AN INTERNSHIP REPORT
On
ANALYSIS OF DELINQUENCY LEVEL AND THE FACTORS AFFECTING DEFAULT OF CONSUMER ASSET PRODUCT OF STANDARD CHARTERED BANK
SUBMITTED
TO
HUMAN RESOURCE DEPARTMENT OF STANDARD CHARTERED BANK
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF
BACHELOR OF BUSINESS ADMINISTRATION (BBA) DEGREE
Letter of Transmittal
17th April 2005
The Manager
Human Resource Department,
Standard Chartered Bank
Through:
Mr. XYZ
Department
Standard Chartered Bank, XXXX Branch
Dear Sir,
Subject: Submission of Internship Report.
I am submitting to you my Internship Report on Standard Chartered Bank. The report has been prepared based on analysis of delinquency level and the factors affecting default of consumer asset products of Standard Chartered Bank.
It was undoubtedly a splendid opportunity to work on this report in order to use my theoretical knowledge in the practical arena to the utmost extent. The project generated a lot of information about Financial Industries products and services.
This is for the first time that I have gained experience in a real life situation. I have observed the real life organizational problems by being there instead of visiting, which was in the case of course projects. The 12-weeks’ internship has helped me a lot in getting exposed to the practical field.
I have tried my best to put in efforts for the preparation of this report. I shall appreciate your kind acceptance of my report.
Yours Faithfully
Mr. CVCVCVCVC
ACKNOWLEDGEMENT
I would like to show my humble gratitude to all the individuals who have helped me to prepare this report during the last three months. As being a mere mortal, it is natural to forget a few names and those not mentioned by name, please accept my sincerest deeply apologies.
I express my special gratitude to my honorable teacher, Mr. Abu Saleh Mohammad Muntasir Amin for his supervision in preparing the report. He has guided me in coordinating the whole report.
I take the opportunity to express my sincere gratitude and respect to Mr Mujtaba Mozumder, Manager Branches & Branch Sales & Services Manager, Gulshan Branch of Standard Charterted Bank accepting me to work in this renowned foreign bank and also for guiding me throughout my tenor.
My heartiest gratitude go to Mr. Raihan Alauddin Personnel Financial Consultant of Consumer Banking Division of Standard Chartered Bank for his constant support, guidance and supervision for my preparing the report for my Internship on my work in SCB.
I gratefully acknowledge the help and guidance of Customer Relationship Manager, Sales Team Manager, Personal Financial Consultant of Gulshan Branch of Consumer, Priority, Corporate and Islami Banking Division of Standard Chartered Bank.
Finally, my heartfelt thanks and gratitude for all of those instructors of IUB with whom I did courses and who have given me the valuable education to help me in the practical working life.
Executive Summary
The Collection Department of Standard Chartered Bank is a support service provider for it. It deals with collection of loans that are termed as defaulted. They go through a certain procedure to identify and sort the loans as uncollectible or defaulted. This lengthy procedure cannot establish the cause of default or even cannot pin point the risk level.
The project explains the function of the collection department and then analyzes through a hypothesis and tries to find out the cause of default in case of individual kind of loan. Main findings of the report includes (a) default rate is lower incase of secured loans (b) salaried personnel are more vulnerable to default (c) age does not influence the default rate.
After analysis of the scenario the recommendation for the bank is: (a) keep provision for 30% collateral, (b) charge higher interest rate to the risky customers (c) rescheduling should be applied.
1.0 Introduction
1.1 Origin of the report
As a mandatory requirement of the Bachelor of the Business Administration (BBA) program under School of Business at Independent University, Bangladesh this report titled - “Analysis of Delinquency Level and the Factors Affecting Default of Consumer Asset Products of SCB” is a scheme depiction of the twelve week long internship program at the Consumer Banking of Standard Chartered Bank(SCB).
The organization attachment started on February 17, 2005 and finished on May 16, 2005. My organization supervisor Mohammad Shafiqur Rahman (Sales Team Manager, Consumer Banking Division, Gulshan Branch, SCB) assigned me the topic of the term paper & my institution supervisor at Independent University , Bangladesh
1.2 Statement of the Problem
Standard Chartered Bank has been established with the objective of developing the Bank’s business and interests in the country. If the bank can run effectively, the development of SCB Bangladesh will be even greater.
