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Project Paper on Credit Management of Prime Bank Limited A bank with a difference
1.1 Background of the Study
The bank plays an important role in the economy of any country. The banking system of Bangladesh is composed of variety of banks working as nationalized commercial banks, Private Banks, foreign banks, specialized banks & development banks. However there are many private banks in Bangladesh. At present, among other banks prime bank limited plays as a leading banks to provide efficient banking service with a view to accelerating socio-economic development of the country. Day by day, new competitors appear with better ideas & Products as well as service. “Consumer credit scheme” one of the new innovative idea which cater to the credit needs of the low & middle income groups for household durables. In a present time, few banks operate this scheme with short volume. Only Prime Bank limited & a very few banks operate this scheme in a large volume. To make its position more strong, PBL wants to make this scheme more attractive to the customer. In this regard, the management of the PBL assigned a comparative analysis on this scheme & to find out its position than that of private banks & to ensure efficient & effective banking operation in a sound manner.
1.1 Objectives of the Study
The main objective of the study is to gather practical knowledge regarding the Performance of loans and advance operation and management of a commercial bank. This practical orientation gives us a chance to co-ordinate the theoretical knowledge with the practical experience. Following are the objectives of this practical orientation in a bank:
· To have an overall idea regarding the Loans and advance of a commercial bank.
· To gather knowledge about loan and advance.
· To identify sectors where the bank is giving loan and advance.
· To identify the Documentation & Guideline for Loan & Advances.
· To have some practical exposure that will be helpful in the practical life.
· To apply theoretical knowledge in the report writing time.
· To observe the working environment in commercial banks.
· To study existing banker-customer relationship.
· To recommend the bank in managing credit more effectively and efficiently based on the findings in the bank.
1.2 Origin of the report:
This report originates to fulfill the requirement of studying BBA Program of Northern University Bangladesh. This program has been designed to facilitate the students with basic theoretical and practical knowledge in the job activities in the context of Bangladesh as well as worldwide.
Since the BBA program is an integrated ,practical and theoretical method of learning , the student of this program are required to have practical exposure in any kind of business organization last term of this program. This report has been prepared on practical orientation.
1.3 Rationale of the Study
Three types of schedule commercial banks are in operation in our economy. They are Nationalized Commercial Banks, Local Private Commercial Banks and Foreign Private Commercial Banks. PBL has introduced a new horizon in the field of banking area, consumer credit scheme which offers loan to fixed income people. So I have decided to study on the topic “Consumer Credit Scheme of Prime Bank Ltd.”. As the Internship program of the university is an integral part of the BBA program, it is obligatory to undertake such task by the students who desire to complete and successfully end-up their BBA degree. This also provides an opportunity to the students to minimize the gap between theoretical and practical knowledge. During the internship program the teachers of the department are attached to actively and constantly guide the students. Students are required to work on a specific topic based on their theoretical and practical knowledge acquired during the period of the internship program and then submit it to the teacher. That is why I have prepared this report.
1.4 Scope of the Report
This internship Project Paper covers the Loans and Advance of the “Prime Bank Ltd.”
This report has been prepared through discussion with bank employees and with the customers. While preparing this report, I had a great opportunity to have an in depth knowledge of the Loans and Advance management activities practiced by “Prime Bank Ltd.” It also helped me to acquire a firsthand perspective of a leading private Bank in Bangladesh. Specifically the report covers the following areas:
· Background of Prime Bank Ltd.
· My Work Experience.
· Consumer Credit Scheme of Prime Bank Ltd.
1.5 Methodology of the Study
The study is performed based on the information extracted from different sources collected by using a specific methodology. This report is analytical in nature. The methodology is as follows.
Population: All the Branches of PBL located in everywhere in Bangladesh has been taken into consideration as population. Special focus is given on Karwan Bazar Branch where I have completed Project Paper.
Data collection: Source of data of this report can be divided into two categories:
Primary Sources
· Conversations with officers & employees of the branch.
· Interactions with the customers at PBL.
· Face to Face conversation with the respective officers and staffs.
· Sharing practical knowledge of officials.
· Relevant file study provided by the officers concerned.
· In-depth study of selected cases.
Secondary Sources
· Annual Report of PBL
· Audit Reports
· Website of PBL
· Internet and Study of selected reports.
· Different Circulars of Bangladesh Bank.
