Cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.
Cash Inflows from Operating Activities    
Interest Received in Cash 4,698,690,493 4,305,245,957
Interest Paid by Cash                                                                  (2,885,115,412)    (2,423,325,272)    
Dividend Received in Cash 500,000 5,429,204
Fees and Commission Received in Cash 455,223,647 489,186,614
Recovery of Loans Previously Written off 665,300 1,389,616
Cash Paid to Employees (443,562,991) (405,147,119)
Cash Paid to Suppliers (25,194,665) (20,750,260)
Income Tax Paid (667,041,763) (486,669,983)
Received from Other Operating Activities (Item- Wise) 67,421,253 64,455,317
Paid for Other Operating Activities (Item-Wise) (182,276,314) (192,812,247)
Operating Profit before Changes in Operating Assets and Liabilities 1,019,309,548 1,337,001,827
Changes in Operating Assets and Liabilities: (7,029,746,514) (316,504,038)
Statutory Deposit (677,826,000) 3,155,561,000
Purchase/sales of Trading Securities (1,171,256,738) (1,512,551,048)
Loans and Advances to Customers (1,992,403,162) (5,005,781,571)
Other Assets (Item-Wise) (90,513,187) ( 40,871,902)
Deposits from Other Bank (430,000) (5,382,000)
Deposits from Customers (3,188,283,167) 3,270,079,333
Other Liabilities (item-wise) 90,965,740 (177,557,850)
Net cash (used in) / flow from Operating Activities (6,010,436,966) 1,020,497,789
Cash Inflows from Investing Activities    
Proceeds from Sale of Securities 1,656,211,236 2,190,115,456
Cash Payments for Purchase of Securities (843,166,691) (1,163,761,058)
Purchase of Fixed Assets (64,946,906) (86,626,820)
Sales of Fixed Assets 466,459 3, 190,095
Net cash flow from Investing Activities 748,564,098 942,917,673
Cash inflows from financing activities    
Increase/(Decrease) of Long Term Borrowing 1,166,753,668 322,593,525
Payment of Dividend   (62,370,000)
Net cash flow from Financing Activities 1,166,753,668 260,223,525
Net Increase of Cash and Cash Equivalent (A+B+C) (4,095,119,198) 2,223,638,987
Effects of Exchange Rate Changes on Cash and Cash Equivalent
Opening Cash and Cash Equivalent 12,606,188,630 10,382,549,643
Closing Cash and Cash Equivalent 8,511,069,432 12,606,188,630
Closing Cash and Cash Equivalent    
Cash in Hand and Balance with Bangladesh Bank and
Sonali Bank
Cash with Other Banks 5,906,178,460 8,485,180,776
Money at Call and Short Notice 180,000,000 1,480,000,000
  8,511,069,432 12,606,188,630
Source: Annual Report 2009, BASIC Bank

BASIC increasing their financing activities where their operating activities are more differs from one year to another. The year 2009 which is full of economic stress affect the BASIC performance.In investing activities we can also see the up & down situation. Their operating activities are showing the negative  value that means they are facing bad position in order to operate their business.
2.2: Analysis of Financial Ratio
To evaluate a bank its financial condition particularly it’s Report of condition and Report of Income is needed to evaluate. Here we evaluate the bank’s performances through ratio analysis.
Table- Financial Ratios at a Glance

Ratio Analysis
  2009 2008 2007 2006 2005
Capital Adequacy Ratio (%)  13.48 12.02 12.91 11.98 11.66
Capital Fund to Deposit Liabilities (%)   11.37 7.81 9.23 10.34 10.36
Liquid Assets to Deposit Liabilities (%)  24.67 47.70 49.10 40.42 58.01
Loan to Deposit Liabilities (%) 84.81 71.07 69.69 78.89 69.74
Earning Assets to Deposit Liabilities (%) 116.44 114.69 109.70 112.99 114.56
After Tax Return on Average Assets (%)  1.41 1.30 .83 1.94 1.23
Net Profit to Gross Income   (%) 12.57 10.87 7.97 19.31 12.81
Interest Margin Cover (%)   135.79 137.08 176.80 211.72 214.56
After Tax Return on Equity (%)  18.79 19.68 11.70 27.82 17.75
SMI/SSI Loan and   Micro Credit to Total Loan (%)  56.93 59.32 56.73 53.43 67.00
Net Operating Margin (NOM) 3.46 3.28 2.81 3.71 3.22
Total Asset Turnover Ratio (Times) .051 .050 .042 .053 .046
Total Fixed Asset Turnover Ratio (Times) 9.83 10.30 8.27 10.06 9.16
Non-performing Loans to Total Loans 13.48 4.59 3.25 3.70 4.55
Profitability Ratios
The profitability Ratios are one of the most difficult attributes of a firm’s performance as it reflects the market evaluation of the firm’s performance. This indicator is often not reliable in banking. The reason is that most bank stocks especially stocks issued by smaller banks are not actively traded in international or national stock markets. That’s why to analyze through market value indicators in the form of various profitability ratios’ are a better option
Return on Asset
One of the common measure of managerial performance is the ratio of income to average total assets after tax. It primarily indicates the management efficiency; it also shows how efficiently the management of the bank has been converting the institutions assets into net earnings.

ROA= Net Income after Tax / Average total Asset

Year 2009 2008 2007 2006 2005
Value of ROA 1.41 1.3 0.83 1.94 1.23
Here we can observe an decrease in trend of ROA over the 5 years. Though there is an increase in ROA in year 2009 in comparison with year 2008 as the earnings were far greater than its total assets.  
Return on Equity
On the other hand ROE measures the rate of return flowing to shareholders. It is the net benefit that the shareholders have received from investing their capital in the bank.
ROE= Net Income after Tax / Total Equity Capital
2009 2008 2007 2006 2005
Value of ROE 18.79 19.68 11.70 27.82 17.75

The above statistics shows that the banks operations have grown significantly. The operation is giving the BASIC Bank Ltd. is a good business through efficiency in the tax management, resulting in high net income after tax. As the equity is increasing more rapidly than earnings so ROE of this year is not satisfactory.
Net Profit Margin
The bank’s Net profit margin reflects the effectiveness of expense management and service pricing policies.
NPM= (Net Income after Taxes / Total operating Revenue)

Year 2009 2008 2007 2006 2005
Value of NPM 12.57 10.87 7.97 19.31 12.81
This trend shows a mixed reaction over the years. As there has been a sudden decline in 2007 but it came up smoothly in the year 2009. The profit margin of a bank or the ratio of net income to total revenue is a subject to some degree of management control and direction. The bank’s can increase their earnings and their return to shareholders by successfully controlling expenses and maximizing revenues
Efficiency Ratio: Efficiency ratios examine how the management uses its assets and capital measured by sales generated various asset or capital categories. The ratios are given below
Asset Utilization Ratio
The Portfolio management policies especially the mix and yield on the bank’s assets are called asset utilization ratio.
Asset Utilization Ratio= (Total operating Revenue / Total Asset)
Year 2009 2008 2007 2006 2005
Asset Utilization Ratio (%) 2.21 2.40 4.18 5.28 4.59



The trend had an decreasing flow till 2009 in the asset utilization ratio. This shows that the bank’s revenue generation power is decreasing than of previous years in respect to its assets. By carefully allocating the bank’s assets to the highest yielding loans and investments while avoiding excessive risk, management can raise the bank’s average yield on its assets which I believe that BASIC Bank Ltd. should do in future years.
Equity Multiplier
The Equity multiplier shows the leverage or financing policies, the banks source chosen to finance the bank’s operation. The multiplier is a direct measure of the bank’s degree of financial leverage.
 Equity Multiplier= (Asset / Equity Capital)

Year 2009 2008 2007 2006 2005
Equity Multiplier 11.55 15.64 14.93 13.14 15.72

Operating Efficiency ratio
 Operating Efficiency = (Total Operating Expense/Total Operating Revenue)

Year 2009 2008 2007 2006 2005
Value .31 .35 .33 .30 .30

Leverage Ratios
Leverage ratios provide insight into the extent to which non equity capital is used to finance the assets of the firm. Which components to include in the numerator or denominator of the ratios depend on how one defines liabilities and shareholders’ equity.
Total Debt Ratio
Total Debt Ratio = (Total Asset-Total Equity) / Total asset

