Report on Loan Portfolio Management and Loan Pricing Strategies- a Case Study Based on Southeast Bank Ltd

Banks are the principal source of credit for the borrowers. It is quite impossible for any country to develop in industrial and commercial sector without sound banking system in modern economic era. Banks provide loan able funds for millions of households (individuals and families), for most local units of government and for agricultural, commercial and industrial activities of a nation. Bank lending is important to the economy, for it makes possible the financing of different sectors. At the same time, a bank will, therefore, distribute its funds among various assets in a manner as to derive sufficient income. But as liquidity and profitability are conflicting considerations. Loan portfolio is the major issue in this regard. Lending can expose a bank’s earnings and capital to all of the risks. Therefore, it is important that the management of any bank understands all the risks embedded in the loan portfolio and their potential impact on the institution. To manage their portfolios, bankers must understand not only the risk posed by each credit but also how the risks of individual loans and portfolios are interrelated. These interrelationships can multiply risk many times beyond what it would be if the risks were not related. Now, many banks view the loan portfolio in its segments and as a whole and consider the relationships among portfolio segments as well as among loans. These practices provide management with a more complete picture of the bank’s credit risk profile and with more tools to analyze and control the risk. World-wide economic recession has created a major impact of our economy, for which disbursement of new loan to potential industrial clients thus makes the loan portfolio is now very risky. By consideration of portfolio risk, classified loan (provision) and advances and interest thereon, banks should maintain their credit risk at a tolerable limit.
The dimension of Banking has been changing rapidly due to deregulation, technological innovation and globalization. Banking in Bangladesh has to keep pace with the global change. Now Banks must compete in the market place both with local institution as well as foreign ones. To survive and thrive in such a competitive banking world, two important requirements are Development of appropriate financial infrastructure by the central bank and Development of "professionalism" in the sense of developing an appropriate manpower structure and its expertise and experience. Bank lending is important for the economy in the sense that it can simultaneously finance all of the sub-sectors of financial arena, which comprises agricultural, commercial and industrial activities of a nation. Through deposit mobilization and providing credit facilities for different business organizations, the banking sectors are playing a vital role in the economy of the country. The success of a bank depends up to how effectively the credit management recovers the funds.

Southeast Bank Limited established as the private sector bank fully owned by Bangladeshi entrepreneurs, SEBL has been flourishing as the largest private sector Bank with the passage of time after facing many stress and strain. Towards attainment of its goals and objectives, the bank pursues diversified credit policies and strategic planning in credit management. To name a few, the bank has extended micro credit, consumers durable scheme loans, house building loans etc. to cater to the needs of the individuals, which in turn has helped thousands of families. The bank also extends loan in the form of trade finance, industrial finance, and project finance, export & import finance etc. The bank’s credit polices aimed at balanced growth and harmonious development of all the sectors of the country’s economy with top most priority to ensure quality of lending by averting growth of non-performing assets.

1.2 Origin of the report
The internship report was assigned as a part of academic requirement in order to complete my “Master in Business Administration" program. To support my internship report, I am working as an intern in Southeast Bank Limited (New Elephant Road )Branch. In today’s world, education is the tool to understand the real world and apply knowledge for the betterment of the society as well as business. From education the theoretical knowledge is obtained from courses of study, which is only the half way of the subject matter. Practical knowledge has no alternative. The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between these two areas. Therefore, an opportunity is offered by Department of Banking, University of Dhaka, for its potential business students to get two months practical experience, which is known as “Internship Program”. This paper is entitled “Loan portfolio management & loan pricing strategies” originated from the fulfillment of the internship program. For the internship program, each student is attached with an organization. During my internship, I had to prepare a report under the supervision of Shahidul Islam Zahid, Lecturer, Department of Banking, University of Dhaka.

The main objective of the study is to have knowledge about the loan and advance formulation in the Southeast Bank Limited. In order to study the loan portfolio management I have decided to study about the following facts:
  • To know the lending products of the Southeast Bank Ltd.
  • To know the interest rates and fees of loans
  • To know the credit policy and credit operation model
  • To know the credit analysis process
  • To know the process of selecting borrowers
  • To know the credit risk grading model
  • To know the standard charge documents execute against the credit facility.
  • To Know about the loan classification
  • To Know about the loan recovery System