THE PROBLEMS AND PROSPECTS OF RETAIL CREDIT IN CONTEXT OF
PRIME BANK LIMITED IN BANGLADESH
By
Kashfia Nehereen ID: 0310001
Has been approved September, 2007
_________________________________
Mr. Samir Mainuddin
Lecturer School of Business
Independent University Bangladesh
THE PROBLEMS AND PROSPECTS OF RETAIL CREDIT
IN CONTEXT OF PRIME BANK LIMITED IN BANGLADESH
By
Kashfia Nehereen ID: 0310001
An Internship Report Presented in Partial Fulfillment of the Requirements for the Degree
Bachelor of Business Administration
INDEPENDENT UNIVERSITY BANGLADESH September, 2007
September 9, 2007. Mr. Samir Mainuddin Lecturer School of Business Independent University, Bangladesh. Subject: Submission of internship report. Dear Sir,
With due respect, I, Kashfia Nehereen, ID: 0310001, would like to inform you that, it is a
great pleasure for me to submit the report on “The Problems and Prospects of Retail Credit in
context of Prime Bank Limited in Bangladesh”, as a requirement for BBA 499 program. While
conducting the report, I have gathered lots of knowledge about retail credit and many unknown
facts, problems and prospects of retail or consumer lending on second generation banks like
Prime Bank, Eastern Bank, Dhaka Bank and National Credit and Commerce Bank.
Therefore, I firmly believe that, this report will be able to meet your approval. I would
genuinely appreciate to make further corrections where it seems necessary by you. Your kind
advice will encourage me to conduct more research on retail credit in future
Sincerely Yours ……………………. Kashfia Nehereen
ID: 0310001
Acknowledgement
At the very beginning, I would like to express my sincere gratitude to Allah, who has given me
the chance to complete my internship report in a very comfortable manner. My gratitude and
thanks goes to my respected supervisor Mr.Samir Mainuddin, Lecturer, School of Business, who
co-operated me all through the times for completing my internship report. I want to mention my
special gratitude and thank to Dr.S.U. Ahmed, Assistant Professor, School of Business, without
the special guideline of whom, it would be impossible on my part to complete my internship
report successfully. I have conducted my report on” The Problems and Prospects of Retail Credit
in context of Prime Bank Limited in Bangladesh” for which, I want to express special thanks to
all the employees of SBC Tower branch of Prime Bank. I am also acknowledging the co-
operation and support that I received from the Retail Credit Head Office of Prime Bank. I want to
mention special thanks to Mr.Shahjahan Bhuiyan, Managing Director of Prime Bank Limited for
allowing me to do my internship in this bank. I also want to mention two names who’s all over
inspiration and guidelines were there during my internship period for completing my report.
Those are
• Mr. Sk Matiur Rahman,Vice President, Head of Treasury
• Mrs.Tahmina Akhter,Principal Officer, International Division of Prime Bank
There is no doubt that, because of their help, I, as an inexperienced person was able to
accomplish the report. These persons gave me their valuable time whenever I needed their help.
This report is so a blessing of the individuals who gave the valuable information of their banks
other than Prime Bank. Lastly, I would like to express my special honor to Mr.Nadim Jahangir,
Director in charge, School of Business for his co-operation.
TABLE OF CONTENTS
Contents Page No. Letter of Transmittal
Acknowledgement
Executive Summary
1.0 Introduction
1
1.1 Background of the Problem
1
1.2 Problem Statement
1
1.3 Objectives
2
1.4 Methodology
3
1.5 Limitations
3
1.6 Research Timeline
4
2.0 Review of the Literature on Retail Credit
5
3.0 A Brief Profile of Prime Bank Limited
6
3.1 Vision
6
3.2 Mission
7
3.3 Strategic Priority
7
3.4 Core Values
7
3.5 Products and Services
7
3.6 Depository Services
8
3.7 Loan Services
8
3.8 Types of Credit Facilities
9
3.9 Other Services
10
Page No.(Continued)
4.0 Retail Credit Practices in Prime Bank Limited(PBL)
11
4.1 Credit Portfolio
11
4.2 Income Generation by Retail Credit
13
4.3 Target Clients
13
4.4 Typology of the Products offered by Prime Bank Limited(PBL)
14
4.4.1 Car Loan
15
4.4.2 Household Durables Loan
16
4.4.3 Any Purpose Loan
17
4.4.4 Doctors Loan
18
4.4.5 Marriage Loan
19
4.4.6 Education Loan
20
4.4.7 Loan against Salary
21
4.4.8 Travel Loan
22
4.4.9 Hospitalization Loan
23
4.4.10 CNG Conversion Loan
24
4.4.11Swapna Neer
25
4.5 Credit Assessment, Approval and Disbursement Procedure
26
4.5.1 Credit Assessment
26
4.5.1.1 Application
27
4.5.1.2 Contact Point Verification(CPV)
28
4.5.1.3 Guarantee
28
4.5.1.4 De duplication check 28
Page No.(Continued) 4.5.1.5 Assessment Method
29
4.5.2 Credit Approval Process
29
4.5.3 Credit Disbursement
30
4.6 Number of clients in Retail Credit
32
4.7 Promotional Activities
32
5.0 Retail Credit Practices in Eastern Bank Limited(EBL), Dhaka Bank Limited(DBL), and National Credit and Commerce Bank Limited(NCCBL)
33
5.1 Retail Credit Practices in Eastern Bank Limited(EBL)
33
5.1.1 Credit Portfolio of EBL
33
5.1.2 Income generation by Retail Credit
35
5.1.3 Target Clients
35
5.1.4 Typology of the Products offered by EBL
36
5.1.4.1 EBL Jibandhara or Any Purpose Lifestyle Loan
36
5.1.4.2 EBL Auto(Car) Loan
37
5.1.4.3 EBL executive Loan
38
5.1.4.4 EBL Utshab or Vacation Loan
39
5.1.5 Credit Assessment, Approval and Disbursement Process
40
5.1.6 Number of clients in Retail Credit
41
5.1.7 Promotional Activities
41
5.2 Retail Credit Practices in Dhaka Bank Limited(DBL)
42
5.2.1 Credit Portfolio
42
5.2.2 Income Generation by Retail Credit 44
Page No.(Continued) 5.2.3 Target Clients
44
5.2.4 Typology of the Products offered by DBL
44
5.2.4.1 Personal or Any Purpose Loan
45
5.2.4.2 Car Loan
46
5.2.4.3 Home Loan
47
5.2.4.4 Vacation Loan
48
5.2.5 Credit Assessment, Approval and Disbursement Process
49
5.2.6 Number of clients in Retail Credit
49
5.2.7 Promotional Activities
50
5.3 Retail Credit Practices in National Credit and Commerce Bank Limited(NCCBL)
51
5.3.1 Credit Portfolio
51
5.3.2Income Generation by Retail Credit
52
5.3.3 Target Clients
53
5.3.4 Typology of the Products offered by NCCBL
53
5.3.4.1Personal or Any Purpose Loan
54
5.3.4.2 House Renovation Loan
55
5.3.5 Number of clients in Retail Credit
56
5.3.6 Credit Assessment, Approval and Disbursement Process
56
5.3.7 Promotional Activities
56
Page No.(Continued)
6.0 Comparative Analysis of Retail Credit Status of PBL with EBL, DBL and NCCBL
57
6.1 Disbursed Amount of Retail Credit
57
6.2 Interest Income Generated by Retail Credit
57
6.3Number of Clients in Retail Credit
58
6.4 Types of Retail Credit Products Offered
58
6.5 Different Features of Similar Products Offered
58
6.6 Promotional Activities
60
7.0 Problems of Prime Bank in Retail Credit Operation
61
8.0 Prospects for Prime Bank in Retail Credit
63
9.0 Recommendation
64
10.0 Conclusion 65
LIST OF TABLES
Tables
Page No.
1.List of Depository Services provided by PBL
9
2.List of Loan Services provided by PBL
9
3.Features of PBL Car Loan
15
4. Features of PBL Household Durables Loan
16
5. Features of PBL Any Purpose Loan
17
6. Features of PBL Doctors Loan
18
7. Features of PBL Marriage Loan
19
8. Features of PBL Education Loan
20
9. Features of PBL Loan Against Salary
21
10. Features of PBL Travel Loan
22
11. Features of PBL Hospitalization Loan
23
12. Features of PBL CNG Conversion Loan
24
13. Features of PBL Swapna Neer Loan
25
14. Features of EBL Jibandhara or Any Purpose Lifestyle Loan
36
15. Features of EBL Auto(Car) Loan
37
16. Features of EBL Executive Loan
38
17. Features of EBL Utshab or Vacation Loan
39
18. Features of DBL Personal or Any Purpose Loan
45
19. Features of DBL Car Loan
46
20. Features of DBL Home Loan
47
Page No.(Continued)
21. Features of DBL Vacation Loan
48
22. Features of NCCBL Personal or Any Purpose Loan
54
23. Features of NCCBL House Renovation Loan
55
24.Comparison of retail credit disbursed among four banks
57
25.Comparison of retail credit interest income among four banks
57
26. Comparison of number of clients in retail credit among four banks
58 27. Comparison of retail credit products offered among four banks
58
28. Comparative Features of Any Purpose Loan among four banks
59
29. Comparison of promotional activities among four banks
60
LIST OF FIGURES
Figures
Page Number
1.Credit Portfolio of PBL
12
2.Retail Credit Growth of PBL
12
3.Interest Income Growth of PBL Retail Credit
13
4.Process flow Chart of Retail Loan Processing of PBL
31
5. Clients Growth in PBL Retail Credit
32
6.Credit Portfolio of EBL
34
7.Retail Credit Growth of EBL
34
8.Interest Income Growth of EBL Retail Credit
35
9.Clients Growth in EBL Retail Credit
41
10.Credit Portfolio of DBL
43
11.Retail Credit Growth of DBL
43
12.Interest Income Growth of DBL Retail Credit
44
13.Clients Growth in DBL Retail Credit
50
14.Credit Portfolio of NCCBL
51
15.Retail Credit Growth of NCCBL
52
16.Interest Income Growth of NCCBL Retail Credit
52
17.Clients Growth in NCCBL Retail Credit
56
EXECUTIVE SUMMARY In the new competitive business era, Private banking sector is getting more competitive in
Bangladesh. Besides this, as the number of salaried individuals are increasing day by day, they
are also becoming more aware about the utilization of their money while fulfilling their personal
needs. To consider these needs of people, Prime Bank Limited has recently emphasized more on
“Retail credit” or “Consumer Credit” Therefore, to find out the possibility of establishing the
leading position of Prime Bank in terms of retail credit, this report has been conducted to find out
the problems and prospects of Prime Bank retail credit. In this report, the total credit portfolio of
Prime Bank has been shown that indicated a positive growing trend in the retail credit amount
disbursed. Again, in terms of interest income, retail credit is also accounting an increasing trend.