Work procedure of the study in metaphorical arrangement:
Time Frame:
The report has been prepared by taking 8 weeks.
| Tasks \ Week | 1 | 2 | 3 | 4 | 5 | 6 |
| Preparing a Research Proposal | ||||||
| Developing Interview Guideline and Negotiation | ||||||
| Completion of Literature Review | ||||||
| Data Collection | ||||||
| Data Transcription | ||||||
| Data Analysis | ||||||
| Completion of Report Writing, Preparing Recommendation and Submission. |
1.6 Problems faced:
During the time of conducting the report, the problems faced by me were as follows:
Only 8 weeks of internship was a limitation for the completion of an exclusive study and to get in depth knowledge.
Preparation of the report before completing the scheduled time in the credit division.
Both the head office and the branch, the officials are preoccupied with their duties.
Most of the relevant information about the topic was secret from the view point of the organization, so some of them were collected with a great difficulty.
Sufficient and updated records, publications, facts and figures were not available which have narrowed the scope of real analysis.
1.6 Limitations of the Study
From the beginning to end, the study has been conducted with the intention of making it as a complete and truthful one. However, many problems appeared in the way of conducting the study. During the study, it was not possible to visit the whole area covered by the bank although the financial statements and other information regarding the study have been considered. The study considers following limitations:
· All the branches of the bank were not physically visited.
· All the concerned personnel of the bank could not been interviewed.
· Lack of experience.
· The time period for this study was short.
· Inadequacy and lack of availability of required current data.
An Organizational Profile OF
Prime Bank Ltd.
2. Details of Prime Bank Ltd.
2.1 Historical Background of Prime Bank Limited:
The banking system plays a critical role in underpinning economic development. Against the background of liberalization of economic policies in Bangladesh, Prime Bank Ltd. has resulted in great success in all areas of operation of its bank with a view to improve the Socio-economic development of the country.
Prime bank ltd. (PBL) was incorporated on 17th April 1995 with an authorized capital of Tk. 1000 million & Tk. 100 million of paid up capital by a group of successful entrepreneurs. It is not a conventional Bank. It’s a modern, dynamic private Commercial bank & plays a constructive role in the economic development of the country. Prime Bank is the first private bank to introduce lease finance, Hire Purchase & Customer Credit Schemes in the banking sector in order to bring about qualitative changes in the lives of people of Bangladesh. PBL through its steady Progress & continuous success has, by now, earned the reputation of begin one of the leading private sector Banks of the country.
2.1.1. Vision of PBL:
“To be the best Private commercial bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity.”
(Source: Annual Report 2008 of PBL)
2.1.2. Mission of PBL:
To build Prime Bank Limited into an efficient, market driven, Customer focused institution with good corporate governance structure. Continuous improvement in our business policies, procedure and efficiency through integration of technology at all levels.
(Source: Annual Report 2008 of PBL)
2.2. Objective & Goals:
PBL is ready to improve the highest quality customer service through new IT products & services such as ATM. ONLINE BANKING & POINT OF SALES transaction.
The Major objective of PBL is to maximize profit through customer’s satisfaction.
The bank plays a vital role in socio-economic development of Bangladesh by developing worldwide network in domestic & international operations.
2.2.1 Salient features of PBL
· Prime Bank is engaged in conventional commercial banking as well as Islamic banking based on Islamic Shariah Principles.
· It is the pioneer in introducing and launching different customer friendly deposit schemes to tap the savings of the people for channel ling the same to the productive sectors of the economy.
· The Bank has introduced new software named T24 software, which is made by Switzerland. It is used in Bangladesh for first time and has a lot of features to provide prompt and smooth service for the customer of the Bank.
· For uplifting the standard of living of the limited income group of the population, the Bank has introduced Retail Credit Scheme by providing financial assistance in the form of loan to the consumers for procuring household durables.
· The Bank is committed to maintaining continuous research and development to keep pace with modern banking.
· The operations of the Bank are computer oriented to ensure prompt and efficient services to the customers.
2.3. Network of Branches
PBL is operating through 70 branches located in Dhaka, Chittagong, Khulna, Rajshahi, Sylhet, Moulvibazar, Bogra, Jessore, Barisal, and Narayangong where there are Local branches along with the Principal Branch in Dhaka.
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Motijheel
Islamic Banking
Gulshan
Banani.