Year 2009 2008 2007 2006 2005
Total Debt Ratio .91 .94 .93 .92 .94

Time Interest Earned
Time Interest Earned= (EBIT/Interest Expense)

Year 2009 2008 2007 2006 2005
Value .55 .57 .57 .83 .89

Solvency  Ratios
Net Fixed Asset Turnover ratio
The net fixed asset turnover ratio reflects the firm’s utilization of fixed asset. An abnormally low turnover implies capital tied up in excessive fixed assets. An abnormally high asset turnover ratio can indicate a lack of productive capacity to meet sales demand.
Net Fixed Asset Turnover Ratio = (Total Operating Revenue / Net Fixed Asset)

Year 2009 2008 2007 2006 2005
Value 9.83 10.30 8.27 10.06 9.16

Total Asset Turnover ratio
The total asset turnover indicates the effectiveness of the firm’s of its total asset base. This ratio must be compared to that of other firms within an industry because it varies substantially between industries
Total  Asset Turnover Ratio = (Total Operating Revenue / Total Asset)

Year 2009 2008 2007 2006 2005
Value .051 .050 .042 .053 .046

2.3: Economic Value Added Statement
The value added statement of BASIC Bank Ltd. show how the value is created and distributed among different stakeholders of the bank. Economic Value added(EVA) is the most recent innovation in measuring corporate performance. It is also the best measure of a firm's intrinsic value and the best tool of measuring Management and Owners' interest. The EVA is an estimate of the amount by which earnings exceed or fall short of the required minimum return for shareholders or lenders at comparable risk.
Particulars                                                                                    2009                              2008
                                                                                                       Taka                             Taka
Shareholders' equity                                                                  3,923,950,457           2,982,596,840
Add:Cumulative provision for loans and
 Off-balance sheet items                                                            1,048,856,507              823,142,010
                                                                                                   4,972,806,964           3,805,738,850
Average Shareholder's equity                                                 4,389,272,907          3,591,607,771
Profit after tax                                                                             648,853,399               549,953,737
Add: Provision for loans and Off-balance sheet
items and protested bill                                                               246,377,584               283,225,321
                                                                                                     895,230,983               833,179,058
Average cost of equity                                                                   14.00%                      14.00%
(based on highest rate of Govt. Savings Instruments)
plus 2% risk premium
Cost of average equity                                                                  614,498,207             502,825,088
Economic Value Added                                                              280,732,776             330,353,970

Figure: Economic Value Added
2.4: Risk Analysis
Operational risk
Operational Risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and system or from external events. Bank has internal manuals on Internal Control and Compliance, Human Resource where details of operational policies, procedures and HR related activities have been stated. Bank regularly monitor and reviews the performance of executives both quantitatively and qualitatively through analysis of achievement of business target in various parameters and behavioral, tactical and leadership aspects through confidential evaluation process.

The capital requirements for:
Amount in Crore (Tk.)
• Operational Risk
Financial Risk
Financial risk is the additional risk a shareholder bears when a company uses debt in addition to equity financing. Companies that issue more debt instruments would have higher financial risk than companies financed mostly or entirely by equity.
The measures of financial risk are:
  • Debt Equity Ratio
  • Interest coverage ratio
Debt Equity Ratio 
A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. 
Debt Equity Ratio = Total long-term debt/Total equity
Particular 2009 2008 2007
debt-euity ratio 0.73 0.57 0.53

Interest Coverage Ratio
 A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period.
Interest Coverage Ratio = Income before interest & taxes/ Interest expenses

Name 2009 2008 2007
Interest coverage ratio 135.79 137.08 176.8
This ratio indicates the extent to which the earnings fall without causing any embarrassment to the firm regarding the payment of the interest charges. A higher ratio is desirable, but too high Interest coverage ratio indicates that the firm is very conservative in using debt, & that it is not using credit to the best advantage of shareholders. A lower ratio indicates excessive use of debt, or inefficient in operations
2.5: Credit Rating of BASIC Bank 
Credit Rating Information and Services Limited (CRISL) has upgraded its rating and assigned AA (double A) for long term and ST-1 for short term for the year 2009.Banks rated AA in the long term are adjudged to be of high quality, offer higher safety and have high credit quality. This level of rating indicates a corporate entity with a sound credit profile and without significant problems. Risks are modest and may vary slightly from time to time because of economic conditions. Banks rated ST-1 in the short term are considered as the highest certainty of timely payment. Short-term liquidity including internal fund generation is very strong and access to alternative sources of funds is outstanding. Safety is almost like risk free Government short-term obligations.
Credit Rating Report (Entity Rating)
Year              Long Term Short Term
2009                   AA   ST-1
2008                   AA-1   ST-1
2.6: SWOT Analysis
  • Image of sound Banking activities..
  • A reputation for good customer service.
  • A positive financial condition.
  • A pool of well-qualified human resources.
  • Providing micro credit facilities for the poor for generation of employment and income on sustainable banks.
  • Less cost of classified loan.
  • Usage of faster pc bank software
  • Efficient administration
  • Fewer default loan.
  • Limited branch network.
  • Narrow product line relative to rivals
  • Less competitive commerce systems and capabilities relative to rivals.
  • currently don’t have any strong Marketing Activities through mass media e.g. Television.
  • Serving additional customer groups or expanding into new geographic markets or product segments.
  • Expending the company’s product line to meet a broader range of customer needs.
  • Using the Internet and e-commerce technologies to dramatically out costs and to pursue growth opportunity. 
  • Openings to exploit emerging new technologies.
  • Openings to take market share away from rivals.
  • Introducing ATM Card.
  • Mounting competition from on line and other dynamic private banks.
  • Restrictive regulatory requirements.
  • Growing bargaining power of the clients.
  • Increasing competitive offers from other dynamic private sector banks.
2.7: Trend Analysis
Loans and Advances
Increasing Trend of loans and advances indicates the expanding business scenario of the Bank and the profitability growth.
Table.  Consolidated Loans and Advances
Year 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000
Amount (in Million Taka) 29261 27269 22263 19000 15339 12000 9282 7957 6260 4618
Bank's loans and advances comprised of industrial loans, micro credit, commercial loans and bills portfolio increased by Taka 29261.53 million in 2009 compared to Taka 27269.13 million in 2008.

Fig: Loans and advances growth scenario
 Loan Portfolio:  BASIC is facing increasing growth both in industrial and commercial loans. Industrial loan volume is very high as the Bank is contributing towards project financing. Commercial loan volume growth is steady. On the contrary, Micro credit is in static condition.

Figure  : Loan Portfolio scenario
Non‑performing loan
Classified (non-performing) loans and advances was 4.83% at the end of the year under review which was 4.59% in 2008. In absolute term classified loans and advances stood at Taka 1,412.34 million in 2009 from Taka 1,251.21 million in 2008. Additional provision made in 2009 was Taka 231.70 million against classified and unclassified loans and advances and off-balance sheet exposure. Total cumulative provision made for loans and advances amounted to Taka 1,048.86 million as on December 31, 2009. During the year 2009 no loan was written off. However, an amount of Taka 0.07 million was recovered against written-off loans.

year 2009 2008 2007 2006 2005 2004 2003 2002 2001
% 4.83 4.59 3.25 3.70 4.55 3.70 4.25 5.12 3.67

Fig : classified loan to total loan trend of BASIC Bank
Deposit constitutes the core of BASIC Bank’s fund mobilization. Total deposit of the Bank at the end of 2009 stood at Taka 34,501.70 million (75.50% of Total liabilities) compared to Taka 38,368.23 million (82.24% of Total liabilities) in 2008. Total amount of deposit declined by 10.07%. The decline of deposit was mainly due to withdrawal of deposit of BTRC. The deposit of BRTC at the end of 2009 was Taka 2,121.54 million which was Taka 6,018.78 million at the end of 2008 registering a decline of Taka 3,897.24 million. During 2009, the fixed term deposit was Taka 30,489.73 million against Taka 34,539.71 million in 2008. Savings bank deposit increased to Taka 1165.84 million in 2009 compared to Taka 955.51 million in 2008. Deposit in current and other accounts including bills payable was Taka 8,846.12 million compared to Taka 2,873.01 million in 2008.
year 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000
amount in million 34502 38368 31948 24085 22326 15509 11267 10021 7513 5845
From the above graph we see that the Bank consolidate its deposits day by day in a increasing fashion. So, we can say that it is financially a strong Bank.