One of the crucial parts of this report is that, Prime Bank Retail Credit has been compared with
other three similar second generation bank like Eastern Bank, Dhaka Bank and National Credit
and Commerce Bank in some aspects to understand the current position in the market. The retail
credit disbursement procedure is also described. From the comparison with three second
generation banks, some problems and prospects are found in Prime Bank Retail Credit. The most
important prospects of Prime Bank Retail credit are that, it has diversified product portfolio and
lowest rates in different charges of retail credit which is the strength of Prime Bank to proceed
further in retail credit business. Again, Prime Bank has a few problem regarding target client
segments and promotional activities that should be rectified.Overall, there are huge opportunities
for Prime Bank to develop and enter in retail credit market with a massive amount of investment
as this is one of the ways for risk diversification. In recent banking business, modern countries
are focusing more and more on retail credit to shuffle their past ideas about investing in corporate
credit. If Prime Bank desires to keep in balance of its reputation compared to other well-reputed
private commercial banks, it should consider more of its credit business on Retail Credit
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 1
1. Introduction 1.1Background of the Problem
Banking concept has been evolved since the rapid development of Information Technology.
Nowadays almost all over the world, retail-banking concept is a well-orchestrated name which
has indeed added a new feather to the gamete of banking lexicon. The primary activities of any
bank is to collect deposit and invest in different areas to earn profit.Besided this, the asset value
maximization of the shareholders and maintaining strong clientele are another two important
duties for any bank. To maintain these, Prime Bank Limited (PBL) has reached a vast amount of
Tk. 54, 724 million balances during 2006 with a 52% growth rate over the year 2005(Annual
Report, 2006).This large amount has been invested in different purpose to provide industry loan,
export-import finance, commercial lending, house-building finance and others. From the very
beginning, the credit exposure of PBL has been focused on commercial lending that is
international trade Finance, domestic trade finance, contractor/supply finance etc.But from the
annual report (2006) of PBL, it has been revealed that out of total classified loan of Tk. 651.58
lac in transport sector, Tk.648.44 lac was in the name of Cab Ex. Ltd, a corporate borrower. One
of the prudent conditions of ensuring profit is to minimize risk. Such defaults by one of the
corporate clients and the adverse effect of political situation at the end of 2006 have made the
bank management to rethink about its existing credit portfolio with an emphasis on retail credit.
1.2 Problem Statement
According to Math (2005), demand and credit cycle in retail credit is less volatile than that of
corporate credit. He also mentioned that, credit risk can be well diversified through retail credit as
loan amounts are relatively small. Because of wide spread interest rate, revenue can be higher
since clients are too fragmented to bargain effectively. The loan portfolio of PBL has been
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 2
increased by Tk. 1303.72 Cr. from Tk 3193.38 Cr. at the end of 2005 to Tk 4497.10 Cr. at the end
of 2006 registering 40.82% growth over the previous years. But the bank management has
recently felt the need to expand its credit facility on retail credit sector which is almost
unattended by bank till now. During the year 2006, only3.65% of total credit portfolio went to
finance retail credit or consumer credit. Day by day, the fixed income earning population is
increasing in number and therefore, the market for retail credit is expanding with large
opportunities for banks.
Again according to Clark et al. (2007), at the bank level, the principle attraction of retail
credit lending seems to be the belief that, its revenues are stable and thus can offset volatility of
non-retail business. As PBL management is emphasizing its focus on retail credit, this study aims
to investigate the feasibility of expanding the retail credit operation in PBL. More specifically,
this study wants to explore the problems and prospects of retail credit in context of Prime Bank
Limited in Bangladesh.
1.3 Objectives
The main objective of this study is to explore the problems and prospects of retail credit in
context of Prime Bank Limited in Bangladesh.
Moreover, this study wants to analyze
• the portfolio of credit disbursed
• the current retail credit product portfolio
• the credit assessment , approval and disbursement procedure and
• the current position of PBL in comparison with three other similar second generation
private commercial banks.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 3
1.4 Methodology
• Though there is no established definition for second generation banks, it has been
assumed for many years that, the banks that were established and started their banking
activities in the first half of twentieth century are called second generation bank. According
to a yearly publication of Ministry of Finance (2006), there are four second generation
banks named as, Eastern Bank Limited (EBL), National credit and Commerce Bank Limited
(NCCBL), Prime Bank Limited (PBL) and Dhaka Bank Limited (DBL).All of these banks
are offering retail credit at present.
This study is mainly focused on Prime Bank Limited and to compare different aspects of
retail credit of PBL, three other second generation banks are selected. As PBL is one of the
second generation banks, therefore, other second generation banks will be appropriate for
comparison with PBL to maintain the consistency.
• For completing the study, both primary and secondary data sources are utilized. For
primary data sources, self-developed questionnaire has been used which is given to the
appendix. For secondary data sources, annual reports of PBL, EBL, DBL and NCCBL for
2004, 2005 and 2006, different credit policies etc. are used. Also, the retail credit
brochures of these banks are used.
1.5 Limitations
Although it has been tried on the level best to make this report based on facts and complete
information available, there are some limitations that are inevitable. They are following:
• This study is limited to only retail credit of PBL.
• There was a time limitation as three months internship period is not enough to study on
retail credit in details.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 4
• Because of being private limited companies, PBL, EBL, DBL and NCCBL keep some
information restricted like the amount of classified loan. For this reason, classified loan
status of these banks is not stated in this report.
1.6 Research Timeline
Time Activities
June 11 –July 1, 2007 Problem Searching
July 2 – July 18, 2007 Collection of Annual reports and brochures
July 19- July 31, 2007 Introduction, Literature Review and overview of Prime
Bank
August 1- August 4, 2007 Development of questionnaire
August 5- August 17, 2007 Primary data collection from Eastern Bank, Dhaka Bank
and National Credit and Commerce Bank
August 18-August 22, 2007 Compilation of data
August 23- August 29, 2007 Interpretation of findings
August 30-September 1, 2007 Completion of the report with references
September 2, 2007 Submission of draft
September 2- September 6, 2007 Correction of the report
September 9, 2007 Submission of the report
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 5
2.0 Review of the Literature on Retail Credit Today’s banking industry is experiencing renewed interest in retail credit as one of the
strategic key tools of risk diversification. Retail credit lending is one kind of services that banks
provide to individuals with a cluster of products through branches, internet and other channels
(Clark et al., 2007).
According to Gopinath (2005), retail credit is, however, quite broad in nature - it refers to the
different retail credit products that commercial banks provide to individual customers.
Retail credit is becoming an increasingly complex concept to define. The operation of providing
retail credit is called retail lending or retail credit financing. While” pure” retail credit is generally
conceived to be the provision of mass market lending services to private individuals, it has been
expanded over the years to include in many cases services provided to small- and medium sized
business people. Again, retail or consumer credit refers to the debts (credits) of consumers
involved in procuring consumer goods for the consumption of themselves and their families
(Westerfield, 1998).Stiroh (2004) has described retail lending as “hotter than Vindaloo”,
considering the fact that, “Vindaloo” the Indian-English innovative curry available in the
restaurants of London is very hot and spicy. It seems that, retail lending is perceived to be the in-
thing in today’s world of banking. He has also mentioned that today's retail lending sector is
characterized by three basic characteristics: multiple products (home loan, car loan, vacation loan,
travel loan etc), multiple channels of distribution (call centre, branch, internet and multiple
customer groups (consumer, small and corporate business people for daily needs).
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 6
3.0 A Brief Profile of Prime Bank Limited (PBL)
Prime Bank Limited, a scheduled bank, was incorporated under the Companies Act 1994,
and started its operation on April 17, 1995 with the target of playing the vital role in the socio-
economic development of the country as well as earning profit. It was registered as a banking
company under the Bank Company Act 1991 from the Bangladesh Bank on February 12, 1995.
The bank started making profit from the year of its inception. The first Managing Director, Mr.
Lutfar Rahman Sarkar, Ex-Governor, Bangladesh Bank, provided required leadership for a newly
established bank.
Prime Bank Limited is a second - generation private commercial bank has been working for
stimulating trade and commerce, accelerating the pace of industrialization, boosting up export,
creating employment opportunity, alleviating poverty, raising standard of living of the people etc
and thereby contributing to the sustainable development of the country. At present, the bank has a
network of 54 (fifty four) branches with around 1500 employees stationed in both rural and urban
areas of the country. Since inception, the Bank has been making significant profit every year and
positioning itself as second highest profit-making bank in the country for last five consecutive
years. This has been possible due to significant growth of the bank. This has also been possible
due to minimize the risks of the bank successfully.
The bank serves its customers with the following motto—
‘A Bank with a difference’.
3.1 Vision
To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital
adequacy, asset quality, sound management and profitability having strong liquidity.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 7
3.2 Mission
I. To build Prime bank limited into an efficient, market driven, customer focused
institution with good corporate governance structure.
II. Continuous improvement in our business policies, procedure and efficiency
through integration of technology at all levels.
3.3 Strategic Priority
To have sustained growth, broaden and improved range of products and services in all areas
of banking activities with the aim to add increased value to shareholders investment and offer
highest possible benefits to the customers.
3.4 Core Values
For the customers
To become most caring Bank- by providing the most courteous and efficient service in every
area of business.
For the Employee
By promoting the well – being of the members of the staff
For the Shareholders
By ensuring fair return on their investment through generating stable profit.
For the Community
By assuming the role as a socially responsible corporate entity in a tangible manner through
close adherence to national policies and objectives.
