Reasons for bad debt & how to minimise bad debt

1. Debt Recovery Techniques
Issues, Problems & Prospects of
BASIC Bank LTD (Shantinagar
Branch)

2. Debt Recovery Techniques Issues,
Problems & Prospects of
BASIC Bank LTD (Shantinagar Branch)
Supervised by
Md. Abdullah Al Mahmud
Senior Lecturer
Presented By:
Humayra Sahrin Trina
ID# 1129BBA01681
Major: Finance & Banking
Manarat International University

3. EXECUTIVE SUMMARY
Bank customers expect their bankers to provide them with loan and
advances to make up the short fall in their required find. The ability of
the bank to maintain profitability depends largely on the extent to
which the credit policy and debt recovery techniques are maintained.
The purpose of this research was to investigate the causes of non-
performing loans in BASIC Bank LTD (Shantinagar Br.). The research
questions used to guide the research included:
 What are the causes of non- performing loans in BASIC Bank LTD
(Shantinagar Br.)?
 What specific steps have bank managers taken to deal with the
problem of nonperforming loans’?
 What is the level of success of the actions taken?
This is an explanatory research that adopted the survey research
design. Data was collected with the help of a questionnaire sent to 10
bank officers & 5 bank clients. Secondary sources information include
the use of existing literary coupled with use of some journals and other
unpublished manuals were seen to be useful for this work.
 Chapter one highlights one the statement of the researches problem,
definition of some important terms used for the study, scope, limitation.
 Chapter two dealt with relate iterative.
 In the later part it focuses on conceptual and theorelocal bed rock
upon which bank recovery techniques is built .

4. Executive Summary (Continue…)
 After theoretical discussion next chapter dealt on data collection which
includes questionnaire analysis, personal interview, analysis as well as
testing hypothesis based on response to the questionnaire & also the
findings.
 Last chapter is conclusion and recommendation of the researcher.
 Recommendations of this study are that loan officials must grant loans
basing their appraisal on loan analysis principles, using their
discernment as well as experience to verify debtor credibility i.e., debt
repayment ability, capital management and collateral suitability. More
importantly, loan officials should strictly monitor and control how the
loan is used in order to be able to promptly handle arising problems.
The study found that the actions had proved useful in minimizing bad
loans in the bank surveyed as reported by the credit managers. In
addition, banks should continue to invest in the training of loans officials
since most of the respondents confirmed that it was a new trend.
 The findings of this study will help the management in BASIC Bank LTD
(Shantinagar Br.) to improve their management of non-performing
loans.

5. Objectives of the Study
General Objective:
The major objective of this study is to determine
the major causes of bad and doubtful debts of
BASIC Bank.
 Specific objectives:
i . To investigate the causes of bad and doubtful
debts in BASIC Bank LTD.
ii. To examine the effects of bad and doubtful
debts in banks profitability, investors, the public
and the economy

6. Scope of the
Study
 Different kinds of credit
facilities extended by BASIC
Bank Limited
 General procedures for
getting those credit facilities
 What kinds of standard
documents are required for
getting those credit facilities?
 How different kinds of projects
are appraised and financed at
BASIC Bank Limited
 Present scenario of recovery
rate and classified loan of
BASIC Bank Limited.
Limitations:
 Sufficient records,
publications were not
available as per my
requirement.
 Time constraint.
 Lack of opportunity to work in
all the departments for a
longer time.
 Up to date data are not
available.
 Lack of opportunity to visit
more than one branch.
 Lack of opportunity to survey
on wide number of clients.