Figure: Deposit growth pattern of BASIC Bank
Trend Analysis of Net Profit

Year 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000
% 12.57 10.87 7.97 19.31 12.81 16.48 15.17 19.35 20.51 19.75
Figure: Profit Growth Pattern of BASIC
From the above table and graph, we see that the Bank gaining Net Profit day by day. It has the positive trend in gaining Net Profit. So, we can say that it is financially a strong Bank.
3.8: CAMELS Rating System
An international bank-rating system where bank supervisory authorities rate institutions according to six factors. The six factors are represented by the acronym "CAMELS."
The six factors examined are as follows:
C – Capital adequacy
A – Asset quality
M – Management quality
E – Earnings
L – Liquidity
S – Sensitivity to Market Risk
Bank supervisory authorities assign each bank a score on a scale of one (best) to five (worst) for each factor. If a bank has an average score less than two it is considered to be a high-quality institution, while banks with scores greater than three are considered to be less-than-satisfactory establishments. The system helps the supervisory authority identify banks that are in need of attention. The Capital, Asset, Management, Earning, Liquidity and Sensitivity (CAMELS) Rating of different commercial banks in 2008 were done recently by the regulatory authority. The serial is made on the basis of performance of 2007 and local banks first, then foreign banks. BASIC bank is a B-class bank. As the composite rating is less than 1.40 financial position of BASIC Bank LTD. is strong according to CAMEL Rating. If CAMELS ratings were made public, they are very likely to have an impact on the prices of bank securities, and the current information-sharing relationship between examiners and bankers for supervisory monitoring could be adversely changed. As a result, CAMEL ratings are often held in high confidentiality and known only to a financial institution’s top management.
2.9: Disclosures on Basel-II
Disclosure Overview
This following detailed qualitative and quantitative disclosures are provided in accordance with the guidelines of Bangladesh bank for Risk Based Capital Adequacy Requirement under Basel-II issued through circular on December 31, 2008. This is intended to provide users an insight about the various risks exposures to which the bank is focused and maintenance of adequate capital against them. The users will also be able to compare the bank’s performance within the banking industry. BASIC Bank has an approved market disclosure policy to disclose adequate information to the users in accordance with the suggestions made by Bangladesh Bank which is consistent with Bangladesh Accounting Standards (BAS), Bangladesh Standards on Auditing (BSA).
 Major Requirements of Bangladesh Bank’ guidelines for Basel-II:
  1. Pillar-I: Minimum Capital Requirement: Bank shall maintain minimum capital against potential risks (Credit Risks, Market Risks, and Operational Risks) which will be at least 10% of total risk weighted assets. At present all banks operating in Bangladesh is instructed to follow Standardized approach for Credit Risk and Market Risk and Basic Indicator Approach for Operating Risk. Capital Adequacy Assessment and Maintenance shall be submitted to Bangladesh Bank on Quarterly basis.
  1. Pillar-II: Supervisory Review: The banks shall have a process for assessing overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital at an adequate level. Adequate capital shall be more than or equal to 10% of risk
weighted assets. Bank should develop an Internal Capital Adequacy Assessment Process (ICAP) for assessment and maintenance of adequate capital.
  1. Pillar-III: Market Discipline: Purpose of Market discipline is to establish more transparent and disciplined financial market so that stakeholders can assess the position of a bank regarding holding of assets and to identify the risks relating to that assets and capital adequacy to meet the probable loss of assets. Banks shall develop an approved market disclosure policy and publish the same at least once in a year along with annual financial statements and also through website.
3.1: Definition of SME
Small and medium enterprises (also SMEs, small and medium businesses, SMBs, and variations thereof) are companies whose headcount or turnover falls below certain limits. However, what exactly an SME or Small to Medium Enterprise is depends on who’s doing the defining. Enterprises qualify as micro, small and medium-sized enterprises (SMEs) if they fulfill the criteria laid down in the recommendation which are summarized in the table below. In addition to the staff headcount ceiling, an enterprise qualifies as an SME if it meets either the turnover ceiling or the balance sheet ceiling, but not necessarily both.
Enterprise category Headcount Turnover Balance sheet total
medium-sized < 250 ≤ € 50 million ≤ € 43 million
small < 50 ≤ € 10 million ≤ € 10 million
micro < 10 ≤ € 2 million ≤ € 2 million
Small Enterprise means an entity, ideally not a public limited company and also fulfills the following criteria-
  • A service concern with total assets at cost excluding land and building from Tk. 50,000 to Tk. 50 lac and number of employees less than 25 persons,
  • A trading concern with total assets at cost excluding land and building from Tk. 50,000 to Tk .50 lac and number of employee at 25, or
  • A manufacturing concern with total assets at cost excluding land and building from Tk. 50,000 to Tk. 1.5 crore and number of employees less than 50 persons.
Medium enterprise on the other hand:
  • A service concern with total assets at cost excluding land and building from Tk. 50 lac to Tk. 10 crore and number of employees less than 50,
  • A trading concern with total asset excluding land and building worth Tk. 50 lac to Tk. 10 crore and number of employees less than 50, or
  • A manufacturing concern with total asset excluding land and building worth Tk. 1.5 crore to Tk. 20 crore and number of employees less than 150 persons (Chowdhury, S.K.S, 2007).
3.2: Definition of SME by Bangladesh Bank
Bangladesh    Bank as the central bank of the country is playing an important role regarding SME financing and is issuing circular from time to time for increasing access to finance. This will ensure growth, economic development, enhance employment and empower people to rise above the poverty line. Bangladesh Bank created special fund known as ‘Small Enterprise Fund (SEF)’ amounting TK 100.00 crore set forth in BB’s ACSPD Circular No. 01 dated 02-05-04 and has introduced a Refinance Scheme for Small Enterprise Sector to provide 100% refinance facilities to support the development of the small enterprise sectors through banks and financial institutions at a concessional rate of interest that is prevailing bank rate. Recently, under BB, ACSPD Circular No. 03 dated 12-06-2008 Bangladesh Bank raised Tk. 300.00 to TK 500.00 crore (hereinafter called SEF) to meet refinance facilities to meet growing demand of banks and financial institutions.
Bangladesh Bank data shows less than Taka 150 billion was lent to the SMEs in 2009.The central bank redefined SMEs and loan limits last year, and directed the banks to give priority to small enterprises and women entrepreneurs. The loan limit for small entrepreneurs was set at Taka 50,000 to Taka 5 million. For the medium enterprises no limit has been mentioned. The banks decide the amount for such entrepreneurs on the basis of need."Disbursing Taka 382.83 billion to the SMEs in nine months is absurd. If this amount of money was lent to the SMEs, there would be a huge impact on the economy and employment," said a senior official of a private bank. The banks have a financial incentive to exaggerate the SME loan figure.  The central bank governor, Atiur Rahman, said the Bangladesh Bank (BB) has set the SME definition in line with the country's industrial policy. Although there are no exact figures, sector people said the estimated number of SMEs in the country at 400,000 to 500,000.According to Bangladesh Economic Review 2009, the SMEs are the largest sector in terms of employment generation, even though they are about 6 per cent of the country's US$100-billion economy.
3.3: Definition of SME by Ministry of Industry (MOI)
The Ministry of Industry’s (MOI) Dept. of Industrial Promotion (DIP) defines three different categories of SMEs:
1. Production Sector SMEs (includes agricultural processing, manufacturing, and mining).
           2. Service Sector SMEs.
           3. Trading Sector SMEs (includes wholesale and retail).
The production and service sectors SMEs are under the responsibility of the DIP while trading sector SMEs are under the responsibility of the Ministry of Commerce. The majority of SMEs (43.1 per cent) are in the trading sector, while only 90,122 (28.9 per cent) belong to the production (manufacturing) sector. The remainder or 87,225 belong to the services sector (ISMED, 1999). On December 8, 1998, an unofficial meeting was organized by the MOI to review the definition of SMEs. It was attended by representatives from other Ministries, banks, agencies and departments, private sector and technical experts to arrive at a classification of enterprises based on the value of fixed assets (Allal, 1999b). The Cabinet approved the following definition on December 22, 1998 that uses the net fixed assets as the only classification Criterion.
Table: Definition of SMEs by Total Assets Value: (Million)
Sector Medium Small Number %
Production Not more than 200 Not more than 50 90,122 28.9
Service Trading Not more than 200 Not more than 50 87,225 28.0
      134,171 43.1
Wholesale Not more than 100 Not more than 50    
Retail Not more than 60 Not more than 30    
Source: AIIaI, 1999b
3.4: Characteristics of SME Financing
  • have begun spontaneously from just one idea or new product and may continue to be an incubator for innovative ideas and products
  • have an owner/manager with little formal business experience or few generic business skills
  • have begun because the founder/owner has a particular technical expertise
  • comprise the founder/owner and up to four employees (often with an unpaid family member providing administrative support)
  • have the owner as the only person in a managerial position, and no board or formal governance arrangements
  • operate on trust, rather than on systems and contracts
  • have a tight family-like culture where the values of the owner are strongly shared by the staff and workplace practices are flexible and suited to individual employees' needs
  • focus on a small range of products or services sold mainly on the local domestic market
  • have all personal assets, including the owner's home, committed as security for the business
  • acknowledge the owner's time as one of its scarcest and most valuable assets
  • operate flexibly, on a "reasonable person" basis, rather than on an informed and strict observance of regulations
  • have a vision and outlook that is bounded by the horizons, skills and experience of the founder/owner, the pressures of day-to-day management and tight resource constraints (i.e. a tactical rather than a strategic approach)
  • Endeavour to operate independently of other businesses and institutions and to favour self-help over seeking advice
  • not be aware of the regulations to which it is expected to adhere
  • in provincial areas, be a key part of the social fabric of the community
3.5: ROLE of SME
The role of SMEs in providing productive employment and earning opportunities has emerged as an important concern among policy makers, donor agencies and researchers. This growing commitment to the development of the SME sector is based largely on the following three core arguments.
  • SMEs enhance competition and entrepreneurship, and hence have external benefits on economy-wide efficiency, innovation and aggregate productivity growth. Thus direct government support of SMEs will help countries exploit the social benefits from greater competition and entrepreneurship.