In our country capital formation is almost absent. In this country most of the people live below the poverty level. To improve their life standard and the economic infrastructure Standard Chartered Bank provides different types of loan facility to the people. The loan is granted to the applicants after completing the credit analysis factor but most of the time it is found that the banks are suffering from bad debt. The present study has been planned to evaluate the loan policy of Standard Chartered Bank in Bangladesh
1.3 Objective of the report
The purpose of this report reflects the internship purpose. The internship’s objective is to gather practical knowledge and experience in the corporate working environment with the close association to the business firm and the experts who are leading and making strategic decisions to enhance the growth of a financial institution. This report is contemplating the knowledge and experience accumulated from internship program. With the set guidelines and proposal provided by School of Business of Independent University , Bangladesh
The prime objective of organization part is to present an overview and brief introduction of Standard Chartered Bank.
The prime objectives of project part are:
§ To learn about the consumer loan facilities provided by SCB
§ To provide an idea about the products of SCB
§ To analyze the Delinquency Level and the Factors Affecting Default of Consumer Asset Products of SCB
§ To find the reason and relationship of different factors on the delinquency rate.
1.4 Scope of the Study
The scope of this report is limited to the overall description of the company, its services, its functions and its financial performance analysis. Since SCB has started Priority Banking recently in Bangladesh
1.6 Methodology
Both the primary as well as the secondary form of information was used to prepare the report. The details of these sources are highlighted in the following.
Primary Sources
Primary data are collected through face to face interview with the bank personnel, who are engaged with customer service, collection and sales department.
Secondary Sources
Sources of secondary data can be defined as:
Internal Sources
q Bank's Policy Manual
q Group Business Principal Manual
q Brochures
q Prior research report and any information and literature regarding the banking sector
External Sources
q Different books and periodicals related to the banking sector
q Bangladesh Bank Report
q Newspapers
q Website information
1.7 Limitations of the study
An Intern has to complete the internship and prepare an internship report within a semester. Briefly, I faced following limitations during the time of preparing this report.
Since I was a restricted to being an intern of “Consumer Banking” of SCB Gulshan, I was not able to venture into other departments for an extended period of time. Consequently I had great difficulty in preparing an internship report on the Delinquency Level and the Factors Affecting
§ Default of Consumer Asset Products of SCB. I had to visit the bank’s HQ frequently to collect data requisite to complete this report.
§ Due to time shortage, details of many aspects of the services of SCB Bangladesh have been ignored in this report.
§ Another main barrier in writing the report was data confidentiality. Though I saw the Bank’s internal procedure that is being used in processing and evaluating any documentary credit, I was advised not to disclose that in my internship report.
1.8 Definitions of the important terms used in the study
DR (Default Ratio)
It shows the magnitude of default on principal amount. This is expected to vary with Original Loan Amount Sanctioned, Debt Burden Ratio, Age, Monthly Income, and Collateral Value.
LA (Loan Amount Sanctioned)
This is the sum of loan that was initially sanctioned. The higher the loan amount sanctioned, the higher the required repayment installment hence, the greater probability that the borrower will default.
A (Age)
The age of the borrower has no significant impact on the default extent but others take the opposite view. The reason is that in developing countries like Bangladesh
DBR (Debt Burden Ratio)
This is the most important of the default ratio. It captures installment payment and monthly income. Monthly expenses have been captured by halving the disposable income (net of tax and other fixed obligation burdens to any institutions). The higher debt burden ratio would mean low debt paying ability by the borrower.
MI (Monthly Income)
This parameter has been incorporated to some extent in DB ratio. Yet this monthly income is net of income tax only: other debts and fixed obligations have not been taken into account. Higher monthly income ensures higher debt paying ability.
CV (Collateral Value as ratio of Loan Amount Sanctioned)
CV as ratio of Loan amount Sanctioned has a straightforward relationship with the default ratio. This is an important parameter as the higher the security against the loan, the lower is the borrower’s incentive to default.
2.0 Standard Chartered Bank in Bangladesh
Standard Chartered is a British bank with its Headquarter situated in London Bangladesh
2.1 History and background of Standard Chartered Bank
The Chartered Bank opened in Chittagong in 1948 in the eastern region of the newly created Pakistan South East Asia . The Bank opened its first branch in Dhaka in 1966. It shifted it’s headquarter from Chittagong to Dhaka after the birth of the Republic of Bangladesh
In the 1999 Standard Chartered has acquired the operation of Grindlays Bank in the Middle East and South East Asian countries. Grindlays (SCG) Bank started its journey in Bangladesh in 1905 under the name of Grindlays Bank (when it forbears the National Bank of India opened in Chittagong Bangladesh as a part of acquisition of the South East Asian and Middle East operation of the Australia Bangladesh India
At the beginning of this century Grindlays bank started its operation in Bangladesh Bangladesh Bangladesh
Ø 10 Branches in Dhaka
Ø 1 Branch in Savar
Ø 1 Branch in Narayanganj
Ø 3 Branches in Chittagong
Ø 1 Branch in Khulna
Ø 1 Branch in Sylhet.