Mouchak
Bangshal
Kawran Bazar
Elephant Road
Moulavi Bazar
Mohakhali
Dhanmondi
New Eskaton
Uttara
Dhaka Club.
Foreign Exchange
Madhabdi Branch
Pragati Sharani
Mirpur-1 Branch
Bashundhara
Pallabi
Asad Gate
Shatmasjid Road
Narayangonj Branch
Ganakbari Branch
Shimrail Branch
Pragati Sarani Road
Tongi Branch
Panthapath Branch
SBC Tower Branch
Joyedebpur Chowrasta
Tangail Branch
Ashulia Branch
Bijoynagar Branch
Joypara Branch
Adamjee EPZ Branch
Gareeb-E-newaj Avenue Branch
Bhairab Branch
Mymensingh Branch
2.3.1. Corporate Organogram:
2.4 Services:
PBL is offering 5 types of services. They are
2.4.1 Retail Banking
The Retail Banking Division comprises the domestic branch network with the specialized customer credit, real estate finance. Retail banking deals with the banking services to the individuals. Prime Bank’s retail banking strategy is aimed at keeping as closely in tune with their customers’ needs as possible and further improving the quality of advisory services. As a result, PBL offers different product ranges to different target groups. It includes the following:
Deposits Services: Individuals may open current, savings, STD, fixed deposit accounts.
Wage Earners Services: PBL offers a few innovative schemes to Bangladeshi wage earners working overseas.
Customer Loans: PBL provides consumer’s loan services.
2.4.2 Institutional Banking
Prime Bank Limited offers various services to foreign mission, NGOs and voluntary organization, consultants, airlines, shipping lines, contractors, schools, colleges, universities, donor agencies and consultants.
The services include the following:
· Deposit scheme
· Current accounts in both Taka and major foreign currencies.
· Convertible Taka accounts
· Local and foreign currency remittances.
· Various types of financing to cater to the banking requirements of multinational clients.
2.4.3 Corporate Banking
A professional account management team caters to the needs to corporate clientele and provides a comprehensive range of financial services to national and multinational companies. Its services include:
· Corporate deposit accounts
· Business lending
· Merchant banking
· Small and medium enterprises
· Readymade garments
· Projects finance investment, constancy and other finances.
· Syndicated loans.
· Local and international treasury products.
· Bonds and guarantees.
· Skilled and responsive attention to varying lending needs.
2.4.4 Commercial Banking
Being a commercial Bank PBL provides comprehensive banking services to all types of commercial concerns. Some of the services are:
· Trade finance
· Issuing of import L/Cs.
· Advising and confirming export L/Cs.
· Bonds and guarantees.
· Investment advice.
· Project finance opportunities for import substitution and export oriented project.
Leasing: It is a very flexible arrangement, which is tailored to suit most requirements of its clients. Lease financing by Prime Bank is a unique means of funding a firm’s need for capital equipment without actually lending to the firm.
2.4.5 Correspondent Bank
Services to correspondent bank include:
· Current accounts services where settlement is necessary.
· Issue bonds and guarantees in support of their customer business.
· Advise letter of credit and negotiation of documents.
· Market intelligence and status report.
· 2.4.6 Management Hierarchy
· Managerial decision-making authority starts from the Principal Officer. The top-level authority goes to the Chairman, the Board of Directors and the Managing Director.
2.4.7 Field Of Operation
PBL, being one of the best financial intermediaries in the country, blended its operations in conventional banking, Islamic banking and investment banking. The blending has been done with the objective of diversifying the operations for catering to the needs of the customers of the different strata of the society from one viewpoint and for having sustainable growth in profitability and business with the least possible risk. The bank’s operations were diversified into the following areas of activities as a dynamic financial intermediary.
· Conventional Banking Operation
· Islamic Banking Operation
· Lease Finance Operation
· Merchant Banking
· Retail Banking
In order to carry out the above operations PBL has set up the following divisions, departments and units in its Head Office:
· Credit Operation & Management Unit
· Corporate/Relationship Operation Department
· Credit Risk Management Department
· Credit Administration department
· Credit Monitoring and Recovery Department
· Export Finance Division
· Small & Medium Enterprise (SME) Credit Cell
· Structured Financing Unit
· International Division
· Treasury Division
· Leasing Unit
· Card Division
· Retail Credit Division
· Corporate Affairs Division
· Islamic Banking Division
· Merchant Banking & Investment Division
· For facilitating operations by the above mentioned divisions the bank has established the following divisions to provide support and internal services:
· Human Resource Division
· Information Technology Division
· Public Relations Division
· Financial Administration Division
· General Services Division
· Marketing Division
· Prime Bank Training Institute
· Branches Control Division
· For ensuring internal and statutory compliance there are following three cells namely,
· Board Audit Cell
· Audit and Inspection Division
· Central Compliance Department
· Besides, there is a Board Secretariat to look after the company matters and to for arrange for Board/Executive Meetings and record the proceeding of the board/EC.