3.5 Products and Services
The bank serves its huge clientele with a variety of services apart from the traditional ones. Its
continual improvement and introduction of new products and services has given it an edge over
the competitors.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 8
3.6 Depository Services
The bank provides the following depository services and collects a huge amount of its
deposits. The services are
Table 1: List of Depository services provided by PBL
1. Contributory Savings Scheme 2. Monthly Benefit Deposit Scheme 3. Special Deposit Scheme 4. Education Saving Scheme 5. Fixed Deposit Receipt 6. Savings Deposit Account 7. Short Term Deposit Account 8. PBL-Insured Fixed Deposit Scheme 9. Prime Bank Money Scheme 10. Multi Currency Account 11. Foreign Currency Deposit Account 12. Non Resident Taka Account 13. NFCD (Non Resident Foreign Currency) Account 14. Non Residents Investors Account
3.7 Loan Services
Loans and advances have primarily been divided into two major groups:
a) Fixed term loan:
These are the loans made by the Bank with fixed repayment schedules. Fixed term loans are
categorized into three based upon its tenure which is defined as follows:
Short term : up to 12 months
Medium term : More than 12 and up to 36 months
Long term : More than 36 months
b) Continuing Loans
These are the loans having no fixed repayment schedule but have an expiry date at which it is
renewable on satisfactory performance of the customer.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 9
Furthermore all categories of loans are accommodated under the 7 prime sectors which are as
under:
1) Agriculture
2) Term Loan to Large & Medium Scale Industry
3) Term Loans to Small and Medium Enterprise(SME)
4) Working Capital
5) Export Credit
6) Commercial Lending
7) Others
3.8 Types of Credit Facilities:
Depending on the various nature of financing, all credit facilities have been brought under two
major groups: (a) Funded Credit and (b) Non-funded credit. Under non-funded credit, there is
basically two major products namely letter of Credit and Letter of Guarantee. Under Funded
Credit, The bank offers the following services to the client to meet the demand as well as making
a profit. The loan and advance products are:
Table 2: List of loan services provided by PBL
Name of the Products/services
1. Loan (General)
2. Housing Loan (Commercial)
3. Home Loan
4. House Building Loan (Staff)
5. Other Loans to staff
6. Cash Credit (Hypo)
7. Cash Credit (Pledge)
8. Hire Purchase
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 10
9. Lease Financing
10. Consumer Credit Scheme (CCS)
11. SOD (Financial Obligation)
12. SOD (General)
13. SOD (Work Order)
14. SOD (Export)
15. PAD
16. LIM
17. LTR
18. IBP
19. Export Cash Credit (ECC)
20. Packing Credit (P.C.)
21. FDBP
22. IDBP
23. FBP
24. Prime Bank Master and Visa Credit card
3.9 Other Services
The bank firmly believes that technology based product and services will play significant role in
the performance of the bank as people are getting more conscious about their service they receive
from a bank.For delivering faster service the bank has introduced online banking service. The
bank has introduced other products and services to serve the ever-changing market. These are—
I. SWIFT services
II. L/C Delivery Services
III. Locker Services
IV. Merchant Banking Services
V. ATM services
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 11
4.0 Retail Credit Practices in Prime Bank Limited (PBL)
The Prime Bank Limited started to provide retail credit informally from the year 1999 as a
part of its core business. It was then one of the negligible parts of total credit and advance and
was provided to few number of individuals under the name of “Others” sector. From 2005, PBL
started to expand its retail credit activities far more than the previous years as a part of risk
diversification strategy. Since then, retail credit has been targeted for significant further growth.
4.1 Credit Portfolio
Till 2004, retail or consumer credit was in a scattered position, though it had some portion
over the total credit disbursed. From the annual reports of PBL, some facts and figures are found
regarding retail credit. According to these annual reports, in 2004, the total amount of credit
disbursed was Tk. 2321.96Cr. in which consumer credit counted with a 2.91% of that amount.
Again in 2005, the growth rate of PBL consumer financing was 79.10% over the year 2004.
In 2005, the credit portfolio was maintained by PBL of Tk. 3193.38 Cr. in which, consumer
credit scheme (CCS) accounted for only 3.79% of total credit disbursed in different sectors.
The year 2005 grasped the highest investment in commercial purposes as 26.17% of total credit
went into this sector.
With the continuation of focusing further expansion, in 2006, PBL achieved 35.49% growth
in retail credit business over the year 2005.A number of products were developed and existing
products were re-launched with better pricing structure and repayment period.
In 2006, though only 3.65% of total credit was invested in terms of retail credit, PBL
continued its spotlight on retail credit. In view of the growth potentials, separate division was
created at the beginning of the year 2006 for managing the retail business following credit
portfolio was standing with PBL with different lending sectors.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 12
Figure 1 shows a comparative scenario of the credit amount disbursed in different sectors
during 2004-2006 time periods. In figure 1, CCS indicated “Consumer Credit Scheme” or retail
credit.
Credit Portfolio of PBL
0.00%5.00%
10.00%15.00%20.00%25.00%30.00%35.00%
AgriL&M
Working
Cap
ital
Export
Finance
Commercia
l Len
ding HBL
SMECCS
Others
Sectors
Figu
res
in % 2004
20052006
Sources of data: Annual reports of PBL
Figure 1
The growth trend of retail credit disbursed in the period 2004-2006 can be shown therefore by
the figure 2.Among these three years, the highest percentages of retail credit of total credit was
disbursed during 2005.
Retail Credit Growth of PBL
3.65%3.79%
2.91%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
2004 2005 2006
Years
Figu
res
in %
Figure 2
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 13
4.2 Income Generation by Retail Credit
As per the above percentages of retail credit or Consumer Credit Scheme (CCS) in total credit
portfolio, the main income that this sector generates it the interest income. In 2004, the total
interest revenue generated by different credit sectors was Tk 264.09 Cr. in which, CCS alone was
responsible for income of Tk. 11.09 Cr..Again, in 2005, the total interest revenue from different
sector was Tk. 344.55 Cr. wherein, Tk. 14.29 Cr. was gained by CCS.In the year 2006, total
interest revenue earned was Tk.519.88 Cr. and Tk. 21.94 Cr. was from CCS.
The following figure 3 shows the interest income growth as a percentage of total interest
income in 2004-2006 years period. According to figure 3, year 2006 generated higher interest
income as a percentage of total interest income. Though, in 2005, more percentage of total credit
was disbursed in retail, interest income was the lowest in percentage of total interest income
among theses three years.
Interest Income Growth of PBL Retail Credit
4.22%4.15%4.20%
0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%5.00%5.50%6.00%
2004 2005 2006
Years
Figu
res
in %
Sources of data: Annual reports of PBL
Figure 3
4.3 Target Clients
Any Bangladeshi individual who has the capacity to repay loan is allowed to apply for PBL
retail credit. In specific terms, the salaried executives of multinational companies, officials of
middle to large size local corporations, government officials, officials working in semi-
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 14
government, autonomous and reputed NGOs, international aid agencies and UN bodies, any tax
paying businessmen of repute and self-employed tax-paying individual having a reliable source
of income are eligible to apply for retail credit.
4.4 Typology of the products offered by Prime Bank Limited (PBL)
Prime Bank Limited is one of the fast growing banks in terms of satisfying individual clients’
need. For the clients’ convenience, Prime Bank has offered 11 types of retail credit products.
Those are following:
• Car loan
• Household Durable Loans
• Any purpose Loans
• Doctor’s Loan
• Marriage Loan
• Education Loan
• Loan against Salary
• Travel Loan
• Hospitalization Loan
• CNG conversion Loan
• Swapna Neer
Brief details of the above products are given below
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 15
4.4.1 Car Loan
For purchasing of non-commercial, new and reconditioned vehicles, this loan is given for
personal use of the individual.
Table 3: Features of Car Loan
Features Description
Loan Amount(Min) Tk. 4,00,000(For both new and reconditioned car)
Loan amount(Max) Tk 20, 00,000 or 90% of the vehicle price.
Rate of Interest 16%
Tenor 6 years (max) for brand new cars and 5 years (max) for
reconditioned car.
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Pay order directly issued in the name of respective car
company.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 475
Early Settlement At any time with no penalty charge
Criteria for application(Age
limit)
Any Bangladeshi citizen of 25-60 years at the time of
maturity of loan.
Minimum Monthly Income Tk. 20,000 for salaried individuals
Tk. 40,000 for businessman
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 16
4.4.2 Household Durables Loan
For purchasing household durables like television, refrigerator, air-conditioner, washing
machine, computers and other household furniture for personal use, any individual can apply for
this loan.
Table 4: Features of Household Durables Loan
Features Description
Loan Amount(Min) Tk. 10,000
Loan amount(Max) Tk 5, 00,000 or 90% of the vehicle price.
Rate of Interest 15%
Tenor 4 years(max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Pay order directly issued in the name of respective
company of purchase.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 470
Early Settlement At any time with no penalty charge
Criteria for application(Age
limit)
Any Bangladeshi citizen of 21-60 years at the time of
maturity of loan.
Minimum service length Minimum service length of 1 year and must be a confirmed
employee (For salaried individual)
A business record of minimum 3 years(For self-employed
person)
Minimum Monthly Income Tk. 10,000 for salaried individuals and
Tk. 15,000-25,000 for businessman
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 17
4.4.3 Any purpose Loan
For miscellaneous personal financial purposes such as, house renovation, marriage in the
family, rental payments, trips abroad, purchasing of different household items etc., any
individual can get this type of loan. The features of the loan are following:
Table 5: Features of any Purpose Loan
Features Description
Loan Amount(Min) Tk. 10,000
Loan amount(Max) Tk 3,00,000.
Rate of Interest 16%
Tenor 3 years(max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Savings account of clients or sometimes cash disbursement.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for
application(Age limit)
Any Bangladeshi citizen of 25-65 years at the time of maturity
of loan.
Minimum service length Minimum service length of 2 year and must be a confirmed
employee(For salaried individual)
Minimum Monthly
Income
Tk. 10,000 for salaried individuals
Tk. 25,000 for businessmen
Guarantors Two persons
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 18
4.4.4 Doctors Loan
In case of purchasing small scale of different medical equipments, machineries, tools or other
relevant items to support professional needs, generally doctors are encouraged to apply for this
loan. Features of doctors’ loan are given below:
Table 6: Features of Doctors Loan
Features Description
Loan Amount(Min) Tk. 1,00,000
Loan amount(Max) Tk 5, 00,000 for general practitioners.
Tk. 10,00,000 for specialist doctors that is , holding post
graduation degree
Rate of Interest 16 %
Tenor 5 years (max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account or sometimes cash disbursement
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 470
Early Settlement At any time with no penalty charge
Criteria for
application(Age limit)
Any Bangladeshi citizen of 25-65 years at the time of maturity
of loan.
Minimum service length For salaried individuals, must be confirmed of an established
organization.
For self employed person, a professional experience of
minimum 2 years is required.
Minimum Monthly Income Tk. 10,000 for salaried individuals and
Tk. 25,000 for self- employed
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 19
4.4.5 Marriage Loan
To meet the financial purposes of marriage, this loan is given. The features are given below:
Table 7: Features of Marriage Loan
Features Description
Loan Amount(Min) Tk. 10,000
Loan amount(Max) Tk 3,00,000.
Rate of Interest 16%
Tenor 3 years(max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account or sometimes cash disbursement
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age
limit)
Any Bangladeshi citizen of 25-65 years at the time of
maturity of loan.
Minimum service length Minimum service length of 1 year and must be a confirmed
employee(For salaried individual)
Minimum Monthly Income Tk. 10,000 for salaried individuals
Tk. 25,000 for businessmen(For rented people)
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 20
4.4.6 Education Loan
For educational purposes like study in abroad or within the country, this loan is given.
