Internship Report

An Internship Paper on
Assessing Loan Portfolio Quality

Of
Five Commercial Banks of Bangladesh
Submitted to
Department of Banking and Insurance
Supervised by:
Md. Jahir Uddin Palas
Associate Professor
University of Dhaka
Submitted By:
Ashak Ahmed
BBA 25th Batch
ID: 25-005
University of Dhaka
Date of Submission: 20th December 2023

Letter of Transmittal
Date: January 5, 2023

Associate Professor
Faculty of Business Studies
University of Dhaka
Subject: Submission of Internship Report
Dear Sir
I have great honor in presenting my paper, "On Assessing Loan Portfolio Quality of
five Commercial Banks of Bangladesh." It gives me great pleasure to have been able
to thoroughly examine five Bangladeshi commercial banks for this research. I have
devoted a great deal of time and energy to writing this paper, and I am appreciative of
your supervision and advice over the whole process. I appreciate your important help
in making this research a reality.
I tried to give my best for preparation of this paper. Yet, if any shortcomings arise, I
hope you will consider that.
Yours faithfully
…………………….
Ashak Ahmed
Id: 25-005
University of Dhaka
I
II
Acknowledgement
I am very grateful to the Almighty Allah, the most generous and bountiful of all
providers of all living beings and their deeds. All of the people that helped me along
the way when I was writing my thesis paper have my deepest gratitude.
I would want to use this opportunity to express my sincere gratitude to my wonderful

mentor, Md. Jahir Uddin Palas, an associate professor in the University of Dhaka's
Department of Banking and Insurance. His steadfast monitoring and assistance were
crucial in helping me overcome the many obstacles I had while writing this thesis
report. I am extremely appreciative and respectful of him for his careful attention to
detail, steady counsel, and inspiring presence during the entirety of my thesis study.
Finally, I would like to express my gratitude to all of the scholars and authors whose
thorough research articles have added so much to my knowledge and have given me a
lot of essential information for this thesis.
III
Student Declaration
I, Ashak Ahmed, a student in the University of Dhaka's Bachelor of Business

Administration program in the Department of Banking and Insurance, hereby declare
that I wrote the entire paper I am submitting, "Assessing Loan Portfolio Quality of
Five Commercial Banks of Bangladesh," with the assistance of my supervisor, Md.
Jahir Uddin Palas, an associate professor in the Department of Banking and Insurance.
……………………………………………….
Name: Ashak Ahmed
Id: 25-005
University of Dhaka
E-Mail: [email protected]
IV
Supervisor’s Certificate
This is to certify that Ashak Ahmed, ID: 25-005, BBA Program, Department of
Banking & Insurance, University of Dhaka has done this report on “Assessing Loan
Portfolio Quality of Five Commercial Banks of Bangladesh” for the purpose of
completing BBA Internship program. I accept this report as a final internship report.
I wish every success and prosperity of his career and life.
……………………………..
Associate Professor
University of Dhaka
V
Executive Summary
This extensive thesis focuses on the management of non-performing loans (NPLs) and
the evaluation of the quality of the loan portfolio, specifically investigating the
approaches used by five commercial banks. The context, objective, aims, questions,
and limitations of the study are presented in the first chapter, which lays a solid
foundation. This prepares the reader for the next few chapters.
The second chapter summarizes the present status of the area and conducts a critical
analysis of the literature on loan portfolio quality and non-performing loans. The gaps,
contradictions, and theories found in this review of the literature offer a platform for
further investigation and improve reader understanding.
The research methods are covered in full in Chapter 3, including the data sources and
procedures used. By clearly describing the study process, this guarantees
methodological rigor and supports further analyses and interpretations.
The complicated dynamics of loan portfolio concentration are theoretically