2.4.8 Product
If the memorandum and articles of association of the Prime Bank Limited is revised its area of operation is clearly written. The product of PBL is targeted to fulfill that aim. The product and services that are currently available are given below:
| Loan Products |
Consumer Credit Scheme |
| Lease Finance |
| Hire-Purchase |
| Small & Medium Enterprise |
| House Building Finance Scheme (Corporate Client) |
| Computer Software Financing Scheme |
| Prime Bank Master Card Credit Card |
| Prime Bank Visa Credit Card |
| Working Capital Financing |
| Import Financing |
| Export Financing |
| Industrial Financing |
New Product and services |
New Product and services
Online Banking Services
SWIFT services
L/C Delivery Services
Locker Services
Merchant Banking Services
ATM services
The bank has introduced Automated Teller Machine service to the client. The project will be implemented with the share of other few commercial banks.
Performance & Growth of PBL: (In Million Tk.)
| Particulars | 2004 | 2005 | 2006 | 2007 | 2008 |
| Authorized Capital | 1000 | 1000 | 1000 | 1000 | 4000 |
| Paid-up Capital | 500 | 600 | 700 | 1000 | 1400 |
| Deposits | 13259.87 | 16481.60 | 20483.23 | 28069.24 | 36022.46 |
| Loans and advances | 9074.94 | 12686.85 | 16492.22 | 23219.67 | 31916.11 |
| Net Profit before tax after provision | 705.09 | 696.84 | 769.91 | 1064.24 | 1200.83 |
| Current ratio | 1.06 | 1 | 0.88 | 0.97 | 0.95 |
| Debt equity ratio | 7% | 7% | 7% | 7% | 7% |
| Import | 36747 | 40303 | 52639 | 70617 | 40303 |
| Export | 19502 | 28882 | 41801 | 51316 | 28882 |
| Remittance | 2140 | 3688 | 15050 | 15905 | 22669 |
| Nonperforming loans (NPLs) | 352.73 | 308.21 | 367.15 | 777 | 1322.6 |
| % of NPLs to total loans and advances | 1.52% | 0.96% | 0.82% | 1.35% | 1.76% |
| Earnings per share (Taka) | 96.6 | 59.73 | 37.55 | 43.71 | 40.59 |
| Capital Adequacy Ratio | 17.50% | 12.43% | 11.90% | 10.74% | 9.96% |
| No of Branches | 36 | 41 | 50 | 61 | 70 |
| No of employees | 894 | 1024 | 1172 | 1400 | 1550 |
From the table we can see that Prime banks net profit has increased from 705.09 million taka to 1200.83 million taka from 2004 to 2008. In 2004 there were only thirty six branches of Prime Bank, by 2008 number of branches increased to seventy.
2.4.10 Graphical Presentations:
Graphical Presentation of Performance of PBL:
Investment Growth of PBL:
| Year | 2004 | 2005 | 2006 | 2007 | 2008 |
| Tk(in Million) | 1730.74 | 1996.23 | 2749.71 | 3083.81 | 3939.50 |
(Source: Annual Report)
From the graph we can see investment is continuously growing from 2004 to 2008.
Deposit Growth of PBL:
| Year | 2004 | 2005 | 2006 | 2007 | 2008 |
| Tk.(in Million) | 13259.87 | 16481.60 | 20483.23 | 28069.24 | 36022.46 |
From the graph we can also see deposit is continuously growing from 2004 to 2008. In 2004 deposit was 13259.28 million taka, by 2008 deposit increased to 36022.46 million taka.
Net Profit of PBL:
| Year | 2004 | 2005 | 2006 | 2007 | 2008 |
| Tk. (in Lac) | 9074.94 | 12686.85 | 16492.22 | 23219.67 | 31916.11 |
From the table we can see in 2004 net profit was 9074.94 Lac, it increases to 31916.11 Lac Tk. by 2008. From the graph we can see continuous growth in net profit from 2004 to 2008.