Table 8: Features of Education Loan
Features Description
Loan Amount(Min) Tk. 1,00,000
Loan amount(Max) Tk 5, 00,000.
Rate of Interest 16%
Tenor 4 years (max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients savings account or sometimes cash disbursement
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for
application(Age limit)
Any Bangladeshi citizen of 25-65 years at the time of maturity
of loan.
Minimum service length Minimum service length of 2 year and must be a confirmed
employee(For salaried individual)
Minimum Monthly Income Tk. 12,000 for salaried individuals and Tk. 25,000 for
businessmen (For rented people)
Tk. 10,000 for salaried individuals and
Tk. 15,000 for businessmen(for those who are residing in
his/her own or family residence)
Tk. 10,000 for Govt., Semi-Govt and autonomous bodies
employees.
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 21
4.4.7 Loan against salary
To meet the financial needs for any acceptable purpose, this loan can be given .
Table 9: Features of Loan Against Salary
Features Description
Loan Amount(Min) 8 times if gross salary where the organization of the
applicant would have Memorandum of Understanding
with PBL subject to highest Tk. 3, 00,000.
6 times of gross salary where the organization of the
applicant would have Memorandum of Understanding
with PBL subject to highest Tk. 3, 00,000.
Rate of Interest 16%
Tenor 3 years (max).
Down payment N/A
Repayment method Monthly equal installment
Disbursement mode Clients savings account or sometimes cash disbursement.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund N/A
Penalty Charge N/A
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application (Age
limit)
Any Bangladeshi citizen of 21-65 years at the time of
maturity of loan.
Minimum service length Minimum service length of 1 year and must be a
confirmed employee (For salaried individual)
Minimum Monthly Income N/A
Guarantors N/A
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 22
4.4.8 Travel Loan
To meet the financial needs for travel purpose, this loan can be given. Features of this loan are
following:
Table 10: Features of Travel Loan
Features Description
Loan Amount(Min) Tk. 20,000
Loan amount(Max) Tk 2, 00,000.
Rate of Interest 16%
Tenor 3 years (max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account or sometimes cash
disbursement.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age
limit)
Any Bangladeshi citizen of 25-65 years at the time of
maturity of loan.
Minimum service length Minimum service length of 2 year and must be a
confirmed employee(For salaried individual)
Minimum Monthly Income Tk. 12,000 for salaried individuals and Tk. 25,000 for
businessmen(For rented people)
Tk. 10,000 for salaried individuals and
Tk. 15,000 for businessmen( for those who are residing
in his/her own or family residence)
Tk. 10,000 for Govt., Semi-Govt and autonomous bodies
employees.
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 23
4.4.9 Hospitalization Loan
To meet the financial needs for treatment purposes in well-reputed hospitals/clinics of Dhaka
and Chittagong, any individual can get this loan under the following criteria:
Table 11: Features of Hospitalization Loan
Features Description
Loan Amount (Min) 90% of the total treatment cost
Loan Amount (Max) Tk 5,00,000.
Rate of Interest 16%
Tenor 2 years (max).
Down payment N/A
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account .In case of salaried individuals,
sometimes cash disbursement may happen.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age
limit)
25-65 years at the time of maturity of loan.
Minimum service length Minimum service length of 2 year and must be a confirmed
employee(For salaried individual)
Minimum Monthly Income Tk. 10,000 for salaried individuals
Tk. 25,000 for businessmen
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 24
4.4.10 CNG Conversion Loan
For converting vehicles from carbon based fuel to Compressed Natural Gas system, this loan
is offered to individuals.
Table 12: Features of CNG Conversion Loan
Features Description
Loan Amount(Min) N/A
Loan amount(Max) Tk 1, 00,000.
Rate of Interest 16%
Tenor 1.5 years (max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode In the form of pay-order
Other charges 1% on the loan amount or Tk. 1000
whichever is higher+15%VAT
Risk fund N/A
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age limit) Any Bangladeshi citizen of 21-65 years at the
time of maturity of loan.
Minimum service length Minimum service length of 2 year and must
be a confirmed employee (For salaried
individual).
For self-employed individual, a business
record of minimum 4 years.
Minimum Monthly Income Tk. 10,000 for salaried individuals
Tk. 25,000 for businessmen
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 25
4.4.11 Swapna Neer
The purpose of giving this loan is to purchase apartment/house(if old, not older than 10
years), constructing new house and taking over of house-building loans from other banks/non
banking financial institutions.
Table 13: Features of Swapna Neer or Home Loan
Features Description
Loan Amount(Min) Tk. 10,00,000
Loan Amount(Max) Tk. 50,00,000
Loan to price ratio 40% of total cost for construction of home
30% of purchase price of new apartment
50% of purchase price of old apartments/home subject
to maximum Tk. 50, 00,000.
Rate of Interest 15%
Disbursement mode Issuing pay order to the name of respective company
Tenor 15 years (max).
Repayment method Monthly equal installment
Early Settlement At any time with no penalty charge
Other Charges 1% on loan amount
Risk fund 0.50% on loan amount
Criteria for application(Age limit) Any Bangladeshi citizen of up to 60 years (repayment
age)
Minimum Monthly Income The quantum of loan shall be such to ensure monthly
installment size would not exceed 40% of the gross
income or 80% of the residual income after deducting
all expenses except present rental expenses whichever
is lower.
Guarantors One person
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 26
For any retail loan application, Tk. 50 is taken as a fee.
To apply for any of the above retail loan of PBL, a client needs his/her photographs, copy of
passport/ID card, last one year’s bank statement, copy of TIN, trade license(for businessmen),
personal net worth statement etc.
One of the special criteria of retail credit or consumer credit is that, it is an unsecured loan as
there is no requirement for collateral except letter of guarantee.
Besides these, following legal documents are needed to get any retail credit from PBL.
• Duly filled in loan application form with terms and condition signed
• Demand Promissory Note
• Letter of Set-Off
• Irrevocable Letter of Authority to repossess the vehicle(for car loan)
• Ownership transfer form signed by customer(for car loan)
• Letter of Introduction(for salaried person) and
• Letter of offer with full terms and conditions stated therein and duly accepted.
4.5 Credit Assessment, Approval and Disbursement Procedure
4.5.1 Credit Assessment
The prior condition for any credit disbursement is to critically assess and approve the credit
proposal that is the client selection and assessment. In case of retail credit it should be done more
crucially as retail lending is one of the types of unsecured individual lending without collateral.
The primary factor determining the quality of the Bank’s credit portfolio is the ability of each
borrower to honor, on timely basis, all credit commitments made to the Bank that is, repayment
of loan installment on time.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 27
In PBL, more emphasis is given on repayment potential of loans out of funds generated from
borrower’s business (cash flow) instead of realization potential of underlying securities while
assessing a retail credit proposal. Following are the steps that are maintained in PBL for assessing
any retail credit proposal.
4.5.1.1 Application
The first stage of retail credit assessment and approval process is a client application that
contains the following information:
• Telephone and address contact details
• Employment/business details
• Income Details
• Income and Expenditure Statement
• Personal Net worth Statement
• Residence details
• Credit references and guarantors details
Basically, branches receive the client application with other required papers necessary for
different retail loans.
4.5.1.2 Contact Point Verification (CPV)
Verification is a key part of application process. Contact point verification is done for all
applicants except for the High Net Worth individuals or the clients having good account
relationship with Bank. The objective of this process is to check the declared/undeclared
information of the applicants. CPV includes:
• Applicant’s Residence, business/office address, phone, status
• Guarantors Information Verification
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 28
• Bank statement and other income documents verification.
In most of the times, CPV is done by branch managers. CPV is done by third party agency
also to enable the client selection of better accounts for accelerated processing and quick rejection
of those having negative/inadequate information. Retail credit officers then verify data collected
by third part.
4.5.1.3 Guarantee
One of the fundamental perquisites for securing retail credit is to obtain guarantee acceptable
to the bank by way of social status and perceived creditworthiness. Retail credit officers at branch
level check the guarantors’ information very carefully. In case of guarantors, following are the
rules that are maintained:
• Existing guarantor of any other loan of the bank will not be accepted as other
guarantor for other loans.
• Any existing borrowers will not be taken into account as a guarantor for any other
loan.
• Guarantee from the Chairman, Managing Director and Directors of Corporate facility
clients and obtaining will be allowed after the prior approval of Head Office.
• All guarantors will be verified whether they have any relationship with banks earlier
with either positive or negative status.
4.5.1.4 De duplication check
All approved applicants are checked against Bank’s database to identify whether the applicant
is enjoying any other loan in other accounts part from the declared loans. Whether the client has
any other loan with any other bank is also important to know for client selection. In this case, CIB
(Credit Information Bureau) are sent in a specific form to Bangladesh Bank.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 29
Within the time of the CIB returned back to the branch, the retail credit officers of the branch
make a credit proposal for further assessment and approval.CIB reports are requested for any
amount equivalent to Tk. 50,000 and above that. After returning the CIB information , the credit
proposal along with documents is sent to Retail Credit Head Office (RHO).Up to this point at
branch level, almost seven to ten days are required for processing.
4.5.1.5 Assessment Method
Assessment of credit proposal and credit approval are done in Head office of retail
The assessment method can be divided in two steps.
The first step is known as “Credit Scoring” which is done to predict the creditworthiness of
applications. A prior designed excel sheet is there to score in point values of some important
aspects of clients such as occupation, residence status, income details etc.The total of these point
values in 100 points represents the repayment probability of that particular client. The higher the
value, the probability of getting approval for credit is higher.
The second step is known as “Judgmental Decision”. Application meeting the minimum cut-
off score and meeting other criteria is further reviewed for judgmental decision. After credit-
scoring method is completed, all the credit proposals are presented in the board meeting for
approval. The judgmental approval involves the assessment of an applicant’s character, capacity
and collateral.
4.5.2 Credit Approval Process
There is a credit approval authority to finally decide whether the retail loan should be
sanctioned or not. The authority includes
• The Board of Directors
• The Executive Committee of the Board
• The Managing Director
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 30
• The Deputy Managing Director
• Retail Credit Committee
After presenting the credit proposals, the authority critically analyze the aspects and after that,
the authority finally decides about the retail credit sanction. The members of the authority have
some individual delegation power of retail credit, which is limited by Tk. amount. Up to this
point, three to four days are required for processing.