Ø 1 Branch in Bogra
The network of SCB Bank engages itself for providing best quality banking service in retail, commercial and corporate banking segments. The countries top
enterprise; multinational, Local Corporation and financial institutions are served by SCB. With total asset of BDT 41.48 billion and annual turnover of BDT 1.03 billion, SCB in Bangladesh
Standard Chartered is highly reputable in providing flexible and innovative financial services solutions. Their expertise is in corporate and institutional banking including cash management, trade finance and custodial services, consumer banking and treasury operations. SCB adopt a proactive approach in tailoring customized packages to meet our customers' ever-changing needs. SCB apply state-of-the-art technology to automate their daily operations and electronic delivery system has been put in place to ensure that transactions are handled swiftly and efficiently. Their dedicated Customer Service Centers are staffed with experienced Cash Products Specialists to ensure that all customers are well served.
Standard Chartered fully understands the importance of time, convenience and efficiency to the success of business. They make easy the complex financial world for you and help you maximize every opportunity.
With over 140 years of experience in trade finance and an extensive international branch network, Standard Chartered is committed to help you succeed in every competitive environment. To keep pace with the customers changing needs, SCB will constantly review their comprehensive cash, trade and treasury products and services, ensuring that a full range of flexible and innovative services is always available for any kind of trade.
2.2 Standard Chartered Bank Today
Today Standard Chartered Bank is the world’s leading emerging market bank employing 30,000 people in over 500 offices in more than 50 countries in the Asia Pacific Region, South Asia, Middle East and Africa . It is the only International Bank with a presence in Afghanistan Bangladesh is under the Middle East and South Asia (MESA) region. In order to provide superior service and provide customer delight, Standard Chartered has more than 600 dedicated employees with 18 branches and 23 ATMs all over Bangladesh Bangladesh
2.3 Standard Chartered Bank’s mission
Standard Chartered Bank has a mission to be the best international bank in the Middle East, Asia and Africa by 2010.
2.4 The Organization Structure
The Standard Chartered Bank (SCB) in Bangladesh
· Business
· Support
The Business Division has the following department:
· Corporate Banking Group
· Global Markets
· Institutional Banking
· Consumer Banking
· Custodial services
The support division provides assistance to the above business activities and consists following departments:
· Operations
· Finance, Administration and Risk Management
· Information Technology Center
· Human Resource Department
· Legal and Compliance
· External affairs
· Credit
All staff members of Standard Chartered Bank recognize their responsibility to their country and the community in which they operate. They are committed to excellence in customer service, to delivering consistently superior performance and to building shareholder value. The employees’ values are based on trust,teamwork, commitment and pride of the organization.
DIAGRAM
2.5 Management
The goal of Standard Chartered Bank is to be the “Bankers of First Choice”. Towards that goal, a Management Committee (MANCOM) does the overall planning in the organization in the headquarters level in Dhaka , headed by CEO and consisting of the business heads of Corporate Banking, Consumer Banking, Treasury, and from the support division, the heads of Human Resource, Operations, Finance and Legal & compliances. They meet once a month, or when special issues arise, to plan the strategic decisions.
2.6 Performance at a Glance
2.6.1 Balance Sheet
With a total asset size of BDT 57.37 Billion and a Net Income after tax of BDT 1.95 Billion at the end of the year December 31 2003 , makes it the largest foreign bank currently operating in Bangladesh
Growth in Total Assets for the year ending 2003 was a 39.02 % as compared to the growth in total assets for the year end 2002 of 88.8 %. The growth in the year 2002 was high, as Standard Chartered Bank had taken over ANZ GRINDLAYS BANK in 2001. Before the acquisition, Standard Chartered Bank had a mere growth of 18 % in the year 2000.