investigated in the fourth chapter, which provides a comprehensive knowledge
through qualitative and quantitative evaluations. In addition, it examines how NPLs
are now doing, offering a theoretical framework for the empirical research in the
chapters that follow.
The results of multiple regression analysis and calculated ratios are presented in the
fifth chapter, which provides nuanced interpretations for a thorough grasp of the goals
and implications of the research. This quantitative analysis sheds light on prevailing
trends.
Based on the findings of the analysis, chapters six and seven offer recommendations
and make conclusions. The results are analyzed, and suggestions are provided for
future strategies to lower NPLs, such as enhancing risk insights by modifying loan
assessment techniques. The main conclusions are outlined in the conclusion, which
also highlights the variables that influence non-performing loans (NPLs), the
importance of loan portfolio assessment in reducing risk, the implications for the
economy, and the banking industry's future.
Essentially, this thesis offers a comprehensive investigation of NPL management and

loan portfolio evaluation, offering insightful information for future risk mitigation and
banking sector initiatives.
VI
Table of Content
Chapter 1: Introduction .................................................................................................. 1
1.1 Background ....................................................................................................... 2
1.2 Research Aim .................................................................................................... 3
1.3 Objective of the Study ....................................................................................... 3
1.4 Limitation of the Study ..................................................................................... 3
Chapter 2: Literature Review ......................................................................................... 5
Chapter 3: Methodology .............................................................................................. 11
3.1 Research Type ................................................................................................. 12
3.2 Data Type and Sample Selection Procedure ................................................... 12
3.3 Data Analysis Tools ........................................................................................ 12
3.3.1 Analytical Statistical Instruments .......................................................... 12
3.3.2 Variables ................................................................................................ 12
Chapter 4: Theoretical Framework .............................................................................. 13
4.1 Composition of the Bank's loan Portfolio ....................................................... 14
4.1.1 Sector-wise Portfolio Concentration ..................................................... 14
4.1.2 Geographical Portfolio Concentration .................................................. 15
4.2 Assessing Loan portfolio quality..................................................................... 16
4.2.1 Qualitative Methods for Assessing Credit Risk. ................................... 16
4.2.2 Quantitative Method for Assessing Credit Risk. ................................... 17
4.3 Theoretical Framework of NPL ...................................................................... 20
4.3.1 NPL Situation in Bangladesh's Banking Sector .................................... 20
4.3.2 Framework of NPL ................................................................................ 21
4.3.3 Loan Review Process............................................................................. 22
4.3.4 Loan Workout Process........................................................................... 23
4.3.5 Sector Wise NPL ................................................................................... 24
4.3.6 Consequences of Non-performing Loan................................................ 25
Chapter 5: Data Analysis and Discussion .................................................................... 26
5.1 Descriptive Statistics Analysis ........................................................................ 27
5.2 Multiple Regression Analysis ......................................................................... 28
5.3 Trend Analysis ................................................................................................ 38
5.3.1 NPL to Equity Ratio .............................................................................. 38
5.3.2 Non-Performing Loan (NIM) Ratio ...................................................... 39
5.3.3 Loan Loss Reserve Ratio ....................................................................... 40
VII
5.3.4 Coverage Ratio ...................................................................................... 41
5.3.5 Net Charge-Off (NCO) Ratio ................................................................ 42
5.3.6 Delinquency Ratio ................................................................................. 43
5.3.7 Risk-Weighted Assets (RWA) Ratio ..................................................... 44
5.3.8 Loan Concentration Ratio......................................................................45
Chapter 6: Findings, Recommendations and Conclusion........... ................................. 46
6.1 Findings ........................................................................................................... 47
6.2 Recommendations ........................................................................................... 48
6.3 Conclusion....................................................................................................... 50
References .................................................................................................................... 51
Appendices ................................................................................................................... 53
VIII
List of Abbreviations
APA= Annual Performance Agreement
BRPD= Banking Regulations & Policy Department
BB= Bangladesh Bank
CEO= Chief Executive Officer
FCBs= Foreign Commercial Banks
GDP= Gross Domestic Product
ICMAB= Institute of Cost and Management Accountants of Bangladesh
ICRRS = The Internal Credit Risk Rating System
NPA= Non-Performing Assets
NPL= Non-Performing Liabilities
NRBs= Non Residence Bangladesh
PCBs=Private Commercial Banks
ROCE= Return On Capital Employed
ROA= Return On Assets
ROE= Return On Equity
SBs= Specialized Banks
SCBs= State Owned Commercial Bank
IX
Chapter 1: Introduction
1
1.1 Background
Evaluating the performance and health of a bank's loans is known as "assessment of