4.5.3 Credit Disbursement
After the credit proposal has been approved, the credit officers of Retail Head Office check
whether all the security components are collected properly. If all requirements are there,
documentation and arrangements are prepared for credit sanction. A sanction advice for every
particular retail credit is sent to the branches for final disbursement. This branch level
disbursement is called “Decentralized Disbursement System”
Branches, after getting the sanction advice, make a signing event with agreed terms and
conditions between bank and individual client. After that, credit is disbursed to the client’s
savings account. The total process requires fifteen, in special cases, twenty days from receiving
client’s application up to disbursement.
Without completion of any of these steps including credit assessment, approval and proper
documentation, no retail credit will be disbursed .The total process started from application
received at branch level up to credit disbursement can be shown in a diagram which is common
for all Private Commercial Banks who offer retail credit. This diagram along with the whole
process is approved by Bangladesh Bank in a guideline named” Prudential Regulations for
Consumer Financing, 2004”.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 31
Process Flow Chart of Retail Loan Processing of Prime Bank Limited
No Yes
No
Yes
No Yes
Figure 4
Branch scrutinizes the application
Application filled up with required papers correctly?
Branch send credit proposal with application &papers to Head Office of Retail (RHO)
RHO receives & assesses the credit proposal with papers and sends to credit committee for approval
Credit approved?
Application Received from client at branch level
Application sent to credit dep. for arrangement of credit sanction & disbursement procedure.
Documents in order?
Credit disbursed by branch to client
Sanction advice sent to branch for disbursement
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 32
4.6 Number of Clients in Retail Credit
In the year 2004, 2005 and 2006, the total numbers of clients in different retail credit were
4829, 6461 and 5696 respectively. The growth trend of clients can be shown by the following
figure 5.
Clients Growth of PBL Retail Credit
56966461
4829
01000200030004000500060007000
2004 2005 2006
Years
Figu
res
in N
umbe
rs
Sources of data: Primary (Questionnaire)
Figure 5
According to the above figure 5, among these three years, the curve line shows the upper pick
point in 2005.From 2004 to 2005, the line shows positive trend wherein, from 2005 to 2006, the
line shows a negative trend. That is, in the period 2004-2006, highest number of clients was is
2005.
4.7 Promotional Activities
For promotional activities, PBL has recruited
• Around eighty number of Direct Sales Agents (DST) who reaches from door to door to
aware people about PBL retail credit.
• Paper advertisements are sometimes there
PBL sometimes arranges retail loan fair.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 33
5.0 Retail Credit Practices in Eastern Bank Limited (EBL), Dhaka Bank Limited
(DBL) and National Credit and Commerce Bank Limited (NCCBL) 5.1 Retail Credit Practice in Eastern Bank Limited (EBL)
Eastern Bank Limited (EBL) is one of the second generation private commercial banks with
25 online branches across major cities in Bangladesh. It offers full range of commercial banking
products and services to the corporate, mid-market and retail segments. It started to provide retail
credit informally from the year 2001, but from the year 2004, EBL has its own separate retail
credit segments. EBL defines retail credit as any loan sanctioned to any individual which is based
on the individual’s credit worthiness.
5.1.1 Credit Portfolio of EBL
Eastern Bank has comprehensive range of financial products including corporate deposit
accounts, syndicated finance, export-import financing, working capital and other finance,
infrastructure finance, cash management services etc. In the year 2004, 2005 and 2006, the total
amounts of credit disbursed were Tk 149.69 Cr 54 Cr., and 259.74Cr. respectively. In these
amounts, Tk. 62.43 Cr., 170.82 Cr., 315.19 Cr were in retail credit sectors. The percentages of
retail credit in total credit disbursed were 4.17%, 9.62% and 12.13% respectively. As we can see
in the following graph, in the year 2004, commercial trading was the major focus as highest
percentages of credit was disbursed in that sector whereas retail credit, construction and
pharmaceuticals were less invested area.
With the time passes by, as according to the figure 6, the year 2005 and 2006 concurred
special focus on retail credit. In the following figure 6, the dark black area represents the portion
of retail credit disbursed.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 34
Credit Portfolio of EBL
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2004 2005 2006Years
Figu
res
in %
Others
Telecom
Ship breaking
RMG
Pharmaceuticals
Retail credit
Construction
Commodity Import
Commercial trading
Sources of Data: Annual Reports of 2004, 2005 and 2006 of EBL
Figure 6
Therefore, the following figure 7 shows the growth trend in retail credit disbursement by
EBL.The percentages of retail credit disbursed in total credit in 2004, 2005 and 2006 were 4.67%,
9.62% and 12.13% respectively.
Growth of EBL Retail Credit
4.17%
12.13%9.62%
0.00%
5.00%
10.00%
15.00%
2004 2005 2006
Years
Figu
res
in %
Figure 7
Thus, it can be commented that, there was a positive growing trend in retail credit
disbursement in EBL.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 35
5.1.2 Income Generation by Retail Credit
In the year 2004, 2005 and 2006, the total interest revenue earned were Tk. 162.83 Cr.,
206.17Cr, and 282.93 Cr respectively among which retail credit sector counted for Tk. 11.86 Cr.,
32.45 Cr., and 59.8 Cr on those consecutive years.
Interest Income Growth of EBL Retail Credit
7.28%
15.73%
21.01%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2004 2005 2006
Years
Figu
res
in %
Sources of data: Annual reports of EBL
Figure 8
As per the above figure 8, it can be seen that, retail credit generated almost 8% of total
interest revenue earned in 2004.With the continuation of a growing trend, the year 2005 and 2006
accounted for almost 15% and 21% of total interest revenue respectively on that two years earned
by retail credit.
5.1.3 Target Client
Any self-employed professionals like doctors, architects, chartered accountants, engineers
and consultants, salaries employees of Govt. or Semi-Govt. organizations and also well reputed
multinational companies, credit worth business person (sole proprietor, partner or directors) are
the target clients for EBL retail credit. Basically, lawyer, defense people and journalists are
discouraged for applying retail loan of EBL.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 36
5.1.4 Typology of the Products by EBL
The products that are treated as retail credit in EBL are following
• EBL Jibandhara Loan or Any purpose Loan
• EBL Auto(Car) Loan
• EBL Executive Loan and
• EBL Utshab Loan or Vacation Loan
Brief details of the above products are given below:
5.1.4.1EBL Jibandhara Loan or Any Purpose Lifestyle Loan
For any individual purpose like house renovation, interior decoration, marriage and other
necessary purposes, EBL provides this type of loan.
Table 14: Features of Jibandhara or Any Purpose Lifestyle Loan
Features Description
Loan Amount(Min) Tk. 50,000 or 10-12 times of gross salary (the lower amount)
Loan amount(Max) Tk 10, 00,000
Rate of Interest 21%
Tenor 1-6 years(max)
Down payment 30% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients savings account or mostly cash disbursement
Other charges 1.5% on the loan amount
Penalty Charge 3% of installment overdue
Stamp Charge Tk. 600
Early Settlement 2% of the outstanding amount(before 12 months) and 1% of
the outstanding amount(12 months and above)
Criteria for application(Age ) 22-60 years at the time of maturity
Minimum Monthly Income Tk. 15,000(min) for salaried individuals and Tk. 20,000 for
businessmen and others.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 37
Guarantors One person.
5.1.4.2 EBL Auto (Car) Loan
Table 15: Features of Car Loan
Features Description
Loan Amount(Min) Tk. 3,50,000(for both brand new and
reconditioned car)
Loan amount(Max) 75% of car value or Tk. 20,00,000 for new car
and 70% of car value or Tk. 20,00,000
whichever is lower for reconditioned car.
Rate of Interest 18%
Tenor 1-4 year for reconditioned car and 1 – 5 years
for new car.
Down payment 30% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or most of the times cash
disbursement happens
Other charges 1.5% on the loan amount
Penalty Charge 3% of installment overdue
Stamp Charge Tk. 675
Early Settlement 2% of the outstanding amount(before 12
months) and 1% of the outstanding
amount(12 months and above)
Criteria for application(Age limit) Any Bangladeshi citizen of 22-60 years at the
time of maturity of loan.
Minimum Monthly Income Tk. 30,000for salaried individuals,
businessmen and others.
Guarantors One person.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 38
5.1.4.3 EBL Executive Loan
Only EBL employees, corporate clients and Government service holder without banker can
apply for this loan.
Table 16: Features of Executive Loan
Features Description
Loan Amount (Min) Tk. 50,000 or 10-12 times of gross salary
whichever is lower.
Loan Amount (Max) Tk 10,00,000
Rate of Interest 20%
Tenor 1-3 years (max)
Down payment No down payment.
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or mist of the times cash
disbursement happens
Other charges 1.5% on the loan amount (up to Tk 3 lac )
1% of total loan amount (above Tk 3 lac)
Penalty Charge 3% of installment overdue
Stamp Charge Tk. 600
Early Settlement 2% of the outstanding amount(before 12
months) and 1% of the outstanding
amount(12 months and above)
Criteria for application(Age limit) 23-60 years at the time of maturity
Minimum service length At least five years for salaried individuals
Minimum Monthly Income Tk. 15,000(min) for private org.salaried
individuals and Tk. 12,000 for Govt.
employees.
Guarantors One person.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 39
5.1.4.4 EBL Utshab or Vacation Loan
For the credit worthy individuals who spent on the eve of Holy Eid and in other vacation
purposes can apply for this type of loan.
Table 17: Features of Utshab or Vacation Loan
Features Description
Loan Amount(Min) Tk. 50,000 or 10-12 times of gross salary
whichever is lower.
Loan amount(Max) Tk 1,50,000
Rate of Interest 20%
Tenor 1-3 years(max)
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or most of the times cash
disbursement happens
Other charges 1.5% on the loan amount
Penalty Charge 3% of installment overdue
Down Payment 30% of the total loan amount
Stamp Charge Tk. 600
Early Settlement 2% of the outstanding amount(before 12
months) and 1% of the outstanding
amount(12 months and above)
Criteria for application(Age limit) Any Bangladeshi citizen of 22-60 years at the
time of maturity of loan.
Minimum Monthly Income Tk. 15,000(min) for salaried individuals and
Tk. 20,000 for businessmen and others.
Guarantors No. of one person.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 40
Same as Prime Bank, to apply for any of the above retail loan of EBL, a client needs his/her
photographs, copy of passport/ID card, last one year’s bank statement, copy of TIN, trade
license(for businessmen), personal net worth statement etc.
Besides these, following legal documents are needed to get any retail loan from EBL.
• Duly filled in loan application form with terms and condition signed
• Demand Promissory Note
• Letter of Guarantee
• Letter of Set-Off
• Irrevocable Letter of Authority to repossess the vehicle(for car loan)
• Ownership transfer form signed by customer(for car loan)
• Letter of Introduction(for salaried person) and
• Letter of offer with full terms and conditions stated therein and duly accepted.