Performance of Loans & Advance Scheme In Bangladesh
3.1 Introduction
Loans and advance Credit Program is an important development scheme in the banking sector in most of the developing economies including Bangladesh. In Bangladesh people of limited monthly income are faced with the problem of improving their standard of living. Considering this, some commercial banks have started Consumer Credit Program especially since the mid-1990s. The broad objectives of this scheme, among others, are to help service holders by providing consumer credit at a reasonable rate of interest encouraging saving habit, developing the saving habit, facilitating increasing standard of living and finally to play the active role in the socio-economic development of Bangladesh. The middle class and the disciplined professionals cannot afford to buy essential utility products at a time. As such, they cannot able to raise their living standard to an expected level. Different private sector banks and foreign commercial banks have introduced the household durable loan scheme known as “Consumers Credit Scheme” to fulfill the dreams and desires of middle class fixed income group by providing loan to purchase necessary products.
3.2 L&A in Bangladesh
Consumer Loans and advance Scheme is very much popular in most of the developed and developing countries of the world. This is designed to finance the fixed income group for buying essential commodities, which is to be repaid by monthly installment over a period in accordance with a contractual agreement. Consumer Loans and advance Credit Scheme is becoming very much popular in our country. A good number of financial institutions in our country are successfully operating this program.
Islami Bank Bangladesh Limited first introduced this loan in 1993. Following their success other private banks like Prime Bank Ltd., Uttara Bank Ltd., Pubali Bank Ltd., Mercantile Bank Ltd., IFIC Bank Ltd. and other introduced this scheme later. Now about to every private banks offers this household durable loan. But among the foreign commercial banks this is not that much practiced. But very few banks offer this loan extensively.
3.3 Loans of of Different private Banks
| Name of Bank | Name of Scheme | Date of Starting |
| Islami Bank Bangladesh Limited Prime Bank Limited | Household Durables Investment Scheme Consumers Credit Scheme | 1993
1995 |
| Social Investment Bank Limited Pubali Bank Limited | Households Loan
Consumers Credit Scheme |
1995
1996 |
| Uttara Bank Limited
ANZ Grindlays Bank |
Uttaran-Consumers Credit Scheme
Personal Finance |
1996
1996 |
| Arab Bangladesh Bank Limited Al-Arafa Islami Bank Limited | Concumers Credit Scheme
Kengkhito Samagri Biniog Prokalpo |
1997
1997 |
| Al- Baraka Bank Limited
Mercantile Bank Limited |
Al- Baraka Consumer Credit Scheme
Consumers Credit Scheme |
1997
1999 |
| One Bank Limited
IFIC Bank Limited |
Consumers Credit Scheme
IFIC Consumers Credit Scheme |
1999
1999 |
| Premier Bank Limited
The City Bank Limited |
Consumers Credit Scheme
Consumers Credit Scheme |
1999
1999 |
From the table we can see that though Islami Bank Bangladesh Limited has was only offering Household Durables Investment Scheme in 1993, But Prime Bank Limited has offered full scale consumer credit first time in Bangladesh.
3.4 Objective of Loans Program
· The main and specific objectives of Loan program in Bangladesh are:
· To provide financial help for purchasing necessary goods
· To improve the standard of living of middle class income group
· To provide loan which can be repaid in some easy installments
· To build up the habit of savings in limited income group
· To contribute in the socio-economic development of the country
4.5 Goods under this Scheme
This Consumers Credit scheme program of different private sector banks is designed to provide loans only for household durables and some intangible personal expenses purpose. The area for which CCS loan is disbursed can be classified as bellow:
Vehicles: Car, Microbuses, Motorcycle.
·Domestic Appliances: Air conditioners, Fan, Refrigerators, Washing machine, Microwave ovens, Cooking ranger, Knitting machine, Mobile, Telephone, Furniture and others.
·Office Equipment: Personal computer, Printers, Photocopier, Generator, UPS, Fax machine.
·Entertainment: VCD, VCR, TV, Music system, Camera.
·Intangibles: Holidays, Education, Medical, wedding expenses.
·Others: Home repair, Redecoration, Renovation etc.
