Loan Classification, Provisioning and Debt Default Trend in Mercantile Bank Limited

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1.1 Preface

Now a day present world especially the Asian countries are going through an economic recession. Though the Asian economic crisis began few years back and it is some how tackled today but the 11 September incident aggravated the disorder in the economic infrastructure of our country. Our economy is much dependent on foreign aids. The World Trade Centre incident created a negative impact on our economy as the foreign aids to Bangladesh have been reduced a lot. Therefore the government is trying to deal the economic crisis by generating revenue internally. In this aspect the importance of the financial sector, particularly banking sector is emphasized. But the banking sector of our country is already overburdened with huge amount of classified loans. Government tries to improve the situation by new regulations and policies to regularize the debts. Newly established private banks are doing well in the banking sector as they don’t have to bear the pressure of classified loans. Also the challenge and competition between the banks has brought a radical change in banking system.

1.2Origin of the Report

MBL is operating in the banking sector for last three years. Like all other scheduled banks of the country MBL also contribute to the national economy by offering credits to different segments of the economy. Now a day loan classification has become a burning problem for the overall financial sector. All the big nationalized and other private scheduled banks have to bear the load of huge amount of classified loan. Being a new entrant in the banking sector MBL is not out of the risk of having stuck up by the trend of overwhelming classified loan.

In this turmoil economic scenario management of MBL feels the necessity to analyze the trend of loan classification in the MBL itself. Keeping this consideration in mind the topic “Loan Classification, Provisioning and Debt default trend in MBL” was assigned by management of MBL.

1.3Background of the Study

Military Institute of Science and Technology (MIST) conducts MBA program. This institution is affiliated with Dhaka University. Its course curriculum is in line with the Institute of Business Administration of Dhaka University. Selected students from the Armed Forces and general people acquire business knowledge to face the real world of business. As a part of course curriculum students are sent to various organizations under the internship program for practical orientation with the organization. The MBA students acquire practical knowledge in the particular field that the organization operates and relates the same with the theories they learned in the class room.

1.4 Objectives of the Study
The objectives of the study are as follows:

1.4.1 Broad Objective

To obtain practical knowledge about functions and activities of various departments at branch level of MBL with special emphasis in loan classification and reservation of provisions.

1.4.2 Specific Objective

The specific objectives are as follows:

General banking activities
Procedures for opening a current account, savings account and other accounts including issuance of cheque and deposit receipt Cancellation of cheque, return of cheque, crossing of cheque and stop payment of cheque Procedures for cash receive and cash payments

Preparation of daily account and posting of transferred amount Clearing house procedure including collection of cheque
Issuance of DD, MT, TT, PO and SDR including cancellation of the same Lodgment of OBC and IBC
Types of loans and deposit schemes
Procedures for advances
Preparation of different types of proposals for advance
Documentation required for loan sanctioning
Preparation of Loan Classification
Procedure of reservation provisions


The study covers the concept of loan...
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