  • SMEs are generally more productive than large firms, but financial market and other institutional failures impede SME development. Thus, pending financial and institutional improvements, direct government financial support to SMEs can boost economic growth and development.
  • SME expansion boosts employment more than large firm growth because SMEs are more labour intensive. From this perspective, subsidizing SMEs may represent a poverty alleviation tool.
3.6: SME background in South Asia Region
SME development is also a key component of efforts to diversify economic activity and thus contribute to stabilization measures. Many governments in South Asia appear to have recognized the key impact that the SME sector could have on economic growth and poverty reduction. In some cases this recognition is quite recent, and specific policy measures are only just beginning to emerge and/or take effect. What is particularly noticeable is the common emphasis on the SME sector as a potential source of employment creation, often to compensate for the decline of traditional (and generally large-scale) industry.
A common feature is that an SME in APEC employs less than 100 people, but there are manyexceptions (China8/ less than 500; Korea, Japan9/ less than 300; Vietnam, Thailand, Chinese Taipei, Philippines less than 200; Malaysia less than 150). The view of APEC is that a vibrant entrepreneurial society is central to the growth of the APEC economies, as substantial entrepreneurial activity will generate demand for new services, products and jobs. In particular innovation and start-up SMEs are identified as key elements of success that shape economic growth. The capability of SMEs to benefit from the new economy relies on innovation, since innovation is both the source of competitiveness and the key to survival in the new economy. In this world of accelerating economic globalization, advances in science and technology continue apace, and knowledge is recognized as a core competence in accumulating wealth. Technological innovation is a driving force behind social and economic development, this in turn relying on more and more new technologies, new products and new industries, as well as increasing linkages among industries, universities and research institutions. The objectives of APEC’s Integrated Plan of Action for SME Development (SPAN) include to:
  • Accelerate the pace of SME development in accordance with its growth potential in the APEC region;
  • Maximize SMEs’ efficiency along the region’s key economic sectors – primary, industrial, trade and services; and
  • Achieve socio-economic goals through micro, small and medium sized enterprises (MSMEs) as a source of growth and employment especially in the rural sector of the developing economies of APEC.
Despite these clear intentions, available evidence suggests that annual growth of the total number of SMEs in APEC countries has not kept pace with annual GDP growth. There appears to have been very little net real growth in the number of SMEs over the past decade in APEC; after allowing for new members and statistical factors, the net increase has been only about 2.97 million, or around seven percent over 10 years. Most of the growth has been in Australia, USA, Korea, Mexico and Chinese Taipei, whilst the number of SMEs has shrunk in Japan and China SME employment growth has also been less than GDP as well as total employment growth. However, this overall performance disguises national trends, SME employment growth having matched or outstripped total employment growth in about half of the APEC economies. It has been the underperformance of the larger economies of USA, Japan, China, Hong Kong China, Japan and the Russian Federation that has contributed to SME employment growing more slowly than total employment growth. SMEs were the major job engine in Australia, New Zealand, Singapore and Chinese Taipei throughout the 1990s.
3.7: Background of SME financing in Bangladesh
Bangladesh is a very poor county of 140 Mio. inhabitants. To reduce poverty in a country of this size, the poor population must be integrated into the development process. Around 6 mio. SMEs form a cornerstone of the economy, contributing one quarter of the national income. Strengthening the SMEs can not only create jobs, particularly for the poor, but also give the people better prospects, increase income, stabilize development and fight the poverty sustainable.
Available information suggests relatively rapid growth of SMEs in Bangladesh, especially since the 1990s. The data on the number of establishments shows that small enterprises grew by 4.6% per year over the period FY78 to FY03, while medium enterprises grew by 6.4% during FY82-FY03. With special emphasis given to the development of SMEs, it is likely that these growth rates have continued and probably increased in recent years. The number of small enterprises increased to 55,916 in 2001 from 24,950 in 1981. As per the Economic Census 2001 and 2003 (BBS), the number of small enterprises stood at 74,629 which is 87% of the total number of enterprises, while the number of medium enterprises is 5,125 (6%). For large enterprises, the number is 5,673 which is 7% of the total number of enterprises
No. of Units Employment No. of Units Employment Value Added (TK.)
Small and Cottage
Small Cottage Small Cottage
1981 24590 321743 322110 855200 17987
38294 405476 523472 1331032 21154
2001 (end of June) 55916 511621 808959 166724 29323
Average Annual
Growth Rate
(% change)
6.36 2.95 7.55 4.73 3.15
Table: Growth of SSIs sector (Excluding Handlooms) in Bangladesh
 Now in Bangladesh, there is 6 Million Micro, Small & Medium Enterprises creating around 31 Million employments.
  • Bangladesh has 6 Million Micro, Small & Medium Enterprises with less than 100 workers, out of which around 27000 are SMEs.
  • Micro, Small & Medium Enterprises provide more than 75% of the income of the households.
  • This sector contributes nearly 25% of the GDP, 40% of gross manufacturing output, 80-85% of industrial jobs & constitutes around 25% of the total labor force.
  • 51% of total SME production are contributed by enterprises those employ 2 to 5 workers, 26% having only one worker & 1o% by those having 6 to 10 workers.
3.8: Major Flourishing SME sector in Bangladesh
3.9: Barriers to Development of SME in Bangladesh
It is important to understand the operational strengths and weaknesses of the SME sector for pragmatic policy making and effective implementation of such policies. One of the most recent studies (Sarder, J. 2001) based on a small sample of 19 entrepreneurs identified the following (as perceived by the respondents) as the major difficulties faced by them:
  • lack of modern technology
  • lack of adequate investments
  • irregular/inadequate supply of power
  • high rate of interest on bank loans
  • inadequate availability of raw materials
  • absence of clear-cut government policies
  • fierce competition
  • lack of skilled technicians and workers
  • lack of research and development facilities.
These are very commonly perceived and also perhaps generally encountered difficulties of operation of the SMEs. However, a close scrutiny and careful interpretation tends to reveal that lack of institutional credit, non-availability of working capital, low levels of technology, low productivity, and lack of marketing facilities and market access problems are the major bottlenecks to SME growth in Bangladesh. In the recent years, domestic law and order conditions, unreliable power supply and stiff competition both in domestic and international markets seem to have been the added dimensions to the SME operational bottlenecks.
3.10: Contribution of SME in the Economy
Small and Medium-scale Enterprises(SMEs) has been considered as the thrust sector in the economic development of the country with growing importance from all walks of life. It is generally recognized that SMEs have a significant role in employment generation, poverty reduction and overall economic growth, specially for a developing economy like Bangladesh. As such Bangladesh Bank has also undertaken programmers to provide relatively cheaper funds to the banks and financial institutions which might encourage them for SME financing. Banks and financial institutions have been providing finance to SME sector and the volume of finance is showing an increasing trend. In recent years, the share of private sector banks in disbursement of credit to the SME sector has been increasing significantly. Bangladesh Bank's refinance scheme is also the timely approach in this regard. An amount of total Taka 16.48 billion has been provided to different banks and financial Institutions under some refinance schemes upto end June 2010.
  • Any precise quantitative estimate of the importance of SMEs in Bangladesh economy is  precluded by non-availability of comprehensive statistical information about these industries at the national level.
  • The latest BSCIC estimates suggest that there are currently 55,916 small industries and 511,612 cottage industries excluding handlooms. Including handlooms, the number of cottage units shoots upto 600,000 units indicating numerical superabundance of the SCIs in Bangladesh. Quoting informal Planning Commission estimates, the SMDF puts the number of medium enterprises (undefined) to be around 20,000 and that of SCIs to be between 100,000 to 150,000.
  • This wide variation in the BSCIC and Planning Commission estimates of the numerical, size of the SMEs might be due to at least two reasons: (a) different set of definitions of the SMEs and (b) different coverage of SME families. This strongly suggests the need for adopting and using an uniform set of definitions for SMEs by all Government agencies to help formulation of pro-active SME promotion policies. Whatever the correct magnitude, the SMEs are undoubtedly quite predominant in the industrial structure of Bangladesh comprising over 90% of all industrial units.
  • This numerical predominance of the SMEs in Bangladesh industrial sector becomes visible in all available sources of statistics on them
  • The various categories of SMEs are reported to contribute between 80 to 85 per cent of industrial employment and 23 per cent of total civilian employment
  • The most commonly quoted figure by different sources (ADB, World Bank, Planning Commission and BIDS) relating to value added contributions of the SMEs is seen to vary between 45 to 50 per cent of the total manufacturing value added.
  • the SMEs have undergone significant structural changes in terms of product composition, degree of capitalization and market perpetration in order to adjust to changes in technology, market demand and market access brought by globalization and market liberalization.
4.1: SME by BASIC Bank                                                                                                  
In order to achieve the aspiring objective of accelerating industrial growth in a country and to attain a greater share of industry in the country’s gross domestic product (GDP), the only way is to develop the small scale industries (SSIs). Keeping this long-term goal in mind BASIC Bank Ltd. was established in 1988 as a banking company under the Companies Act 1913 and launched its operation in 1989. It is a wholly state-owned bank that devotes, in accordance with its Memorandum and Articles of Association, at least half of its lending portfolio to SSI lending, and the rest to commercial and other lending. While attaching special importance to technical and advisory support to SSIs in order to enable them running their enterprises successfully, it provides clients with a full range of services to help them grow their assets and net-worth.
Lending portfolio of BASIC to SMEs
                                                                                                                    (Figure in crore taka)