3.6 Eligibility for Consumer loans
To be eligible for CCS loan different banks has different criteria. Some banks offer this loan to each level of income group with every profession where others have some limited area for disburse this loan. Most of the bans offer this loan to the following professions with an age range of 18 to 60
· Government organization.
· Semi-government and Autonomous bodies.
· Banks. Insurance Company and other financial institutions.
· Armed force, BDR, Police and Ansar.
· University, College and School.
· Locally established and renounced Public Limited Companies.
· Multinational Companies.
· Bank acceptable Company.
· Professionals Doctor, Engineer, Lawyer, Architect, Chartered Accountant, Journalist, and self employed person etc.
3.7 Advance Schedule- PBL
ADVANCE AGAINST IMPORT BILLS (BLC)
Advance against Bills under Letter of Credit are originated from the lodgment of shipping documents received from foreign banks against letter of credit established by the bank.
ADVANCE AGAINST IMPORTED MERCHANDISE (LIM)
Under loan against imported merchandise bank release the imported goods through the nominated clearing agent of the bank. In this case bank holds the possession of the goods. Importer takes delivery of the goods from the bank’s go-down against payment. It is one type of forced loan.
ADVANCE AGAINST TRUST RECEIPT (TR)
Advance against Trust Receipt to the client are to release shipping documents for taking delivery of merchandise which is hypothecated to the bank.
ADVANCE AGAINST EXPORT BILLS PURCHASED I DISCOUNTED
Discounting of bill: Banks allow advances to the clients by discounting bill of Exchange I promissory note which matures after a fixed tenor. In this method, the bank calculates and realizes the interest at a prefixed rate and credit the amount after deducting the interest from the amount of instrument.
Purchase of bill: Banks also make advances by purchasing bills, instead of discounting, which are accompanied by documents of title of goods such as bill of lading or railway receipts etc. In this case the bank becomes the purchaser / owner of such bill which are treated as security for the advance. This is allowed primarily relying on the credit worthiness of the client.
ADVANCE AGAINST WORK ORDER
Advance can be made to a client perform work order. The following points are to be taken into consideration:
• The client’s management capability, equity strength, nature of the scheduled. Work and feasibility study should be judiciously made to arrive at a logical decision.
• If there is a provision for running bills for the work, appropriate amount to be deducted from each bill to ensure complete adjustment of the liability within the payment period of the final bill.
• Besides assignment bills receivables, additional collateral security may be insisted upon.
• Disbursement should be made only after completion of documentation formalities and fulfillment of arrangements by the client to undertake the contract.
• The progress of work under contract is reviewed periodically.
Non-Funded Business
Non flamed credit facility to a customer refers to a bank’s commitment to a third party on behalf of the customer. The commitment itself constitutes facility but does not involve cash outflow from the bank. The bank’s commitment essentially states that in the event of occurrence / non occurrence of a particular event, within a particular date, due to a particular reason or reasons, a specific sum of money shall be paid by the bank to the third party upon claim in a particular manner. Though these types of facilities are primarily non-funded in nature but at times it may turn into funded facility. As such liabilities against these types of credit facilities are termed as ‘contingent liability’ and do not affect the balance sheet of the bank at the time of commitment but contain the possibility. The non funded facilities are:
Letter of Credit: A banker’s documentary credit is an instrument or letter issued by a bank on behalf of and for the account of the buyer of the merchandise. By this instrument the bank undertakes that the bill(s) of exchange of the beneficiary (the seller of the merchandise) drawn on the buyer, or on the issuing bank, or on another bank designated in the instrument, strictly according to the conditions stipulated in the instrument, will be duly honored by acceptance and by payment depending upon the issuance of the bill(s) of exchange in question.
A banker’s letter of credit gives the seller or the exporter:
(a) Credit security- by eliminating the credit risk in the sale and the shipments of goods
(b) Credit facilities- by financing the sale when the goods are in transit; and
(c) Exchange security- by assuring him that the required amount is available to him under credit from the time he receives the buyer’s order and the time of shipment and presentation of shipping documents.
Guarantee: In banking, it is an irrevocable obligation of a bank to pay a certain sum of money in the event of non performance of a contract by a third party. The basis of guarantee is always a contractual relationship between principal debtor (account holder) and creditor (beneficiary), which is either a contract that has been definitely concluded or a relationship in its pre-contracted as is the case with the tender guarantee. This relationship is referred to as the principal or underlying relationship or contract. The contract of guarantee is independent of this underlying relationship.
