Internship Report On a Comparative Study on Credit Performance between Conventional And Islami Bank In Bangladesh

Internship Report On a Comparative Study on Credit Performance between Conventional And Islami Bank In Bangladesh: Islami Bank Bangladesh Limited and National Bank Limited

This report is prepared as a requirement of the Internship of MBA program of the DEPARTMENT OF BANKING, University of Dhaka. This report will give a clear idea about the investment/loans activities and operational strategies of the IBBL & the NBL. Especially this report focuses on the comprehensive analysis of investment performance between the Islami Bank Bangladesh Ltd. & National Bank Ltd.

The long drawn struggle to establish an Islamic Bank in Bangladesh becomes a reality when Islami Bank Bangladesh Ltd. was established in March 1983 with a clear manifesto of demonstrating the operational meanings of participatory economy, banking and financial activities as an integral part of an Islamic code of life.

At the same time in 1983 National Bank Limited (NBL) was established, now one of the leading first generation private sector banks in Bangladesh. It is the first private commercial bank which was fully owned by Bangladeshi entrepreneurs. At present NBL has been carrying on business through its 131 branches with 415 foreign correspondents relationships with 230 banks in 75 countries of the world as well all established drawing arrangement with 46 overseas exchange companies abroad. Becoming highest profitable bank through utmost level of customer satisfaction is the goal of National Bank.

Basically the IBBL is an Islami Bank based on “Islamic Shariah”. It follows the alternative concept of Islamic Banking which represents unique human approach to credit and banking based on profit oriented economy devoid of interest. In this regard the IBBL has introduced a number of income generating programs for the millions of urban and rural poor. With that objective in view the IBBL has formulated a profitable live in a better society with greater security and peace.

This Bank has mainly 3 investment modes such as: (i) Bai-Trading Modes (ii) Leasing/Ijara modes and (iii) Share modes and also the IBBL have several investment schemes such as Rural Development scheme,Small business investment scheme, Transport investment scheme, etc. In this report I tried my best to explain all the investment modes of Islami Bank Bangladesh Limited.

It is observed that amount of total credit disbursement of National Bank is increasing year by year. Major portion of total disbursement is made as loan where industry wise highest amount of loan was given to medium and large industry. National bank maintains 1%, 5%, 20%, 50%, and 100% provision against unclassified, special mention, substandard, doubtful and bad loan respectively. To recover classified loan different steps like restructuring, moral persuasion, notice to guarantor, legal notice to borrower is initiated. Nation bank has strongly branded itself as a place of excellence service and proven customer service. But now it is facing problem like lack of online banking, lack of integrated branch banking system, few ATM points, and little variation in deposit and loan product, lengthy loan approval process, and insufficient security arrangement and so on.
As a kid in the banking industry, both the IBBL & the NBL are performing well as have acquired the assets and human resources of higher quality. The IBBL will be more effective in our economy by adopting modern financial technology by extending their activities in human & social welfare.
This report is based on an internship program. Department of Banking arranges internship program to gather practical knowledge about banking activities students as University conduct the program after the completion of theoretical courses of program of Master of Business Administration (MBA). A must carry out a specific report, which is assigned by the supervisor of the concerned department. Consequently a report based on the topic is to be submitted to the authority of Department.
In this particular report, the author is the intern of the previously mentioned program and the concerned organization is Islamic Bank Bangladesh Limited (IBBL) which is a prominent private and the first Bank of Bangladesh that based on Islamic Shariah & National Bank Limited one of pioneers of modern banking in Bangladesh.

1.2 Literature Review

The goal of investment/credit management is to maximize a bank's risk-adjusted rate of return by maintaining lending/credit risk exposure within acceptable parameters. Banks need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions. Banks should also consider the relationships between credit risk and other risks. The effective management of credit/lending risk is a critical component of a comprehensive approach to risk management and essential to the long-term success of any banking organization. Institutions manage it in different ways. In assessing credit risk from a single counterparty, an institution must consider three issues: Default Probability, Credit Exposure, and Recovery Rate. While financial institutions have faced difficulties over the years for a multitude of reasons, the major cause of serious banking problems continues to be directly related to lax credit standards for borrowers and counterparties, poor portfolio risk management, or a lack of attention to changes in economic or other circumstances that can lead to a deterioration in the credit standing of a bank's counterparties. Credit analysis refers lending/credit risk in which a loan officer attempts to evaluate a borrower’s ability and willingness to repay. Generally through lending/ credit analysis the loan officer analyze all available information to determine whether the loan meets the bank’s risk-return objectives. To analyze credit three techniques are used: Qualitative analysis, Quantitative analysis and Credit Risk Grading. In the qualitative analysis the bank usually analyze the 5 C’s of the customer Character, Capacity, Cash, and Condition & Collateral. Knowledge and learning become perfect when it is associated with theory and practice. Theoretical knowledge gets its perfection with practical application. As our educational system predominantly text based, inclusion practical orientation program, as an academic component is as exception to the norm. As the parties, educational institution and the organization substantially benefit from such a program, it seems a “win-win situation”. It establishes contracts and networking contracts. Contracts may help to get a job. That is, students can train and prepare themselves for the job market. My report will discuss the comparisons between Islami Bank Bangladesh Limited & National Bank Limited, shows how islami banks perform better in spite of being interest free banks. The purpose of this report is to evaluate its performance through ratio analysis; trend analysis, regression etc.

1.3 Objectives of the study
In this report, I have attempted to give an overview of the performance of investment/credit between a conventional & islami banks based on Islamic Bank Bangladesh Limited & National Bank Limited.The study aims at some objectives, which are as follows:

v To know its investment objectives.
v To evaluate the investment/credit mechanism of the IBBL & the NBL.
v To compare the credit/investment performance of the IBBL with the NBL
v To identify and suggest scopes of improvement in credit management of the IBBL & the NBL.
v To get an overall idea about the performance of National Bank Ltd & Islami Bank Bangladesh Ltd.

1.4 Methodology of the study:
Technique of analysis:
In this part, I have made various types of analysis as per the guideline of honorable course instructor as well utilizing my prudence if I have any. Four different types of analysis have been done, these are-
SWOT Analysis
 Core indicator & Ratio analysis
· Least Squares Method for Time series Analysis
· Regression Analysis
To conduct the Analysis part I have chosen the most widely used techniques of analysis. These are Least Squares method for Time Series Analysis and Regression Analysis.
(a) Time series analysis

The first step in making estimates for the future consists of gathering information from the past data. In this connection, one usually deals with statistical data which are collected, observed or recorded at successive lest of time. Such data are generally referred as Time Series data.