2001 2002 2003
TL WC Total TL WC Total TL WC Total
SSI 118 197 315 147.3 232.0 379.3 194.87 318.06 512.93
MSI 6 57 63 14.3 71.8 86.1 15.65 78.58 94.23
MC 18 18 18.6 18.6 18.09 18.09
Total 142 254 396 180.2 303.8 484.0 228.61 396.64 625.25
Growth 39%     22%     29%
% of total loans & advances 63.26%     60.83%     67.36%
Total no. of projects Ø     368     418
Employment generation ¥ 11,637     12,622     13,000
Source: Annual Report 2009, BASIC Bank
SSI = Small scale industry, MSI = Medium scale industry, MC = Micro credit, TL = Term loan, WC = Working capital
Ø Excluding MC, ¥ Estimated
4.2: Principles for providing SME loan by BASIC
At the time of extending credit BASIC Bank Limited, jubilee road branch follows certain principles. Main principles of loans and advances are as follows:
  1. Within the aggregate limit of loans and advances as mentioned in (1) above, 50% of lending will be to small industry sector.
  2. No term loans will be approved for the commercial sector. Exceptions will be rare and will require approval of the Head Office Credit Committee.
  3. All lending will be adequately secured with acceptable security and margin requirements as lay down by the Head Office Credit Committee.
  4. The Bank will not incur any uncovered foreign exchange risk (currency exposure) in the lending of funds.
  5. The Bank will not incur any risk of exposure in respect of unmatched rates of interest on funding of loans and advances beyond 15% of outstanding loans and advances.
  6. End- use of working capital facilities will be closely monitored to ensure that the funds are used for the purpose for which they were advanced.
      VII.      Loans and advances shall be normally funded from customers’ deposits of a permanent nature, and not out of short- term temporary funds or borrowings from other banks or through short- term money market operations.
  1. The aggregate outstanding loans and advances (excluding loans and advances covered by specific counter- finance arrangements) will be dispersed according to the following guidelines (subject to item 2 above whereby 50% of lending being to small industry section):
    1. Short term commercial lending. This category includes working capital hotel and tourism.
    2. Facilities to Shipping and transport (facilities for the purchase and construction of ships / vessels and other modes of transport both by land and air).
  2. Spreads over cost of funds on loans and advances and commissions and fees on other transactions should be commensurate with the rating of the borrower, quality of risk and the prevailing market conditions.
  3. No credit shall be extended to a Customer Entity that exceeds in total commitment more than 10% of the Bank’s capital and free reserves.
  4. Exception will require approval of the Board of Directors.
4.3: Mode of SME Loan
BASIC offers loans and advances in the following mode:
Overdraft (OD): It is a continuous advance facility. By this agreement, the banker allows his customer to overdraft his current account up to his credit limits sanctioned by the bank. The interest is charged on the outstanding amount not on the sanctioned amount. OD is of two types practiced in BASIC Bank Limited.
  • Secured Overdraft (SOD): BASIC sanctions SOD against different securities like FDR, Sanchaypatra and Work Orders.
  • Temporary Overdraft (TOD): It is given to the valued customers only. It is not that much secured. Usually it forwards without any security or sometimes exercise lien against the instrument, deposited in the bank. It is given by the branch manager discretionary power.
Cash Credit (CC): By this arrangement, a banker allows his customer to borrow money up to a certain limit. CC is a favorite mode of borrowing by traders, industrialists, etc. for meeting their working capital requirements. It is operated like overdraft account. Depending on the needs of the business, the borrower can draw on his cash credit account at different time and when he gets money can adjust the liability. BASIC Bank charges interest on the daily outstanding balance of the account. Based on charging securities, there are two forms of cash credit:
  • Cash Credit (Hypothecation): Hypothecation is a legal transaction whereby goods are made available to the lending banker as security for a debt without transferring either the property in the goods or possession. The banker has only equitable charge on stocks, which practically means nothing. It is given against registered mortgage of land and building, hypothecation of goods and personal guarantee of directors.
  • Cash Credit (Pledge): Pledge is the bailment of goods as security for payment of a debt or performance of a promise. Transfer of possession in the judicial sense. In case of pledge goods the bank acquires the possession of the goods or a right to hold goods until the repayment for credit with a special right to sell after due notice to the borrower in the event of non-repayment.
Loan (General): It is given against personal guarantee, hypothecation of goods and land and building.
Term Loan: BASIC bank is advancing both short and medium term credit to the industrial sector on the basis of their capital structure, constitution and liquidity consideration. It is given against land and building along with machinery, personal guarantee of directors and hypothecation of raw materials.
Letter of Credit: An undertaking by the bank to make payment to the seller subject to submission of documents drawn in strict compliance with the stipulated terms giving title to goods to the buyer / bank.
Back-to-Back Letter of Credit: Letter of credit for importing raw materials / accessories opened against lien of an export L/C for processing export items. Payment is usually settled form export proceeds. A letter of credit is an instrument by which a banker, for account of a buyer, gives formal evidence to a seller of its willingness to permit him to draw on certain terms and stipulates in legal form that all such bills will be honored.
Loan Against Imported Merchandise (LIM): Loan allowed against imported merchandise and storing the same in bank's custody. The bank through its approved clearing agent clears the merchandise. The advance is adjusted by delivering the goods against payment by the importer.
Local Bill Purchase (LBP): Advance allowed against bills drawn under an inland L/C opened and accepted by a local bank. Such local L/C is usually opened as back-to-back L/C against export L/C.
Foreign Bill Purchase (FBP): Post export credit allowed against export bills. If the bills are drawn as per terms of the L/C, the bank purchases the same and pay equivalent amount of the bill to the credit of the client's account. The advance is adjusted on realization of export proceeds through foreign agent.
Staff Loan: BASIC provides advances to the staff for purchasing house building, Sanchaypatra, and meeting up certain requirements like family medical, personal medical, wedding purposes. Bank provides this facility under installments. Loan able amount varies on the basis of purpose.
4.4: Pricing of Loan
Pricing of loan is a great important element in banking business. Because through pricing, bank usually create margin/profit. So it is to be determined carefully. In pricing, four components are to be calculated prudently otherwise pricing of that loan will create a definite loss for the bank. The components are:
  1. Interest Expense or Cost of Fund: The interest to be given to the depositor and to central banks for borrowing
       ii.   Administrative Cost
       iii   Cost of Capital: Return expected by the investors for their capital invested in the 
       iv.  Risk Premium
Addition of the first three elements will provide the "Prime rate" beyond which a bank can never go for lending. Magnitude of the risk premium creates margin for the bank. And this rate of risk premium may vary from person to person and even from sector to sector depending upon the value or importance of the client and the prospective priority of the sector. Once upon a time, it was dictated by the Central bank but now a day, in compliance with the open market operation this power has been delegated to the enlisted commercial banks.
4.5: Lending Criteria of BASIC Bank
1. Entrepreneur
Entrepreneur/ Promoter have to be creditworthy & competent enough to run the proposed industry.
2. Viability of the project
The project should be viable from organizational, technical, commercial, financial and economic points of view.
Technical Viability
  • The project should be technically sound and environment-friendly.
  • Technology transfer in case of borrowed know-how ought to be ensured.
  • Building should be well planned and well constructed.
Commercial Viability
  • Market prospect and potential for the product has to be fully assured at competitive prices.
  •  Marketing channel for the product should be accessible to the entrepreneur.
Financial Viability
  • There should be reasonable debt equity ratio as determined by the Bank on individual case basis.
  • Debt service coverage ratio should be at least 2.5 times at the optimum level of production.
  • IRR should preferably be not less than 20 percent.
Economic Viability
  • The project should ensure benefit to the national economy and create sufficient employment opportunity and be environment friendly.
4.6 Selection of Borrower
Selection of borrower is a very significant part of a credit decision. The borrower should be diagnosed prudently. Degree of risk has an inverse relationship with the selection of borrower. Selection of right borrower reduces the risk of non-repayment of the loan. To the contrary, degree of risk of non-repayment increases with the selection of wrong borrower. In our country, the huge volume of non-performing loan is mainly the result of failure in selecting right borrower. So, if it is found that, line of business is prospective and profitable but the potential borrower is not right one, the proposal should not be entertained. There are some parameters for selection of a borrower. Some ‘C’s commonly expresses the parameters. And thus the criteria for selection of a borrower are popularly known as 4 C's such as:
       i. Character:          Market reputation, morality, family background, and promptness in                                                  repayment
       ii. Capacity:          Ability to manage the business, ability to employ the fund in the right way,                              ability to overcome unforeseen problems
      iii. Capital:            Equity strength, assets & properties
      iv. Collateral:        The easy marketability of the property given as security
      v. Condition:          Over all business condition
If the borrower's found satisfactory in terms of all C’s only then it is suggested to entertain the   borrower.
Figure: Flow-chart of Credit Management system of BASIC Bank Ltd
4.7:  Procedure of providing SME Loan
BASIC was established to provide term loan (including working capital loan) and other financial assistance (including all kinds of banking facilities) to accelerate the pace of development to small industry of Bangladesh. It is mandated in the Memorandum & Articles of Association of Bank to advance a minimum of 50% of the loan able fund to the small industry sector. As a broad policy objective in respect of small industry financing the Bank undertakes the following tasks:
  • Extend financial assistance to small industries in private sector.
  • Extend financial assistance to micro-enterprises and collaborate with other institutions engaged in financing and developing such enterprises.
  • The financial assistance shall include short-term working capital loan, medium term and long-term capital finance to viable new SSI projects and BMRE of SSI.
  • Undertake project promotion to identify profitable area of investment.
  • Cooperate and collaborate with institutions entrusted with the responsibilities of promoting and aiding SSI sector.
48: Procedure for processing SME loan Application
The processing / approval time for small industry loan is not more than two months from the date of receiving complete application form. The individual project appraisal report for Small Scale and Cottage industry may not be very elaborate and exhausted. However it covers the basic areas of project viability.
The following procedure is applicable for giving loans to the customer.