SECURITY FOR LOANS AND ADVANCES:
Security is a Cover against loans and advances. It ensures recovery of loans and advances. Though now-a-days greater emphases are put on the purpose of the loan rather than securities, nevertheless the securities play an extremely important role to take a decision. Security is an insurance or cushion to fall back upon in emergency if borrower fails to repay the loan amount. Importance of charging security is:
i. Protection of Interest
ii. Ensuring the recovery of the money lent
iii. Provision against unexpected change
iv. Commitment of the borrower.
Types of Security:
The types of securities offered vary from place to place. In metropolitan cities, it may be Govt. bonds / share I assignment of Book debt I Bills receivable etc. whereas, in the industrial area raw materials & finished goods etc. may be offered as securities. Again agricultural produce is the principal securities in the agricultural centers. Further, a bank also accepts moveable & immovable properties, life insurance policy etc. as securities.
Securities are classified into three broad categories:
COLLATERAL SECURITIES: The tangible securities pledged I assigned by the borrower to the bank and additionally held by the bank to secure a loan are called Collateral Securities. In case of advances against pledge I hypothecation of goods, bank may insist on immovable properties as collateral.
GUARANTEE: At times when the personal security of the borrower is not considered sufficient or when the risk involved is a border line case and the borrower is not in a position to offer sufficient collateral to the loan, the bank may ask for a guarantee of a third party whose financial ability and credit standing is acceptable to the bank. A guarantee is an undertaking given to the bank by a third party, called the guarantor to be answerable to the bank for the debt of the borrower upon his default in repayment of the loan. It should be remembered that such security for the loan depends on the continued solvency of the guarantor. To safeguard the bank’s interest a continuing guarantee in the bank’s standard form should be obtained.
MARGIN: The difference between the market value / asset valued of the goods, merchandise
4.1Consumer Loans of Prime Bank Limited
Bangladesh is a country having its population of above 140 million. When the world turns to be a “Global Village”, 36% of our people live below the poverty line. In this situation when all other banks are running after making profit, Prime Bank is committed to play a vital role in the overall socio economic development of our country. As per its commitment, it launched “Consumer Credit Scheme” in the Year 1995 to enhance the living standard of the people of limited and fixed income.
Prime Bank tries to establish the concept of “Relationship Banking”. It treats clients as its ‘Financial Partner’ and always intends to be a friend of rainy days by means of proving financial assistance in those days. Till the current fiscal period it provides financing for the following purposes:
· To purchase different home appliances
· To purchase equipments for medical services
· To purchase motor vehicles
· To meet up emergency or sudden needs
· To arrange marriage ceremony
· To enjoy vacation both inward & outward of the country.
· To bear the educational expenditures of children.
All of the above facilities were not available under the ‘Consumer Credit Scheme, launched in the year 1995. The new facilities are added with the Consumer Credit Scheme under the head of the “Retail credit Scheme”. This new scheme has been introduced and came to effect from the 1st March 2004.
It is the ideal solution of customer’s needs. It is used to finance toward the people of fixed income for purchasing various durable goods. The credit scheme is introduced with a set of liberal terms as:
· It is provided against personal Guarantee
· It requires to a certain percent of equity investment
· It is to repaid by equal monthly installment
· It is to be repaid within a specific period.
4.2 objectives of Loans advance:
Prime Bank Limited started the Consumers Credit Scheme program with a view to fulfill its beneficiary institutional objectives through financing the middle class limited income of prime Bank Ltd. is bellow.
· To bring the credit facility to the middle class limited income group.
· To improve the living standard of limited income group through financing to purchase necessary goods.
· To participate in the socio-economic development of the country.
4.3 eligibility of the Customer
Any interested person with an age range of 20 to 50 and having a permanent job or officer of the following organization can apply for the CCS loan of the bank.
· Government organization.
· Semi-government and Autonomous bodies.
· Banks, Insurance Company and other financial institutions.
· Armed force, BDR, Police and Ansar.
· University, College and School.
· Locally established and renounced Public Limited Companies
· Multinational Companies.
· Bank accepted Privet Company.
· Professionals Doctor. Engineer, Lawyer, Architect, Chartered Accountant. Journalist and self employed person etc.