2.6.2 Cash (In Hand in Bangladesh
The growth of Cash (In Hand and With Bangladesh Bank) for the year-end 2003 had increased from BDT 3.42 billion in 2002 to BDT 4.35 Billion in 2003 - an increase of 27.19 %. This is due to the increase in deposits of nearly a 100%. The same figure - Cash (In Hand and With Bangladesh Bank) had increased by 18.75 % from year 2001 to year 2002.
Standard Chartered Bank’s Investment in government treasury Bills and securities have gone up from BDT 4.63 Billion in 2002 to BDT 8.72 Billion in 2003, It was BDT 4.63 Billion in 2002. The same figure – investments in both government and other securities was BDT 2.01 Billion in 2000.
2.6.3 Loan and Advances
Loans and Advances was BDT 39.23 billion in 2003. For the year end 2002 had gone up by 87.70 % - from BDT 15.73 billion in 2001 to BDT 29.53 Billion in 2002. This is due the radical increase in deposits in the current, savings, and term deposits accounts of the bank by nearly a 100%.
2003 | 2002 | 2001 | 2000 | |
Total loan/Total deposit | 86.28% | 90.65% | 96.24% | 89.77% |
Total loan/Total asset | 68.37% | 71.20% | 71.60% | 62.19% |
ST loan / Total loan | 75.26% | 78.65% | ||
LT loan /Total loan | 24.74% | 21.35% | ||
Unclassified loans/Total loan | 96.25% | 96.09% | 95.38% | |
Doubtful loan/Total loan | 1.49% | 1.44% | 2.03% | |
Bad or loss/Total loan | 2.26% | 2.46% | 2.59% |
Source: Annual report
Table 1.0 Loans and advances
2.6.4 Premises and Fixed Assets
Premises and other Fixed Assets for the bank is BDT 451 million in 2003. It had gone up by a 23 times after the acquisition of ANZ Grindlays by Standard Chartered Bank in 2001. The growth was double between 2001 and 2002. It was BDT 383.28 million in 2002 and BDT 187.96 million in 2001.
2.6.5 Liabilities
Total liability for the year 2003 was BDT 52.79 billion. In the Liability side of the balance sheet one can say that the increase in the business size of Standard Chartered Bank in 2002 is due to the increase in its ‘Deposits’ – fixed deposits, current accounts, savings account and bills payable of a 100 %. The growth was around 60 % between 2000 and 2001
2.6.6 Total Share Holders Equity
The Total Share Holders Equity has gone up from BDT 1.37 Billion in 2001 to BDT 2.49 Billion in 2002 and it was BDT 4.58 billion in 2003. This is due to a large amount of fund transferred from the Profit and Loss Account as retained earnings. The figure was BDT 1.1 billion in 2000.
2.6.7 Income Statement
The Net Interest Income for the year 2003 was BDT 4.373 billion and it was BDT 1.65 billion in 2002. It was BDT .621 Billion in 2000 and it increased by 50 % to BDT.90 billion when Standard Chartered Bank Took over ANZ Grindlays Bank in 2001. Operating Income of the bank has also gone up from BDT 3.36 billion in 2002 to BDT 1.89 billion in 2001. If we compare the year 2002 and 2001 we can easily say that everything has doubled. Total operating expenses has nearly doubled, so has profit before provision. The Efficiency rate of the bank is as follows:
YEAR | 2003 | 2002 | 2001 | 2000 |
Efficiency Ratio | 27.81 | 30.86 | 29.93 | 28.29 |
Source: Annual report
Table 1.1 Efficiency ratios of different years
The Efficiency ration is calculated by dividing Total Operating Expenses by Total Operating Income. The lower the ratio is, the better it is as this gives a picture of whether the revenue is efficiently used or not.
2.6.8 Profitability Ratios
The two most common profitability ratios are the Return on Assets (ROA) and Return on Equity (ROE).
Source: Annual report
Table 1.3 Contingent liability/Equity of different years
3.0 Overview of shared distribution department
3.1 Consumer Banking
Superior retail banking services comprising a wide range of deposit and loan products are offered by the SCB to its individual customers. The employee of this division believes in Relationship Banking. This division constantly faces challenges and meets them by developing new products and services to fulfill the specific requirements. SCB offers 24 hour service through the wide range of ATM network all over the country as well as Internet Banking and Phone Banking through a 24 hour Call Centre.