4.9: Documentation of Loans and Advances
In spite of the fact that banker extends credit to a borrower after inquiring about the character, capacity and capital of the borrower, he obtains proper documents executed from the borrower to protect him against willful defaults. Documents contain the precise terms of granting loans and they serve as important evidence in the law courts if the circumstances so desire. The documents for loans and advances can be classified into two categories: Charge documents and Security documents.
Mode of Charging Securities: BASIC Bank practices following 2 types of securities.

  • Primary Securities – Cash or cash equivalent that is easily liquidated or convertible into cash. Example–FDR, Sanchaypatra, DP Notes, etc.
  • Secondary Securities – These securities are tangible securities that can be realized from sale proceeds or transfer of property. Example– immovable properties.
The modes of charging securities are as follows:
Lien: Lien is the right to retain possession and not right of ownership. Bank’s lien is general lien over its own financial obligation to clients. Property under lien cannot be sold without notice to the owner and sometimes without court’s order. 
Hypothecation: This is mortgage of movables by an agreement and here neither possession nor ownership is transferred. Hypothecated goods cannot be sold out / disposed off without notice and court’s order. However, if a special power of attorney is taken in that case can be disposed off without going to the court.
Pledge: Pledge is the bailment of goods as security for payment of a debt or performance or promise. Here, title and ownership are not transferred. Pledge goods may be sold out and proceeds thereof may be appropriated towards adjustment of Liability in case of failure of the borrower to repay or fulfill the terms and conditions.
Mortgage: Mortgage is the transfer of interest in immovable property to secure the repayment of money advanced. Ownership remains with the mortgagor. In case of equitable mortgage, Court Order is necessary and in case of registered mortgage court’s order is not necessary for sale / disposal of the mortgaged property for adjustment of advance.

4.10: Risk Management Approach of BASIC Bank

Risk is inherent in all the core business areas of a bank. Managing risks properly is one of the main pillars of banking business. To ensure sustainable growth and performance, proper and sound risk management practice is of vital importance. As a commercial bank BASIC Bank Ltd. attaches full importance to manage the risk involved in its business. The risk management of the bank covers a wide spectrum of risk issues but the 6 (Six) core risk areas of banking are; Credit Risk, Foreign Exchange Risk, Internal Control and Compliance Risk, Money Laundering Risk, Asset Liability Management Risk and Information & Communication Technology Risk. The principal objective of risk management is to safeguard the bank's capital, financial resources, profitability and market reputation. To this effect, the bank took the following steps under the guidelines of Bangladesh Bank.

4.11:  Particular Covenants
  1. The borrower shall complete and implement the project and operate its undertaking with due diligence and efficiency and in-conformity with sound engineering and financial practices and within the time limit prescribed.
  2. The borrower shall maintain books, accounts and records adequate to identify the goods and services financed out of the proceeds of loan
  3. The borrower shall enable authorized representatives of BASIC to inspect the site, works and construction included in the project, and any other properties or equipment owned by the borrower; to examine or audit any books
  4. The borrower shall furnish to BASIC such information at such times in such form and such detail as BASIC shall reasonably request, concerning the expenditures of the proceeds of the loan, the progress of the project
  5. The borrower shall promptly inform BASIC of any events of conditions which delay the completion of the project or which are likely to interfere with the accomplishment of the purpose of the loan or maintenance of the service thereof or which are likely to have a substantial adverse effect on the business.
  6. The borrower shall appoint and keep appointed a Chartered Accountant acceptable to BASIC as its Auditor.
  7. The borrower will keep proper books of accounts and will not radically change its accounting system without prior written notice to BASIC.
  8. The borrower undertakes to employ technicians acceptable to BASIC to operate the project and from time to time consult such other technical advisers as may be reasonably by BASIC.
  9. If during the subsistence of the loan, the borrower shall propose expansion of the project by adding to its manufacturing capacity or shall propose to manufacture items beyond the proposed range of products, it shall inform BASIC of such plans.
  10. Except with the previous written consent of BASIC the borrower shall not incur, guarantee or assume any debt, or issue any loan capital, or create any mortgage or charge or other encumbrance on its properties.
  11. Except as approved by BASIC, the borrower shall not export from Bangladesh the goods financed under this agreement and shall take reasonable precautions to prevent the export of such goods by others.
  12. Without the previous consent of BASIC, the borrower shall not declare or distribute or appropriate any dividends or profits without first meeting installment of loans, interest, commission etc.