4.4Types of Consumer Loans
4.4.1Car Loan: For many of us the most sought after dream is to own a car. As possessing a car is no longer luxury but necessity. Prime bank offers the financial support by providing Car Loan facility. The custom-design car loan with easy repayment schedules gives borrower the opportunity to purchase a brand new or reconditioned car.
Eligibility: Prime Bank gives car loan to borrowers whose age is between 25 to 60 years. Borrowers have to earn at least Tk. 20,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 40,000. Prime Bank gives Car Loan to
Employees of:
· Government, Semi Government, Autonomous bodies
· Sector Corporation
· Non-Government Organizations
· Multi-national Companies
· Banks & Financial Institutions
· Educational Institutions
Professionals:
· Doctor
· Engineer
· Accountant
Self Employed:
· Businessman ( At least five years of successful track record)
· Loan Limit: Prime Bank gives loan up to Tk. 20, 00,000 for recondition and new car.
· Loan period: In Prime Bank maximum loan period for car loan is 6 years.
· Down Payment: Borrowers have to make 10% down payment in case of car loan.
· Interest Rate: For car loan interest rate is 16%
4.4.2 Home Loan
Prime Bank offers customers an easy-to-avail Home Loan with convenient repayment options, also with maximum limit on the loan amount.
Purpose of the loan:
· Purchase of apartment/house (not older than 10 years)
· Constructing a new home
· Taking over of regular house building loans from other banks/non banking financial institution.
Eligibility: Prime Bank gives car loan to borrowers whose age is between 25 to 60 years. Borrowers have to earn at least Tk. 20,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 40,000. Prime Bank gives Home Loan to
Employees of:
· Government, Semi Government, Autonomous bodies
· Sector Corporation
· Non-Government Organizations
· Multi-national Companies
· Banks & Financial Institutions
· Educational Institutions
Professionals:
· Doctor
· Engineer
· Accountant
Self Employed:
Businessman (At least five years of successful track record)
Loan Limit: Prime Bank gives loan up to Tk. 50, 00,000 for home loan.
Loan period: In Prime Bank maximum loan period for home loan is 20 years.
Down Payment: For home loan down payments differs as per purpose. If home loan is for building a house down payment will be maximum 60%, if home loan is for buying apartment or house the down payment will be maximum 70%, if home loan is for buying old apartment or house the down payment will be maximum 50%.
Interest Rate: For home loan interest rate is 16%
4.4.3 Education Loan: Now-a-days to give your child the best education or to get a higher degree either at home or abroad requires a substantial amount of finance. To relieve from this burden prime bank offers education loan that ensures uninterrupted study through steady flow of cash.
Eligibility: Prime Bank gives car loan to borrowers whose age is between 25 to 60 years. Borrowers have to earn at least Tk. 12,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 25,000. Prime Bank gives Education Loan to
Employees of:
· Government, Semi Government, Autonomous bodies
· Sector Corporation
· Non-Government Organizations
· Multi-national Companies
· Banks & Financial Institutions
· Educational Institutions
Professionals:
· Doctor
· Engineer
· Accountant
Self Employed:
Businessman ( At least five years of successful track record)
Loan Limit: Prime Bank gives loan up to Tk. 5, 00,000 for education loan.
Loan period: In Prime Bank maximum loan period for education loan is 4 years.
Down Payment: Borrowers have to make 20% down payment in case of education loan.
Interest Rate: For education loan interest rate is 17%
4.4.4 Travel Loan: When planning an overseas vacation or making a trip to chosen exotic location, financing may be the key issue. To resolve this problem Prime Bank came up with the travel loan offer.
Eligibility: Prime Bank gives travel loan to borrowers whose age is between 25 to 60 years. Borrowers have to earn at least Tk. 20,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 40,000. Prime Bank gives travel Loan to
Employees of:
· Government, Semi Government, Autonomous bodies
· Sector Corporation
· Non-Government Organizations
· Multi-national Companies
· Banks & Financial Institutions
· Educational Institutions
Professionals:
· Doctor
· Engineer
· Accountant
Self Employed:
Businessman ( At least five years of successful track record)
Loan Limit: Prime Bank gives loan up to Tk. 2, 00,000 for travel loan.
Loan period: In Prime Bank maximum loan period for travel loan is 3 years.
Down Payment: Borrowers have to make 20% down payment in case of travel loan.
Interest Rate: Fo