5.1.5 Credit Assessment, Approval and Disbursement process
As all Private Commercial Banks are bound to follow the “Bangladesh Bank Prudential
Regulations for Consumer Financing 2004”, according to this manual, all retail credit offering
banks go through the processes started from client’s credit application receive up to the final
disbursement as described in above for Prime Bank Limited along with the diagram on page 31 of
this report.
In case of Eastern Bank Limited (EBL), the retail credit disbursement process is as same as
Prime Bank Limited for the above reason. But, instead of sending sanction advice to the
branches, EBL Retail Head Office, by its own, disburse all the retail credits after approval. This
type of disbursement is called “Centralized Disbursement” .Also, EBL has passed a circular in its
board meeting in which it is written that, in accordance with “EBL PDC Policy”, in case of ‘De
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 41
Duplication Checking” steps, CIB report will not be sought up to Tk 5.00 lac loan. With the
compliance of this circular, though the total retail credit disbursement process is centralized that
is controlled by EBL Retail Head Office; it takes only five to seven days to disburse most of the
retail loans less than an amount of five lac.
5.1.6 Number of Clients in Retail Credit
During the year 2004, 2005 and 2006, the numbers of clients in different retail credit were
4963, 9489 and 8960 respectively that are shown with the following graph including the growth
trend. Though there was a positive growth in 2005 over the year 2004, 2006 shows a less positive
growth. The growth trend can be shown by figure 9.
Clients Growth of EBL Retail Credit
4963
8960
9489
02000400060008000
10000
2004 2005 2006
Years
Figu
res
in N
umbe
rs
Sources of data: Primary (Questionnaire)
Figure 9
EBL has taken the following steps in promoting its retail credit products.
5.1.7 Promotional Activities
• Direct Sales Team are recruited who work in the field level to convince people
• Display media is used for advertisement
• Print media is also used for publishing different features of EBL Retail Loan
• Bill Boards are there in different places.
• EBL arranges loan fairs after a certain time interval
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 42
5.2 Retail Credit Practices in Dhaka Bank Limited (DBL)
As one of the second generation banks, established in the year 1995, Dhaka Bank Limited
(DBL) started its journey towards retail credit in the year 2001 but its activities on retail credit
has been focused in the year 2004 when many other similar banks started to invest in retail credit.
At the end of the year 2005, DBL has established its separate retail credit division.DBL defines
retail credit or mostly known as “Consumer financing” as any financing allowed to individuals for
meeting their personal, family of household need.
5.2.1 Credit Portfolio
During the year 2004, the total credit amount disbursed in different sectors was Tk. 1653.88
Cr. in which retail credit accounted for only 3.64% that is Tk.60.33 Cr. was disbursed on retail
credit.
Again, in the year 2005, Tk. 2337.25 Cr. was disbursed in different sector in which retail
credit investment was Tk. 91.75 Cr. that is, 3.92% of total credit disbursed. In this year “Others”
sector investment got large point.
With a little bit incremental amount, in 2006, retail credit counted for 4.97% of total
investment of total credit disbursed that is Tk. 3402.06 Cr.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 43
Credit Portfolio of DBL
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2004 2005 2006Years
Figu
res
in %
Others
Retail
Service
Energy
Construction
Transport
Food
RMG
Pharmaceuticals
Agri
Sources of Data: Annual Report of 2004, 2005, 2006 of DBL
Figure 10
In the above figure 10, dark black area is representing the portion of retail credit disbursed in
total amount in the year 2004, 2005 and 2006.As per the above figure 10, the retail credit has
been shown an incremental portion of the amount disbursed in theses three years.
Therefore, the following figure 11 shows the positive growth trend in retail credit
disbursement. In the figure 11,it can be observed that, there was more than one percent growth
in retail credit investment over the year 2005.
Retail Credit Growth of DBL4.97%
3.92%3.64%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2004 2005 2006Years
Figu
res
in %
Figure 11
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 44
5.2.2 Income generation by Retail Credit
In the year 2004, the total interest revenue earned from different sector was Tk. 201.09 Cr in
which retail credit interest revenue was Tk. 6.82Cr. that is 3.39% of total interest income.
Similarly, in 2005, total interest revenue of DBL was Tk. 344.55 Cr. in which only Tk. 4.89 Cr
was earned by retail credit and in 2006 there was a bit acceleration in interest income earned by
retail credit which was 2.02% of total interest revenue of Tk. 434.17 Cr.
Interest Income Growth of DBL Retail Credit
2.02%
3.39%
1.69%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
2004 2005 2006Years
Figu
res in
%
Sources of data: Annual reports of DBL
Figure 12
The above figure 12 shows the interest income growth trend with a curve line. According to
figure 12, it can be commented that, among these three years, year 2005 got lowest income by
retail credit in total interest income.
5.2.3 Target Clients
Salaried individuals of Govt. Semi-Govt. organization and also any other well reputed private
organizations, business people, self- employed personnel etc are the target clients of DBL.
5.2.4 Typology of the products offered by DBL
Dhaka Bank offers the following retail credit products
Personal Loan or Any Purpose Loan
Car Loan
Home Loan and
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 45
Vacation Loan
Brief details of these products are given below
5.2.4.1 Personal or Any Purpose Loan
To meet any legitimate personal financial requirements, this loan can be given.
Table 18: Features of Any Purpose Loan
Features Description
Loan Amount (Min) Tk. 25,000
Loan Amount (Max) Tk 5,00,000
Rate of Interest 18%
Tenor 1-4 years(max)
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving account
Other charges(Processing Fee) 1.5% on the loan amount + VAT(15%) on
Penalty Charge 4% of installment overdue
Down Payment N/A
Stamp Charge Tk. 740
Early Settlement 2.5% of the rest outstanding amount
Criteria for application(Age
limit)
Any Bangladeshi citizen of 21-60 years at the time of
maturity of loan.
Minimum Service Length Confirmed employee having at least one year service
length(for salaried person
At least three years length of business.
Minimum Monthly Income Tk. 15,000(min) for salaried individuals, businessmen
and others.
Guarantors Two persons, if married, spouse guarantee is must.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 46
5.2.4.2 Car Loan
For purchasing new or reconditioned car, DBL allows individuals for this type of loan.
Table 19: Features of car loan
Features Description
Loan Amount(Min) Tk. 3,50,000
Loan amount(Max) Tk 20,00,000
Rate of Interest 17%
Tenor 3 year for cars manufactured in India. 5 years for
reconditioned car and 7 years for brand new car.
Repayment method Monthly equal installment
Disbursement mode Through Pay Order/Demand Draft favoring the vendor
Other charges 1.5% on the loan amount +VAT (15%)
Penalty Charge 48% p.a. (4% p.m.) on the arrear installment amount or
BDT 200.00 (whichever is higher)
Down Payment 15% of the total loan amount(for salaried person)
25% for business person
Stamp Charge Tk. 740
Early Settlement Allowed but subject to a fee @ 0.50% on the settlement
amount (excluding VAT)
Application Criteria(Age) 22-60 years at the time of maturity of loan.
Minimum Monthly Income Tk. 15,000(min) for salaried individuals
Tk. 20,000 for businessmen and others.
Guarantors One person.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 47
5.2.4.3 Home Loan
For purchasing flat or constructions of houses, DBL offers this type of loan.
Table 20: Features of home loan
Features Description
Loan Amount (Min) Tk. 5,00,000
Loan Amount (Max) Tk 35,00,000
Rate of Interest 25%
Tenor 5-15 years(max) depends on loan amount
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving account or
most of the times cash disbursement happens
Other charges 1.5% on the loan amount
Penalty Charge 4% of installment overdue
Down Payment 40% of the total loan amount
Stamp Charge Tk. 740
Early Settlement As per other loan requirements of DBL
Criteria for application(Age
limit)
21-50 years (at the time of application).
Minimum Monthly Income Tk. 40,000.00.
Guarantors To persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 48
5.2.4.4 Vacation Loan
Table 21: Features of vacation loan
Features Description
Loan Amount(Min) Tk. 25,000
Loan amount(Max) Tk 5,00,000
Rate of Interest 12%
Tenor 1-4 years(max) depends on loan amount
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or most of the times cash
disbursement happens
Other charges 1.5% on the loan amount
Penalty Charge 4% of installment overdue
Down Payment 40% of the total loan amount
Stamp Charge Tk. 740
Early Settlement As per other loan requirements of DBL
Criteria for application(Age limit) 21-50 years (at the time of application).
Minimum Monthly Income Tk 15,000
Guarantors To persons.
Besides other fees, CIB fee of Tk 100 for the loan amount of Tk 2lac and above and
application fee of Tk 500 is must for all kind of application.
To apply for any of the above retail loan of DBL, a client needs his/her photographs, copy of
passport/ID card, last one year’s bank statement, copy of TIN, trade license(for businessmen),
personal net worth statement etc.
Besides these, following legal documents are needed to get any retail loan from DBL.
• Duly filled in loan application form with terms and condition signed
• Demand Promissory Note
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 49
• Letter of Guarantee
• Letter of Set-Off
• Irrevocable Letter of Authority to repossess the vehicle (for car loan) etc.
5.2.5 Credit Assessment, Approval and Disbursement Process
Dhaka Bank Limited (DBL) follows the “Bangladesh Bank Prudential Regulations for
Consumer Financing 2004 for the process started from client’s credit application receive up to the
final disbursement as described in above for Prime Bank Limited along with the diagram on page
31 of this report. But, unlike PBL, retail credits are disbursed directly for the Head Office rather
than branch level that is DBL has “Centralized Disbursement Process”.
In addition, (DBL) has passed a circular in its board meeting in which it is written that, in
accordance with “DBL PDC Policy”, in case of ‘De Duplication Checking” steps, CIB report will
not be sought up to Tk 2.00 lac loan. The total retail credit disbursement process of DBL is
centralized that is controlled by DBL Retail Head Office; it takes 21 working days to disburse
most of the retail loans.
5.2.6 Number of Clients in Retail Credit
During the year 2004, 2005 and 2006, the numbers of clients in different retail credit were
4311, 4894 and 5443 respectively. The following figure 13 shows a positive growth trend in retail
credit in terms of clients. As per figure 13, the number of clients in the period 2004-2006 have
increased slowly.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 50
Clients Growth of DBL Retail Credit
544348944311
0100020003000400050006000
2004 2005 2006
Years
Figu
res
in N
umbe
rs
Sources of data: Primary (Questionnaire)
Figure 13
5.2.7 Promotional Activities
For promotional activities DBL has recruited
• Direct Sales Agents(DSA)
• Display media
• Print Media
• Billboard
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 51
5.3 Retail Credit Practices in National Credit and Commerce Bank Limited (NCCBL)
National Credit and Commerce Bank (NCCBL) is another second generation private bank
established in the year 1993.It started financing retail credit formally from the year 2003 with a
very limited product portfolio. Financing individuals of mainly middle-class salaried employees
to enhance their lifestyle is the dictum of retail credit of NCCBL.