3.2 Assets Products of Consumer Banking
Consumer asset products include:
3.2.1 Cash Line
The motto of cash line is “Have your cake and eat it too”. Cash line gives the flexibility to meet the urgent need of cash. It lets one to manage his finances the way he likes it, offering the best of both
§ Ready access to cash
§ High return on long term investment
Features:
(a) Convenient: Cash line is a secured credit facility against fixed deposits, ICB unit certificates or Sanchay Patras. One can borrow up to 90% of the security value and enjoy the benefits of readily available funds even as investment continues to earn interest.
(b) Flexible:
a. Payment can be made in monthly installments of 12, 24, 36, 48 or 60 months.
b. Interest are due on quarterly basis, principal amount can be paid back at the end of the loan period.
c. An overdraft limit of 90% of the security value will be set in current account. One will have the option of withdrawing as much money as one requires within the limit, anytime he is in need of cash. Interest will be charged on the amount he actually draws and only for the period he utilizes it.
a. One can withdraw fund from the overdraft account or make deposits to cover the loan repayments through the ATM machine – at any time of the day or night, 365 a year.
3.2.2 Flexi Loan
Flexi loan from Standard Chartered is a loan facility that has been custom designed to fit individual’s needs. It lets one enjoy a higher standard of living while providing the convenience of repaying the loan over a maximum period of 6 months. The loan amount varies between a minimum of Tk.50,000 and a maximum of Tk.5,000,000.
Requirements:
· A Bangladeshi citizen of age more than 20
· A salaried/self employed individual earning Tk.12,000 or more per month.
· Maintaining a savings or current account in SCB for at least six months or a minimum of one year with any other bank.
· A resident of Dhaka, Narayanganj, Chittagong , Sylhet, Bogra or Khulna
Features:
(a) Flexi security: Flexi loan offers the option of choosing the amount of security as collateral for the loan. The security account may range from 30% to 100% of the amount. Common types of securities required are saving certificate (Sanchay Patra), fixed deposit, and ICB unit certificate.
(b) Flexi repayment: Flexi loan allows to pay back the loan in monthly installments. The number of installments varies according to the amount of the loan.
§ Loans from Tk.50,000 to Tk.500,000 can be repaid in 12, 24, 36 monthly installments.
§ Loans from Tk.500,000 to Tk.1000,000 can be repaid in a maximum of 48 monthly installments.
§ Loans greater than Tk.1000,000 can be repaid in a maximum of 60 monthly installments.
(c) Flexi cost: If one has a borrowing relationship with SCB for at least 1 year, he will only need to offer 30% of the loan amount as cash security. If he provides more as cash security the interest rate will be correspondingly lower. In a nutshell, the applicable interest rates are:
§ 13% per annum when 100% or more secured by readily encashable securities acceptable to the bank.
§ 15% per annum when 50% to 99% or more secured by readily encashable securities acceptable to the bank.
§ 17% when 30% to 49% or more secured by readily encashable securities acceptable to the bank.
3.2.3 Personal Loan
An easy and fast loan product, that requires minimum documentation no cash security, no down payment and minimum processing time.
Features:
(a) Flexible: with minimum documentation and security requirements, the product offers the choice of loan for any of the following purposes:
§ Purchase of miscellaneous household appliances
§ Purchase of personal computers
§ Purchase of refrigerators
§ Purchase of audio-video equipment
§ Purchase of furniture
§ Purchase of office equipment
§ Hospitalization or any other emergency medical needs.
§ House renovation
§ Office renovation
§ Marriage in the family
§ Advance rent payment
§ Education training
§ Holiday expense
(b) Helpful: The loan amount may range from Tk.75,000 to Tk.1000,000 and there is no cash collateral. Only document from employer or guarantee of a reputed person is sufficient.
(c) Convenient: Monthly installments can be tailored to meet the convenience and budget. One can repay in 12 to 60 equal monthly installments depending on the loan amount.
3.2.4 Auto Loan
These kinds of loans are given to people who want to buy Brand New Cars or Reconditioned Cars. The maximum amount one can take as loan is 75% of the value of the car. To be eligible for the loan one has to be between 23 – 60 years of age, earning at least BDT 25,000 a month, a bank account statement for a year and has to be a resident of Dhaka or Chittagong
For Brand New Cars one gets a competitive interest rate, easy repayment option, and a host of other value-added banking services will be available.
For Reconditioned Cars one has to choose a car less than 4 years old from the date of manufacturing. One can get loan up to 75% and loan tenure can be extended up to 48 months.
The Rate of Interest depends on the creditworthiness of the buyers and it ranges from 13% to 16.50%.
