Non-performing loan factor analysis of Southeast Bank Limited

Abstract

The Internship report has been prepared on “Non-performing loans of Southeast Bank Ltd.” based on secondary data and information. The information has been collected from different sources, such as the annual reports, various websites like Dhaka Tribune, Financial Express and different journals. Nonperforming loans is common phenomena for banking industry in Bangladesh. A Non-performing loan is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 90 days, but this can depend on the contract terms. NPLs started at the early stage of liberation. During 1980s and 1990s, Privatization and liberalization of banking sector could not control NPLs. Rate of NPLs was 41.1% in 1999. Now it is 11.90%.The amount of NPLs increased to taka 73.3 billion in 2012 from taka 47.3 billion in 2003.There are many reasons behind the NPLs in Bangladesh. First reason is entrepreneurs related. Borrower need experience, need trade and organization training background or need of supporting office. At some point borrowers do it intentionally. Business people age too is a vital factor. There are certain other reasons behind this. Secondly strong competition from other firms in the same industry leads to a loan default situation. If the management system of the firm is poor, than it’s hard to manage the cash flow and loan repayments. Then comes poor financial performance, along with it comes poor cash flow which leads to a loan being a default. Business could be defaulter because of low market share. Low market share mean low revenue so that business cannot pay the interest payment. Third reason is leading related. It is mainly Bank’s fault. Loan could be default if Bank delayed assessment of loan proposal, delayed disbursement of fund, lack of proper monitoring, lack of taking proper action. Last reason is macroeconomic factors. Low GDP growth, increasing crimes, hartals and frequent policy change effect loan. For those reasons loans become default loan. Effects of NPL are such as Stopping Money Cycling, Earning Reduction, Capital Erosion, Increase in Loan Pricing, Frustration etc. As a result, the values of security are increased and the risks of financial recession also see a rise. There may be more private financial institution in Bangladesh and that is why opposition is very high. So it will become a assignment for SEBL to retain its existing clients .there's a desire that, SEBL is usually very conscious about its consumer banking and always try and make trade with time need to modernize its products and services.