7. METHODOLOGY
 Data Source
 Primary Data:
Structured
questionnaires,
Open-ended and
closed ended
questions.
 Secondary Data
Reports,
Journals,
Credit procedure
manuals,
Offer letters,
Financial statements of
BASIC Bank Ltd.
 Data Collection
Instruments
• Questionnaire
• Face to face conversation
• Observing
 Data Analysis
• Mean
• Hypothesis
• Bar Chart
• Pie chart
• Frequency Table
• Independent sample t test

8. BASIC Bank at a glance
Particulars Detail
Name BASIC Bank Limited
Date of Incorporation August 2,1988
Date of Inauguration of Operation January 21,1989
Head Office Sena Kalyan Bhaban
195 Motijheel C/A
Dhaka-1000
Name of Chairman Mr. Alauddin A. Majid
Name of Managing Director Mr. Khandakar Md. Iqbal
Number of Branches 45
Paid up Capital 2946.98 million
Reserve & Surplus 3092.20 million
Ownership Government of Bangladesh
Service Provided Deposit Scheme, Credit Facility, Foreign
Exchange Services

9. ANALYSIS
Demographic Data
(Staffs)
 Name
 Gender
 Age
 Educational Status
 Number of years in Credit
Department
 The bank’s interest rate
 Time duration to access credit
 Types of loan(secured &
Unsecured)
 Distance of mortgage
 Percentage of loan of the value of
the property
 Use the other means to recover
the loan
Demographic Data
(Clients)
• Name
• Gender
• Age
• Educational Status
• Bank often monitors the
loan
• Customers prefer to repay
their loan
• Reports are generated to
monitor the loan
performance
• Credit customer often
services their loan regularly

10. FACTORS OF BAD DEBT (STAFF)
Lack of well trained lending personnel
Positive relationship between high interest rate and bad debt
0
1
2
3
4
5
6
7
8
9
10
Lax
Procedures
used for credit
risk
Lack of
aggressive
credit collection
methods
The speedy
consideration
in granting
process
Insider Lending
& Owner
Concentration
Factors of Bad Debt
SA
Ag
N
DA
SDA

11. FACTORS OF BAD DEBT (CLIENT)
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
New
businesses
experience
Simultaneous
operation of
too many
kinds of
business
Inappropriate
use of the loan
Debtors
conceal some
of the true
data
The provision
of poorly
valued
collateral
Factors of Bad Debt
Strongly Agree Agree Neutral Disagree Strongly Disagree

12. Level of Success
Bank Staff
 Reduction of Interest
 Projects for
management of
problem loans, or
intensive care units and
detailing scope, skill,
resources and
efficiency.
 The contents of loan
files, the use of its
information to mentor
the quality of loan is
clear
Clients
 Increased use of
information sharing
 Effort to develop a
teamwork relationship
with your unit
 Specific lending
procedures and
techniques
 Overall performance of
the credit department
 Standard loan process
form the client’s initial
enquiry efforts to the
final lending decision

13. Hypothesis t-test
 Lax Procedures used for credit
risk assessment
 Lack of aggressive credit
collection methods
 Speedy consideration in
granting process
 Insider Lending & Owner
Concentration
 Lack of well trained lending
personnel
 positive relationship between
high interest rate and
 Reduction of Interest
 Projects for management of
problem loans
 Use of its information to
mentor the quality of loan is
clear.
 New business experience
 Simultaneous operation of
too many kinds of business
 Inappropriate use of the
loan
 Debtors conceal some of
the true data
 Provision of poorly valued
collateral
 Develop a teamwork
relationship with your unit
 Standard loan process
 Specific lending procedures
and techniques
 Overall performance of the
credit department
 Increased use of information
sharing

14. FINDINGS
 The national economic downturn which leading to
depression for business in general; reduced buying
ability of consumers;
 Insider lending and owner concentration;
 New business experience
 Simultaneous operation of too many kinds of
business
 Inadequate procedures for credit risk assessment
and credit management;
 Misuse of the loan;
 Legal delays.

15. RECOMMENDATION
 To manipulate its strengths like low-cost leadership,
skilled human resource, low rate of classified loan and
unique products by minimizing and addressing its
weaknesses like traditional products and services and
weak IT infrastructure.
 Loan officials must carefully grant loans by basing their
consideration on loan analysis principles, using their
discernment as well as experience to verify debtor
credibility;.
 More importantly, loan officials should strictly and
regularly monitor how the loan is used in order to be able
to promptly handle arising problems.
This will ensure that loan losses are kept at a minimum
via a programmed which permits constant supervision on
the projects being financed, easy identification of
delinquent loans and instituting effective corrective
measures.