5.3.1 Credit Portfolio
The year 2004 got total amount of Tk.1521.12 Cr. as total credit disbursement. Within this
amount, Tk. 25.05 Cr. was in purpose of retail credit. The highest investment in 2004 was in
different types of business sector as we can see in the following graph. In figure 14, the dark
black area represents the amount of retail credit disbursement.As per figure 14,among these three
years of retail credit disbursement, year 2005 got highest amount. Construction sector got a
growing trend in investment.
Credit Portfolio of NCCBL
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2004 2005 2006Years
Figu
res
in %
Others
Business
Retail
Transport
Water Works
ConstructionIndustry
Agri
Sources of Data: Annual Report of 2004, 2005, 2006 of NCCBL
Figure 14
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 52
Therefore, figure 15 is showing the investment trend in retail credit. The curve in this graph
shows the highest percentage of investment in 2005.
Retail Credit Growth of NCCBL
1.64%
3.30%
4.03%
0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%
2004 2005 2006
Years
Figu
res
in %
Figure 15
5.3.2 Income Generation by Retail Credit
The total interest income earned by different sectors during the year 2004, 2005 and 2006
were Tk. 160.14 Cr., 207.25 Cr., and 302.33 Cr. respectively. In these amounts, Tk. 1.72 Cr., 4.34
Cr., and 10.35 Cr., were generated by retail credit. The following graph shows the positive
growth trend in income earned by retail credit.
Interest Income Growth of NCCBL Retail Credit
3.42%
2.09%
1.07%0.00%
1.00%
2.00%
3.00%
4.00%
2004 2005 2006
Years
Figu
res
in %
Sources of data: Annual reports of NCCBL
Figure 16
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 53
5.3.3 Target Clients
Employees of govt. and Semi- Govt. organizations, autonomous bodies, Banks, Insurance
companies and other financial institutions, school, college, university teachers, owners of
house/flat, self-employed professionals are the target clients of NCCBL.
5.3.4 Typology of the products offered by NCCBL
National Credit and Commerce Bank offers only two types of product. They are
• Personal Loan or Any Purpose Loan
• House Renovation Loan
The features of these two types of product are given below:
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 54
5.3.4.1 Personal Loan or Any Purpose Loan
For the purpose of marriage, maternity, treatment and sometimes for educational purposes,
this loan can be given by NCCBL.
Table 22: Features of Personal or Any Purpose Loan
Features Description
Loan Amount(Min) Tk. 20,000
Loan amount(Max) Tk 1,00,000
Rate of Interest 17%
Tenor 6 months to 1year (max) depends on loan
amount
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or most of the times cash
disbursement happens
Other charges 1% on the loan amount
Risk Fund 1% of the loan amount
Penalty Charge 1% of installment overdue or Tk. 100
whichever is lower.
Down Payment N/A
Stamp Charge Tk.400
Early Settlement Possible but no fee is required
Criteria for application(Age limit) 20-50 years (at the time of application).
Minimum Monthly Income Tk 15,000
Guarantors One person.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 55
5.3.4.2 House Renovation Loan
For the purpose of house renovation, NCCBL offers this type of loan.
Table 23: Features of House Renovation Loan
Features Description
Loan Amount(Min) Tk. 10,000
Loan amount(Max) Tk 5,00,000
Rate of Interest 17%
Tenor 1-5years (max) depends on loan amount
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or some times cash disbursement
happens
Other charges 1% on the loan amount
Risk Fund 1% of the loan amount
Penalty Charge 1% of installment overdue or Tk. 100
whichever is lower.
Down Payment N/A
Stamp Charge Tk.400
Early Settlement Possible but no fee is required
Criteria for application(Age limit) 30-50 years (at the time of application).
Minimum Monthly Income Tk 15,000
Guarantors One person
For any loan application, Tk. 500 is required as application fee.
To apply for any of the above retail loan of NCCBL, a client needs his/her photographs,
copy of passport/ID card, last one year’s bank statement, copy of TIN, trade license(for
businessmen), personal net worth statement etc.
Besides these, following legal documents are needed to get any retail loan from NCCBL.
• Duly filled in loan application form with terms and condition signed
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 56
• Demand Promissory Note
• Letter of Guarantee
• Letter of Set-Off etc.
5.3.5 Number of Clients in Retail Credit
In the year 2004, 2005 and 2006, the numbers of clients in different retail credit product were
1587, 2756 and 3561 respectively. The figure 17 shows an overall positive growth trend in terms
of client number in three years.
Clients Growth in Retail Credit of NCCBL
3561
2756
1587
0500
1000150020002500300035004000
2004 2005 2006Years
Figu
res
in N
umbe
rs
Sources of data: Primary (Questionnaire)
Figure 17
5.3.6 Credit Assessment, Approval and Disbursement process
Similar to other private commercial banks offering retail credit, NCCBL also follows the
“Prudential Regulation of Consumer Financing by Bangladesh Bank, 2004” .Similar to Prime
Bank, the retail credit disbursement process of NCCBL is also decentralized that is, credit is
disbursed from branch level. The total days required from receiving client’s application to loan
disbursement is 10- 12 working days.
5.3.7 Promotional Activities
NCCBL conducts its promotional activities for retail credit through print media (paper
advertisement).
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 57
6.0 Comparative Analysis of Retail Credit Status of PBL with EBL, DBL and NCCBL 6.1 Disbursed Amount of Retail Credit
The amount disbursed in retail credit in the three consecutive years in Prime Bank, Eastern
Bank Dhaka Bank and National Credit and Commerce Bank can be shown in table 24.
Table 24: Comparison of retail credit disbursed among four banks Figures in Cr.
Banks Years
2004 2005 Growth
over 2004
2006 Growth over
2005
PBL 67.65 121.16 79.09% 164.16 35.49%
EBL 62.43 170.82 173.62% 315.19 84.51%
DBL 60.33 91.75 52.08% 169.30 84.52%
NCCBL 25.05 82.86 230.77% 98.41 18.77% Sources of Data: Annual Reports of PBL, EBL, DBL, and NCCBL
According to the above table, though PBL has highest amount disbursement in retail credit, EBL
had the highest amount in the next two consecutive years.
6.2 Interest Income generated by Retail Credit
In the year 2004, 2005 and 2006 the amounts of interest income generated by different
products of retail credit of four banks are given in the following table 25.
Table 25: Comparison of retail credit interest income among for banks Figures in Cr.
Banks Years
2004 2005 Growth
over 2004
2006 Growth over
2005
PBL 11.09 14.29 28.85% 21.94 53.53%
EBL 11.86 32.45 173.60% 59.80 84.28%
DBL 6.82 4.89 -28.30% 8.77 79.34%
NCCBL 1.72 4.34 152.33% 10.35 138.48% Sources of Data: Annual Reports of PBL, EBL, DBL, NCCBL
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 58
According to the above table, it can be easily observed that, EBL has always highest amount
of interest income in the three consecutive years among these four banks. The second highest
bank was Prime Bank in terms of interest income.
6.3 Number of Clients in Retail Credit Table 26: Comparison of number of clients in retail credit among four banks
Banks Years 2004 2005 2006
PBL 4829 6461 5696 EBL 4963 9489 8960 DBL 4311 4894 5443
NCCBL 1587 2756 3561 Sources of data: Primary (Questionnaire) 6.4 Types of Retail Credit Products Offered The retail credit products offered by four banks shown in table 27 are following Table 27: Comparison of retail credit products offered among four banks
Sl. PBL EBL DBL NCCBL 1. Car Loan Car Loan Car Loan House
Renovation Loan
2. Any Purpose Loan Jibandhara or Any Purpose
Loan
Personal or Any Purpose Loan
Personal or Any Purpose
Loan 3. Household Durables Loan Executive Loan Vacation Loan 4. Doctor’s Loan Utshabs or
Vacation Loan Home Loan
5. Marriage Loan 6. Education Loan 7. Loan against Salary 8. Travel Loan 9. Hospitalization Loan 10. CNG Conversion Loan 11. Swapna Neer
6.5 Different Features of Similar Products Offered
There is only one type of product that is similar among PBL, EBL, DBL and NCCBL which
is “Personal Loan or Any Purpose Loan”. The comparative features of this loan among four
banks are shown in the following table 28.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 59
Table 28: Comparative Features of Any Purpose Loan among four banks
Features Banks PBL EBL DBL NCCBL
Loan amount(min) Tk. 10,000 Tk. 50,000 or 10-12 times of
gross salary
Tk. 25,000 Tk. 20,000
Loan amount(max) Tk. 3,00,000 Tk. 10,00,000 Tk. 5,00,000 Tk. 1,00,000 Rate of Interest 16% 21% 18% 17% Tenor 1-3 years 1-5 years 1-4 years 6 months -1
year Criteria(Age limit) 25-65 years at the
time of maturity of loan
22-60 years at the time of maturity
21-60 at the time of maturity
20-50 at the time of maturity
Down Payment 10% of total amount
30% of total amount
N/A N/A
Repayment Method Monthly equal installment
Monthly equal installment
Monthly equal installment
Monthly equal installment
Days needed for disbursement
15-20 days 5-7 days 21 days 10-12 days
Disbursement Mood Clients’ savings account, sometimes
cash for salaried person
Clients’ savings account. In most
of the times cash.
Clients’ savings account
Clients’ savings account,
sometimes cash for salaried
person Disbursement System
Decentralized Centralized Centralized Decentralized
Other Charges(Processing Fee)
1% on loan amount or Tk. 1000 whichever is
higher+15%VAT on that amount
1.5% on the loan amount
1.5% of the loan amount
+15%VAT
1% on loan amount
Risk Fund 1% on loan amount N/A N/A 1% on loan amount
Penalty Charge(Amount on installment overdue)
2% 3% 4% 1% or Tk 100 whichever is
lower
Stamp Charge Tk. 320 Tk. 600 Tk. 740 Tk. 400 Early Settlement with cost on total outstanding amount
Any time at free of cost
Any time, 2%( before 12
months), 1% (12 months and
above)
At any time with 2.5% cost
At any time at free of cost
No. of Guarantors Two persons One person Two persons One person Mostly preferred client
Salaried Individuals Self-Employed
person
Salaried Individuals
Self-employed person
Businessmen.
Salaried Individuals
Self-employed person
Businessmen
Salaried individuals
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 60
According to table 28, it can be commented that, EBL and DBL, two major competitors of
PBL have already targeted different classes of people in the society.EBL is already enjoying
larger market share in terms of both disbursed amount and interest income.DBL has targeted
greater segments and trying to come upfront with other attractive features and promotional
activities in retail credit.