3.2.5 Credit Card
Standard Chartered credit card comes with a winning combination of value-packed features and benefits. Some are as follows:
(a) Wide acceptance:
Standard Chartered credit card is accepted at more than 3000 outlets around the country. One can use card for everyday purchases as well as high value purchases. SCB’s wide range of merchants include hotels, restaurants, airlines and travel agencies, departmental stores, hospitals and diagnostic centers, jewelry shops, electronics and computer shops, leather goods, mobiles and internet service providers and many more. The number is increasing everyday to cater growing needs.
(b) Easy credit:
With Standard Chartered credit card, clients has the convenience to pay as little as 5% of their outstanding on credit account every month, thus having the power and flexibility to plan for the payments.
(c) Instant cash advances:
Standard Chartered credit card gives access to cash upto 50% of the credit limit. Cardholder can withdraw cash advances from all Standard Chartered ATM’s around the country, thus having access to cash 24 hours a day. Besides cash advances can also be taken from any of the branches.
(d) Safe & secure:
If a client carries a credit card he doesn’t need to carry cash. Moreover if he loses the card he will be protected from any financial charges he reports to the bank.
(e) Air accident insurance:
The Standard Chartered credit card gives free air accident insurance coverage unto Tk.100,000 (for Silver Card) and Tk.500.000 (or Gold Card). This coverage is also applicable to supplementary cardholders.
(f) Supplementary card:
Cardholder may apply for Supplementary cards for spouse, parents, and children over 18, sisters, brothers or friends. All charges incurred on the Supplementary cards will be reported on the monthly statement. For the peace of mind original cardholder can assign monthly spending limit on each Supplementary card.
Requirements:
This bank issues credit on two ways:
1. With collateral
2. Without collateral
When bank issues card against collateral it usually prefers fixed deposit or securities (Sanchay Patras). In this case the ration is 1.3:1, means if client wants Tk.10,000 as a limit, he should have at least Tk.13,000 in his account. In addition to that he has to submit his salary certificate and the salary must be at least Tk.10,000 per month for a Silver card and Tk.55,000 for a Gold card. If self employed, copy of trade license and personal/ company statement for last six months in necessary. One can also have a card without collateral. In that case he has to submit his bank statement and transaction in addition to the salary certificate. If the customer has an account at Standard Chartered 3 months is well enough but for an account of other bank 6 months transaction is necessary.
Standard Chartered Bank issues four types of credit cards:
Local Currency Credit Card:
A. Master Card:
i. Master Gold Card: Limit - Tk.100K to Tk400K. Annual fee Tk.3500.
ii. Master Platinum Card: Limit – Tk 400K to Tk 800K. Annual fee Tk 8000.
iii. Master Silver Card: Limit - Tk.10K to Tk.90K. Annual fee Tk.1750.
B. Visa Card:
i. Visa Silver Card: Limit - Tk.10K to Tk.90K. Annual fee Tk.1750.
International Credit Card:
i. Visa Gold Card: Limit USD 5,000 to USD 20,000. Annual fee USD 120
ii. Visa Classic Card: Limit USD 500 to USD 4,500. Annual fee USD 70.