5.1: Portfolio of SME Loan

                                                                                                                   (amount million taka)
Sector 2009 2008 2007
amount % amount % amount %
Industrial 13052.61 53.28 12372.77 51.56 12155.79 60
Commercial 11445.54 46.72 11624.07 48.44 8103.86 40
Total     24498.15 100 23996.84 100 20259.65 100

From this above diagram we can say that, for SME loan BASIC bank give more preference in    industrial sector but they can finance over commercial to expand Manufacturing & commercial sector. Manufacturing sector is very important for a country to improve economic growth and as well as service generation and create employment. In 2009 shows the highest SME loan but we can see that the percentage of SMI & commercial loan are fluctuated year to year. In 2009 83.72% was the SME loan but in 2008 the rate was 88% & in 2007 was 91% of tha total loan outstanding.
5.2: Loan position in the branch of MOULVIBAZER in 2010

Sectors Disbursement Recovery Outstanding Overdue Classified
Small & medium industry term loan 3.44 8.94 36.6 0.17
Current capital loan 30.53 24.39 69.87 0.96
Commercial loan 91.29 42.12 146.46 3.48 0.68
Cottage industry term loan 1.17 0.9 5.44 0.06
total 95.9 76.35 258.37 4.67 0.68


 From the table & graphs of disbursement, recovery, outstanding & overdue we can say that commercial loan is exists in highest position in the MoulviBazer branch of BASIC. Then Current capital loan, Small & medium industry term loan & Cottage industry term loan  get the rank. Classified means default which are so low & shown in the commercial loan.
5.3:  Overall Position of the Loan

Particulars 2009 2008 2007
OUTSTANDING 24498.15 23996.84 20259.65
RECOVERY 23273.24 23036.96 19651.86
DEFAULT 1224.91 959.9 607.79
In 2009,the industrial loan reflected growth of 3.48% over the previous year.. But time to time the recovery rate are fluctuated. Economic unrest is the main reason of loan default. The chance of default risk are also increases with the expansion of the financing.

5.4: Comparative analysis of SME loan of five different banks
Loan size

Particulars Prime Bank Ltd. Dhaka Bank Ltd. Eastern Bank Ltd. Mercantile Bank Ltd BRAC BASIC
Loan size 01 lac-75 lac 01lac-50lac 01lac-300lac 2lac-50lac 3lac-30lac 10 lac -150 lac
For giving loan Banks examine the entrepreneur & the technical, commercial, financial & economic viability of the project. BASIC provides highest loan than others after examining the essential facts.
Rate of interest
Particulars Prime Bank Ltd. Dhaka Bank Ltd. Eastern Bank Ltd. Mercantile Bank Ltd BRAC BASIC
Rate of interest 18% p.a 17% p.a 18% p.a 15% p.a 15% p.a 11.5%-13%
In terms of interest rate of others bank, BASIC bank offer the lowest rate of interest to its customers. The highest rate is charged by Prime bank limited, Eastern bank Limited. The reason of offering lowest rate is most of the customers of the BASIC are regular customers.
Loan processing
Particulars Prime Bank Ltd. Dhaka Bank Ltd. Eastern Bank Ltd. Mercantile Bank Ltd BRAC BASIC
Loan processing fee .50% of the loan amount —— —– TK 500 .50% of the loan amount TK 300-1000
All the bank does not provide detail about loan processing fees to their customers. The prime bank limited and BRAC Bank limited only charges .50% as loan processing. And Mercantile bank Charge TK. 500 for loan processing & BASIC charge tk.300 to 1000 upto their loans.
Risk fund
Particulars Prime Bank Ltd. Dhaka Bank Ltd. Eastern Bank Ltd. Mercantile Bank Ltd BRAC BASIC
Risk fund —– 1%-2% of loan amount —– 1%of loan amount —– Commercial 50%
Industrial 30%
In case of new clients, BASIC takes as a margin or risk fund on Commercial loan 50%, & Industrial loan 30% to reduce default risk which are generally not shown in others bank. Dhaka bank & Mercantile takes a small percentage of risk fund in the time of given loan.
Period of loan
Particulars Prime Bank Ltd. Dhaka Bank Ltd. Eastern Bank Ltd. Mercantile Bank Ltd BRAC BASIC
Period of loan 1yr – 5 yr 1yr – 3 yr Upto 1   2-5 yrs 1yr – 3 yr Term-3 to 5yr
LIM-3 months
Among the bank the highest loan maturity date is offered by Dutch- Bangla Bank Limited and Mercantile Bank offer the lowest maturity period. The time period of others banks are not specified like Basic.
Mode of finance
Particulars Prime Bank Ltd. Dhaka Bank Ltd. Eastern Bank Ltd. Mercantile Bank Ltd BRAC BASIC
Mode of finance Term loan as well as working capital Term loan Only working capital loan Term loan as well as working capital Only term loan Term loan as well as working capital
All the banks provide SME financing facilities but don’t provide long term loan to its customers. Among the banks Prime bank and Dhaka bank both provide term loan and working capital loan to their customer. Other banks either provide term loan or working capital loan to its customers. BASIC also provide term loan & working capital.
 Portfolio size of different bank in SME sector:
SL Name of bank Portfolio size                                               (TK. In crore)
1 Prime  Bank Limited 10.80
2 Dhaka Bank Limited 18.00
3 Eastern Bank Limited 20.00
4 Mercantile Bank Limited 16.38
5 Dutch- Bangla Bank Limited 6.63
6 BRAC Bank Limited 25.72
                                      total          97.53

From the table we can see that BRAC bank has the highest investment in the SME sector  followed by Eastern Bank Limited in second position. While the Prime bank Ltd., Dhaka Bank Ltd., Mercantile Bank Ltd. and Dutch-Bangla Bank Limited are third, fourth and sixth respectively. But Basic Bank doesn’t maintain such kind of portfolio size. They are considered   bank- customer relationship for giving loan to their customers.
Table: Comparative analysis of SME loan of different bank:
Particulars Prime Bank Ltd. Dhaka Bank Ltd. Eastern Bank Ltd. Mercantile Bank Ltd BRAC BASIC
Loan size 01 lac-75 lac 01lac-50lac 01lac-300lac 2lac-50lac 3lac-30lac 10 lac -150 lac
Rate of interest 18% p.a 17% p.a 18% p.a 15% p.a 15% p.a 11.5%-13%
Loan processing fee .50% of the loan amount —— —– TK 500 .50% of the loan amount TK 300-1000
Risk fund —– 1%-2% of loan amount —– 1%of loan amount —– Commercial 50%
Industrial 30%
Supervision fee —— 1%-2% of loan amount —– 1%of loan amount
—– ——
Utilization fee .75% p.a
—— —– —– ——-
Period of loan 1yr – 5 yr 1yr – 3 yr Upto 1 Upto 2-5 yrs 1yr – 3 yr Term-3 to 5
LIM-3 months
Mode of finance Term loan as well as working capital Term loan Only working capital loan Term loan as well as working capital Only term loan Term loan as well as working capital
primary Personal guarantee Personal guarantee Personal guarantee Personal guarantee Personal guarantee Personal guarantee
secondary Collateral security (provision depend on case to case basis) Upto 5 lac collateral free(case to case above 5 lac and collateral mandatory ) Collateral security mandatory Above 10.00 Lac Collateral security mandatory Upto 8 lac collateral free & above 8 lac collateral is mandatory Collateral security mandatory
5.5: Comparison between MBL, BRAC Bank & BASIC Bank
  Loan Structure                                                                                 (amount million taka)
Particulars MBL BRAC BASIC
OUTSTANDING 1551.03 35973.59 24498.15
RECOVERY 1505.00 33455.44 23273.24
DEFAULT 46.03 2518.15 1224.91

Figure:  SME Loan position in MBL, BRAC Bank & BASIC Bank
BRAC Bank is the market leader & pioneer in SME banking in Bangladesh.This bank prove its success in global SME financing.To expand the unexplored SME market, BASIC Bank continuously improving efficiency standards. They are continuing to make every effort to take banking services to large numbers of Small & Medium Enterprises. SME Loan Scheme has been introduced in Mercantile Bank Ltd to provide financial assistance to new or experienced entrepreneurs to invest in small and medium scale industries with a comparatively low rate of interest as the same is assisted by the Bangladesh Bank with refinancing facilities. Exposure under this scheme experienced significant growth of 44.39% and amounting to BDT 983.39 million at 2009 end from that of BDT 681.08 million at the end of 2008.
Measures of Credit Risk:
Credit risk is the risk that arises due to uncertainty in counterparty’s ability to meets its obligations. Because there are a many types of counterparties from individual to sovereign.