6.6 Promotional activities
In the following table 29, the medium of promotional activities are shown for four banks. Table 29: Comparison of promotional activities among four banks PBL EBL DBL NCCBL Direct Sales Agent(DSA)
√ √ √
Display media advertisement
√ √
Print media advertisement
√ √ √ √
Billboard √ √ Fair arrangement
√ √
According to the above table 29, EBL has a complete promotional activities compared with other
four banks.PBL has only three wings in promotional activities.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 61
7.0 Problems of Prime Bank Limited (PBL) in Retail Credit Operation From the above description and comparative analysis with three other banks, following
problems are found in Prime Bank Retail Credit, which is given below:
• Less diversified target client segments
PBL currently is allowing retail credit disbursement to a few individuals who are
businessmen. Again, salaried individuals are getting preference in terms of retail credit.
Though the numbers of fixed income earning people are increasing day by day, there is an
existing large segment of business people of different types in Bangladesh who needs
retail loan frequently rather than salaried individuals. Also, the self-professionals related
to the legal activities and media are not there in the target clients segment. This narrow
focus on target clients is reducing the market share of PBL in retail lending.
• Lengthy Assessment Procedure
For the compliance of prudential guidelines of Bangladesh Bank, 2004, PBL asks for CIB
report for an amount of TK. 50,000 and more. As it takes six to seven days for CIB to be
returned back to the branches, almost 15-20 working days are needed by PBL to disburse
retail credit.
Now days, people are too busy to spend longer time for having a smaller amount of
loan for their personal need. For this longer assessment process that is widening the time
interval between a loan application reception and loan disbursement has resulted less
number of clients and has also affected the interest income.
• Decentralized Disbursement System
The retail credit disbursement process of Prime Bank is decentralized which is also a
barrier for it to take steps for more expansion in retail credit. As the credits sanctioned are
disbursed from branch level, most of the employees of credit department in branches are
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 62
engaged with disbursement related activities in most of the times which hampers the
branch activities to attend more clients.
• Inadequate Promotional Activities
PBL has currently direct sales agent (DSA) and paper advertisement only this two
medium for frequent promotional activities in retail credit. Sometimes it arranges fair for
retail credit. In the present time perspective, multimedia activities have expanded in such
a way that, larger number of people watch television and listen in radios rather than
reading newspaper. People are also attracted by colorful billboards in the road.PBL has
taken no steps for promotional activities up to now in display media and so on which can
also be a cause for having lesser market share than the competitors.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 63
8.0 Prospects for Prime Bank in Retail Credit From the above study and competitive analysis on Prime Bank, the prospects that are found
are following:
• Diversified Product Portfolio
PBL currently has diversified product portfolio. From the above comparison, it can be
easily observed that, the other immediate major competitors like Eastern Bank, Dhaka
Bank have only three to four types of product and with these products, they are trying to
capture middle-class, upper middle class and upper class people’s personal credit need.
But Prime Bank has separate cells for separate client segments which is one of the
important aspects of PBL.This is one of the crucial prospects for PBL to proceed with
retail credit further.
• Lower interest rate and related cost
It can be said confidently from the above comparison that, PBL has the lowest interest
rate in terms of all retail credit products among its competitors which is an opportunity for
it to attract new clients.
Again, in terms of processing fee, stamp charge and early settlement cost, wherein its
other competitors are taking higher amount and charges for early settlement, PBL charges
the lowest amount and allows its client for early settlement at free of cost, which is
convenient for clients.
• Lower credit amount and credit cycle
In some retail products, PBL offers different lowest amount and time interval as a
minimum which is also a convenience for the clients of a developing country like
Bangladesh. In Bangladesh, most of the fixed income earning people have income range
within Tk. 20,000-35,000.For them to avail an amount of retail credit for more than Tk.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 64
10,000-12,000 to fulfill personal needs is almost impossible. Lower tenor of credit lessens
the burden from clients and inspires them to take more credit which is currently offered by
PBL.
• Protection against defaulter
As PBL asks for CIB for any amount of TK. 50,000 and above, it protects PBL of
holding default clients and secures the income generated by retail credit.
9.0 Recommendation With the consideration of the above whole study especially the problems and prospects, I
suggest the PBL management to think about the following points:
• The defense people, lawyers and journalists are not in the current target clients’ list of
PBL, who if were in target segments of PBL, could add more wings in market share and
interest income also. As there are already more diversified retail credit products, PBL
should rethink about its target client segment and if possible, should include defense
people, lawyers and journalists that can easily fit with that products.PBL should consider
especially of businesspersons.
• PBL management should take care of its IT development. If there is an online system
between Retail Credit Head Office (RHO) and branches, the applications along with
necessary documents will be able to be transferred in short time and with less costs for
assessment into the RHO.It will also reduce the disbursement time interval and PBL will
be able to get more clients.
• PBL has currently decentralized retail credit disbursement system which is requiring more
time for even any small amount of loan. In this case, PBL should develop a central
database system which will enable the RHO of PBL to disburse any amount of retail
credit directly from Head Office. It will not only reduce the loan disbursement time
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 65
interval but also helps branches of PBL to be more retail client oriented. This central
database system will also enable RHO to identify any retail client of any branch at any
time, which will ensure highest level of monitoring and quality control.
• PBL management should take more steps to promotional activities. Television
advertisement, creating billboard, recruiting more sales agents and arranging retail loan
fair can add a large opportunity in achieving more market segments.
10.0 Conclusion Retail lending has been a spectacular innovation in the private commercial banking sector in
recent years. The growth of retail lending, especially, in a developing country’s economy, is
attributable to the rapid advances in information technology, the evolving macroeconomic
environment, financial market reform, and several micro-level demand and supply side factors.
In today’s Bangladesh, banks, especially, the private commercial banks consistently point to
the stability of revenue and profit as the most important feature of retail lending and a key
motivation for the recent interest. In particular, retail stability is seen as valuable for commercial
banks seeking to offset the volatility of riskier business lines, such as trading and other capital-
market activities. While retail lending offers phenomenal opportunities for growth, the challenges
are equally daunting. How far the PBL retail banking will be able to exist in retail banking
industry in future will depend upon the capacity building of the banks to meet the challenges and
make use of the opportunities profitably.
From the above analysis and comparison, it has been proved that, Prime Bank though has
some problems, yet it has lots of opportunities to carry on its retail lending business. Diversified
product portfolio, lower rate of charges etc is the favorable features of PBL for clients. If, Prime
Bank follows the above recommendations, to cope up its problem, Prime Bank will be able to
continue to chart in this traded path.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 66
ABBREVIATED TERMS
Cr. =Crore
RHO=Retail Credit Head Office
PBL=Prime Bank Limited
EBL=Eastern Bank Limited
DBL=Dhaka Bank Limited
NCCBL=National Credit and Commerce Bank Limited
CPV=Contact Point Verification
CCS=Consumer Credit Scheme
DSA=Direct Sales Agent
APPENDIX
REFERENCES Bangladesh Bank (2004).Prudential Regulations for Consumer Financing. Clark, T., Dick, A., Hirtle, B., Stiroh, K., & Williams, R.(2007).The Role of retail in U.S Banking
Industry.Journal of Econmic Policy Review, 1-18.
Dhaka Bank Limited (2004).Annual Report.
Dhaka Bank Limited (2005).Annual Report.
Dhaka Bank Limited (2006).Annual Report.
Eastern Bank Limited (2004).Annual Report.
Eastern Bank Limited (2005).Annual Report.
Eastern Bank Limited (2006).Annual Report.
Gopinath, S. (2005, May).Retail Banking-Opportunities and Challenges. Paper presented at the
IBA-banking Frontier International Conference, Mumbai, India.
Math, B. (2005, December).Future Growth Drivers-Retail versus Corporate. Papers presented at
a seminar at MDI, India.
Ministry of Finance. (2006).The Activities of Banks and Financial Institutions, 2005-
2006. Publication No. 329 EX-1400, Dhaka, Bangladesh Government Press.
National Credit and Commerce Bank Limited (2004).Annual Report.
National Credit and Commerce Bank Limited (2005).Annual Report.
National Credit and Commerce Bank Limited (2006).Annual Report.
Prime Bank Limited(2004).Annual Report.
Prime Bank Limited (2005).Annual Report.
Prime Bank Limited (2006).Annual Report.
Prime Bank Limited (2005).Retail Banking Credit Policy Manual.
Stiroh, J.(2004).Diversification in Banking. Journal of Money, Credit and Banking, 39(1), 49-81.
Westerfield, R.B. (1998) Effect of Consumer Credit on the Business Cycle. Journals of the
American Academy of Political and Social Science, 196, 99-110.
QUESTIONNAIRE
PROSPECT OF RETAIL CREDITS IN BANGLADESH I am Kashfia Nehereen, a student of Bachelor of Business Administration, Independent University Bangladesh (IUB). I am going to conduct a research report on Prospect of Retail Credits in Bangladesh. This research is conducting for academic purpose only. Your kind cooperation in providing the information required for the research purpose will be highly appreciated and will be kept secret.
General Information:
Name: _________________________________________
Title: _________________________________________
Organization: _________________________________________
Specific Information:
1. How does your Bank define retail/consumer credit?
--------------------------------------------------------------- 2. When your Bank formally started offering Retail Loan?
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3. Who are the target customers of your retail loan products?
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4. What are the retail loan products of your bank? (Please provide the brochures for having the features of the products)
5. What is the eligibility to apply for the loans (product wise)?
Name of the
product
Eligibility criteria
(Please use separate page if required)
6. What were the total numbers of clients in different retail credits?
Name of the
product
Years
2004 2005 2006 % of growth
7. Please provide the Tk. amount of retail credit and the amount of total credit disbursed.
Year 2004 Year 2005 Year 2006
Retail
Credit
Total
Credit
Retail Credit Total Credit Retail Credit Total Credit
8. What were the amounts of interest income generated by retail credit?
Name of the
product
Years
2004 2005 2006 % of growth
9. Is/are there any special features in your retail product so that clients can be attracted?
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(Please use separate page if required)
10. What are the problems that you face regarding retail credit disbursement?
Problem 1.-----------------------------------------------------------------------------------------------
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Problem 2.-----------------------------------------------------------------------------------------------
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Problem 3.-----------------------------------------------------------------------------------------------
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Problem 4.-----------------------------------------------------------------------------------------------
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Problem 5.-----------------------------------------------------------------------------------------------
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Problem 6.-----------------------------------------------------------------------------------------------
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Problem 7.-----------------------------------------------------------------------------------------------
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Thank You
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