3.3 Features at a Glance of Different Types of Loan
3.3.1 Cash Line
The prime features of this loan are
q Minimum Loan Amount : BDT 80,000
q Maximum Loan Amount : BDT 5,000,000
q Repayment Tenure : Minimum 12 Months and Maximum 60 Months
q Interest Rate : For Overdraft 13% with Security
: For Bullet payment (Quarterly) 11% with Security
q Minimum Age : 23 Years
3.3.2 Flexi/ Installment Loan
The prime features of this loan are
q Minimum Loan Amount : BDT 100,000
q Maximum Loan Amount : BDT 5,000,000
q Repayment Tenure : 36 Months (BDT 100,000-BDT 500,000)
: 48 Months (BDT 500,000 -BDT 1,000,00
: 60 Months (BDT 1,000,000- BDT 5,000,000)
q Interest Rate : 14% for 100% Cash Covered Security
16% for 50%-90% Cash Covered Security
18% for 30%-49% Cash Covered Security
q Monthly Income : For Salaried and Businessman BDT 12,000 (Gross)
q Minimum Age : 23 Years
3.3.3 Personal Loan
The prime features of this loan are
q Minimum Loan Amount : BDT 75,000
q Maximum Loan Amount : BDT 1,000,000
q Repayment Tenure : Minimum 12 Months and Maximum 60 Months
q Interest Rate : 18%-19.5% (No Security)
q Monthly Income : minimum BDT 12,000(Net)
q Minimum Age : 23 Years
3.3.4 Auto Loan
The prime features of this loan are
q Minimum Loan Amount : BDT 200,000
q Maximum Loan Amount : BDT 4,000,000
q Repayment Tenure : 48 Months to 60 Months
q Interest Rate : For 15% Security 14%
Without Security 16.5%
q Monthly Income : Minimum BDT 25,000(Net)
q Minimum Age : 25 Years
3.3.5 Credit Card
The prime features of this loan are
q Minimum Credit Amount : BDT 12000 [Up to BDT 99,000 Silver Card]
BDT 12000 [Up to BDT 100,000- 499,000 Gold Card]
q Maximum Loan Amount : BDT 4,99,000
q Monthly Income : Minimum BDT 12,000 (Net)
q Minimum Age : 23 Years
3.4 Secured Loan and Unsecured Loan
The assets products can be divided mainly into two parts:
1. Secured Loan
2. Unsecured Loan
3.4.1 Secured Loan
This Loan is approved for the customer through credit department of SCB against security. In the past years customer could avail a loan against Sanchay Patra. However from January ‘04 Bangladesh Bank has ceased to allow any advances against Sanchay Patra. Consequently customers are allowed to take loan against Fixed Deposit only. Cash Line, Flexi loan and Auto Loan are secured loan of Standard Chartered Bank.
3.4.2 Unsecured Loan
This Loan is approved for the customer through Credit Department without any Security based on his Monthly income and last one year bank statement. Auto Loan, Personal Loan and Credit Card are unsecured product of Consumer Banking Division.
3.5 Indication of a Defaulter and Action
When a customer fails to repay the installment amount and schedule date over for a month this tenor called ‘X’ days. After one month from schedule date 1st reminder letter issued, again after 30 days 2nd reminder letter issued, when 90 days will be over that time final letter issued to the customer. After 120 days and between 149 days the loan facility canceled by the collection department. Then on that specific borrower will be deemed as a defaulter. If the loan is secured then the collection units liquidate the security to recover the loan
If this loan is unsecured then the Collection Unit does the followings to recover the loan
· The letter issued same as secured Loan
· Then the department called the guarantor
· If the person is salaried then the collection department called the employer.
· Then the department bounce PDC/UDC
· Last of all they issued Lawyers Letter.
4.0 Delinquency level of secured and unsecured loan
4.1 Secured Loan & Unsecured Loan
DIAGRAM
The graph clearly evidences that the default rate (on principal) is higher for unsecured loan throughout the year 2003. During October 2004, SCB’s SL and USL default rate were pretty similar. The default rate of SL was minimum (roughly 4%) in January 2003 and maximum (roughly 6%) in October 2003. For USL the default rate was much higher ranging from 5%-7% but the default rate was minimum June 2003. The default rate on an average is much high under both asset item.
DIAGRAM
The recovery rate of SL is higher. This is understandable because the borrowers will not afford to loose his/her collateral should he/she defaults.
DIAGRAM
The percentage of defaulters for USL except for the February 2003 is also higher in comparison to that of SL. This percentage attains its minimum at the end of the year. Still percentage of defaulters for SL has shrunk more than that of USL.
DIAGRAM
The recovery rate has been very fluctuating. Default rate also shows up-down pattern and reaches its high during October 2003. On an average default arte ranges between 2.00%-2.5% and recovery rate ranges from 4%-6%
DIAGRAM
The default rate and recovery rate both remains static over the period. The default rate of SL ranges from 9%-10% whereas the recovery rate of USL ranges from 1%-2% which is also low as compared to that of SL.
5.0 Product wise delinquency level
DIAGRAMS
6.0 Findings
A. Comparison of default and recovery rate
Secured Loan (%) | Unsecured Loan (%) | |
Default Rate | 1.1 | 6 |
Recovery Rate | 3 | 2 |
* All the values are the average of 12 months
Table1.4 Comparison of DR and RR
The default rate is lower and recovery rate is higher in secured loan category. On the other hand, the default rate is higher and recovery rate is lower in unsecured loan category.