BANK Non- Performing Loan & Advances (%)
2009 2008 2007
MBL 2.60 2.86 2.80
BRAC 6.04 4.69 4.45
BASIC 4.83 4.59 3.25

Classified (non-performing) loans and advances was 4.83% at the end of the year under review which was 4.59% in 2008. In absolute term classified loans and advances stood at Taka 1,412.34 million in 2009 from Taka 1,251.21 million in 2008. Additional provision made in 2009 was Taka 231.70 million against classified and unclassified loans and advances and off-balance sheet exposure. Total cumulative provision made for loans and advances amounted to Taka 1,048.86 million as on December 31, 2009. During the year 2009 no loan was written off. However, an amount of Taka 0.07 million was recovered against written-off loans. Here also BRAC Bank is the market leader & pioneer because the rate of non-performing loan is also highest than others. Mercantile again showing the low performance in this side.
5.6: Competitive benefits of SME Loans
  1.  In SME loan, default rate is much lower representing around 98 % recovery than corporate lending (big loans). This is because of the fact that, in SME risk is distributed among a big number of customers with small amount of loan (usually TK. 3lac -8 lac).
  1.  Effective rate of return is higher due to refinance @5% from Bangladesh Bank, 1% service charge, 1% risk fund and 15% rate of interest. Interest rate still remains higher in SME as Bangladesh Bank has kept this sector out of recent interest rate cut policy. As for example, SME loan of TK. 500 crore will yield revenue of TK. 20 crore (approx) more over the same amount of corporate loans.
  1. SME is advantageous for capital adequacy of the bank demonstrating lower risk weight on assets than corporate financing. (SME 75%, other than SME (unrated) 125%)
  1. SME loan is most suitable in Bangladesh to create employment opportunity boosting rural economy and to increase income level of the people.
6.1: Findings
  • BASIC Bank is considered as specialized bank by Bangladesh Bank, in fact it is an excellent blend of development Banking & commercial Banking.
  • SME financing Policy is being updated by the Board of Directors of the Bank with any change being made by Ministry of Industry in its industrial policy. Recently , the following change is being enacted in the existing credit policy of BASIC Bank
  • Any industry whose project cost excluding land and building is below Taka 150.00 lac is considered as small scale industry
  • Any industry whose project cost excluding land and building is above Taka 150.00 lac and below 1000.00 lac  is considered as Medium scale industry
  • The interest rate offered by BASIC is as follows-
  • Industrial Term loan(SME)                    :      Interest rate is 12.50% – 13.00%
  • Industrial working Capital Loan(SME)   :      Interest rate is 13.00%
  • Commercial Loan (SME)                       :      Interest rate is 13.00%
  • Every project has been considered as equally risky or no risk premium is being added with the prime rate. Interest rate should be adjusted viewing the risk exposure of the project.
  • The Debt-equity composition should be determined after due consideration of debt servicing capacity of the project, security coverage of term loan, etc emphasizing the borrower’s involvement in capital structure, minimum debt- equity is 51:49 is practiced in this bank. This approach is effective for the protection of over invoicing or over valuation.
  • The core strength of BASIC is its strong & reliable client base. Here in appraisal foremost importance is attached to the capability, earnestness, and financial conduct – past, present & expected future. KYC (Know Your Customer) is the motto of the bank.
  • BASIC is practicing the concept of “Project based lending rather traditional security based lending approach”. Consequently, innovative projects gets both domestic & export market preferences.
  • Total loan processing time can be reduced but policy guidelines by Bangladesh Bank require involvement of different top layers of the bank. Most of the cases, the delayed loan sanction is due to non- cooperation by the borrowers.
  • Small Scale industry in our country is not structured in any way. Most of entrepreneurs don’t have any financial statement of their business. It is difficult & time consuming to assess the financial strength of the client in a robust manner.
  • Documentation is being practiced carefully to avoid legal complication that may arise any facility provided by BASIC.
  • Compliance culture in BASIC Bank is very good. This is another core area of BASIC that’s why the amount of default loan is significantly low.
  • BASIC follows the credit risk policy guidelines as instructed by Bangladesh Bank in different circulars at different times. 
  • BASIC is facing increasing growth in industrial & commercial loans. Industrial loan volume is very high as the bank contributing towards project financing. Commercial loan volume growth is steady. Micro credit is in static condition.
6.2: Recommendations
  • BASIC should disburse their SME loans in various sector rather than only scheme.
  • SME Loan sanctioning and disbursement procedure should be easy and flexible being considered the requirements of different classes of people.
  • Amount of loan can be raised in proportion with the existing demand of people in SME loan, SME loan can be popular among the small trader and lower income group people
  • credit Policies can be revised being considered with the increase demand of telecom, transportation, Knit and packaging and plastic industry.
  • Bottlenecks or barriers should be removed by taking advanced steps in mode of disbursement, charge documents and approval process.
  • Loan facility parameter should be expanded so that all the people can get loan according to their needs.
  • Business Power for sanctioning loans and advances can be increased at branch level.
  • In rural areas, BASIC Bank should provide the SME Loan to alginate the poverty and also increase the self relevance. It will act as a promotion policy.
  • The Bank should have more conference in overseas, work shop, symposium, and seminar for more expansion of SME loan.
  • More SME service center need to be added to fully take the advantage of the huge potential customer segments.
  • The sectors where the bank is investing should need much concern and need a revision so that investments are not resulting in desired outcome.
  • Initiating effective drive to arrest classified loan and to bring down the existing classified loan substantially to a minimum percent.
6.3:  Conclusion
BASIC is unique in terms of constitution, its mandate, its objectives and modus operandi. Through this The Bank has in the mean time found its own special position in the sector at the higher rack of the self. BASIC Bank is expected to continue to maintain strong competitive edge in banking sector in Bangladesh in the years ahead. Through Bank’s specialization and integrated approach, The Bank aims to build a strong position in the industrial development of Bangladesh. The Bank also plans to maintain its focus on managing capital and costs to maximize shareholders' value. In this environment, The Bank expects to make further gains in revenue, income and return on capital.
Recent Bank’s performance in different arena of banking strongly suggests that BASIC Bank is one of the soundest banks operating in the country. Although Government of Bangladesh is the sole shareholder of this Bank and the way thinking ahead is quite inspiring. BASIC is a trend setter in banking industry. Continual improvement in different segment with a proactive attitude can make a difference in the banking business. Online Banking is the demand of today’s dynamic world and BASIC is heading towards implementation of Online Banking within two years from now.
7.3: Bibliography
  • Annual report of  BASIC in 2009.2008,2007 & 2006.
  • Error! Hyperlink reference not valid.
  • Annual report of  Mercantile in 2009
  • Annual report of  BRAC Bank in 2009
  • Error! Hyperlink reference not valid.
  • Error! Hyperlink reference not valid.
  • Annual report of Prime bank limited, Dhaka bank limited, Eastern bank limited in 2009
  • Fundamentals of Banking, S.S. Publications, A.R. Khan
  • Banking Law & Practice, M.L.Tanan
  • Investment & portfolio management , Frank k. Reilly & Keith C. Brown.
  • Intermediate Financial Management 5th edition, Eugene F. Brigham & Louis C. Gapenski
  • Financial Statement analysis, Leopold A. Bernstein
  • Prothom Alo newspaper.
  • Mention Acts, Bangladesh Bank