B. Product rank wise comparison of default and recovery Rate
Default Rate on Principal (%) | Recovery Rate (%) | Rank (as per Risk of Default) | |
Credit Card | 4.5 | 2.5 | 5 |
Installment Loan | 4.36 | 1.36 | 4 |
Personal Loan | 3.47 | 1.29 | 3 |
Cash Line | .42 | 4.36 | 2 |
Auto Loan | .096 | 23.28 | 1 |
* All the values are the average of 12 months
Table1.5 Rank wise products risk of default
The cash line and auto loan are the least risky and installment loan, personal loan and credit card are the riskiest products.
C. Product wise comparison of different types of consumers
Defaulters (%) | |||
Salaried (%) | Businessman (%) | All (%) | |
Credit Card | 12.34 | 6.73 | 9.36 |
Personal Loan | 7.89 | 7.29 | 6.37 |
Installment Loan | 6.96 | 1.96 | 2.89 |
Cash Line | 3.87 | 2.01 | 2.36 |
Auto Loan | .031 | .015 | .021 |
Table1.6 Percentage of different level of defaulters
Salaried persons are extremely liable to default in comparison to businessmen. Salaried persons in Government / semi autonomous / autonomous organizations are observed to be riskier than those working for private organizations.
· Debt burden ratio, monthly income level and age are good predictors of default ratio but are not backed by statistical significance. The age and collateral value does not have expected relationship with the default ratio and the result was also statistically insignificant. So it can be inferred that the default pattern of can not be explained by the age, debt burden ratio, loan amount sanctioned, collateral value and monthly income.
· The people, due to socio culture, have tendency to default even though they are capable of repaying the loan.
· In Calculating the Debt Burden ratio monthly expenses and other debt/ fixed obligations are not incorporated precisely. All the income generating asset and the liabilities are not taken into account.
· Not all customers willingly default, there are some borrowers who want to repay the loan, but due to difficulties they surrender to default.
· Some borrowers take out loan in the name of consumer loan, but use it for other purpose or employ it for business return.
6.1 Recommendations
This part will supply recommendations which SCB should adopt in order to reduce its default rate, ameliorate the recovery rate and, hence, improve the performance of the loans.
· Borrower’s reputations, good payment behavior to other financial (non financial) institutions should be weighted to waive the minimum collateral requirement.
· For risky customers such as service holders and businessman of low income and high debt burden ratio can be charged extra credit risk premium of 1 %-1.5%
· In most of the cases especially for low income service holder who cannot repay the loan if the dues mount up although they are not willing to default. In that case the SCB can enact debt rescheduling provision through altering tenure of repayment, grace period and waving extra charges from default. But if the borrower is willingly delinquent then this provision will not apply in that case.
· The SCB’s calculation procedure of debt burden ratio should be clarified and must incorporate all monthly expenses of the borrower.
· A centralized follow up collection team should be formed to review the payment behavior of the borrower and take quick actions to recover the default principal and/or initiate the debt rescheduling negotiations.
· SCB default should not rely much on age, monthly income, and sanction able loan amount while assessing the consumer loan applicant because the default behavior of the borrower can not be explained by these. But debt burden ratio explains the default ratio to a large extent.
6.2 Conclusion
A decade ago consumer banking was restricted in Bangladesh Bangladesh Bangladesh
SCB experiences a considerable default rates in the consumer products. Strict scrutiny about the applicant, the provision of rescheduling should the customer default and altering the terms and condition will mitigate the default arte. On the other hand the service holders are riskier in comparison to the businessman. So care should be taken in this relation.
Bibliography
Saunders Anthony, Management of Financial Institutions, 2nd edition, Irwin/McGraw Hill
Publications, New York
Donald R. Fraser, Benton E. Gup , James W. Kolari, Commercial Banking- Management
of Risk, Irwin/McGrawHill, New York
Gupta S.P. and Gupta M.P, Business Statistics, Sultan Chand & Sons Delhi
Web Page
www.standardchartered.com
www.standardchartered.com/bd
REFERENCES
· Saunders Anthony, Management of Financial Institutions, 2nd edition, Irwin/McGraw Hill Publications, New York
· Donald R. Fraser, Benton E. Gup , James W. Kolari, Commercial Banking- Management of Risk, Irwin/McGrawHill, New York
· Gupta S.P. and Gupta M.P, Business Statistics, Sultan Chand & Sons Delhi
YEAR | 2003 | 2002 | 2001 | 2000 |
ROE | 42.62% | 40.74 % | 46.77 % | 42.20 % |
ROA | 03.40% | 02.44 % | 02.88 % | 03.19 % |
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