loan portfolio quality," with an emphasis on elements including credit risk,
diversification, and asset quality. Since non-performing loans (NPLs) have an
immediate effect on the portfolio's quality, they are an essential part of this evaluation.
Non-performing loans (NPLs) are loans for which the borrower has not made any
payments for a predetermined amount of time, usually more than 90 days. Because of
the increased chance of default, these loans are viewed as hazardous assets.
The economy of Bangladesh is gravely concerned about the rising amount of

categorized and non-performing loans in our nation. In December of the previous year,
the classified loan rate was 8.16% (120,656 billion Taka) as of March 2023, it was 8.80%
with a total value of 131,620.8 billion Taka. This concerning increase in classified
loans is a sign that the quality of loans in the banking industry is declining.
Commercial banks that are international, privately held, and state-owned are all
struggling with substantial loads of classified loans. TK 579.58 billion, or 19.87% of
the total loans made by state-owned banks, are classified loans. The amount of
classified loans held by private commercial banks is TK 658.89 billion, or 5.96% of
their overall loan portfolio. In contrast, foreign commercial banks have TK 47.32
billion in classified loans, or 12.80% of their total loan portfolio. The data highlights
how pervasive the problem is.
Furthermore, by the end of December 2022, non-performing loans (NPLs) had
increased to TK 1,20,656 crore from TK 1,03,273 crore at the same time in 2021 and
TK 88,734 crore in December 2020. These NPLs, which total TK 1,06,982 crore, are
mostly made up of bad loans that the central bank has been unable to collect. This
indicates deficiencies in corporate governance and regulations, in addition to financial
hazards to banks.
The lack of robust corporate governance systems in banks and regulatory monitoring
are the main causes of this increase in non-performing loans. It is clear that banks
cannot bear the entire weight of tackling this problem on their own. There is an
immediate need for a comprehensive action plan that includes all relevant parties,
including the government and central bank. In addition to this proposal, the current
2
legal system should be strengthened and additional specialized courts might be
established to handle the resolution of non-performing loans.
Protecting the stability and well-being of Bangladesh's banking industry and,
consequently, the country's economy as a whole depends on resolving this issue.
Restoring trust in the financial system and addressing the issues raised by the growing
amount of non-performing loans require prompt and concerted actions from all
stakeholders.
1.2 Research Aim

The overarching aim of this study is to assess the loan quality and the impact of non-
performing loans within the banking industry of Bangladesh. This research delves into
the influence of various economic factors on banking asset quality and the prevalence
of non-performing loans. To accomplish this objective, data spanning from 2013 to
2022 will be collected from secondary sources, focusing on the financial statements of
five prominent commercial banks in Bangladesh. These banks are United Commercial
Bank PLC, Eastern Bank PLC, Bank Asia Limited, Dutch-Bangla Bank, and BRAC
Bank PLC. By examining these specific institutions, the research aims to provide
valuable insights into the dynamics of the country's banking sector.
1.3 Objective of the Study

The primary aim of this research paper is to evaluate the quality of loan portfolios in
five commercial banks within the context of Bangladesh. Additionally, the study seeks
to identify and analyze the factors that contribute to the presence of Non-Performing
Loans (NPLs) in these banks.
1.4 Limitation of the Study

This dissertation, like any research project, has its inherent limitations. The study
primarily depended on secondary data sources, which means that the researcher relied
on the accuracy and reliability of the data. There is always a possibility of data
manipulation or exaggeration, which can introduce biases into the findings.
Furthermore, it's important to acknowledge that the scope of this study was limited to
the five most prominent commercial banks in Bangladesh. This, in itself, does not
3
represent the entire banking population in the country and can introduce inherent
limitations to the generalization of the results.
In addition to these primary limitations, the study faced additional constraints due to
the restricted size of the data-set. These limitations should be kept in mind when
interpreting the results and it is advisable to exercise caution in drawing sweeping
conclusions based on this research.
4
Chapter 2: Literature Review
5
Banks and other financial institutions must periodically evaluate the state of their loan
portfolios in order to reduce risk and maintain a stable financial position. It is
imperative to have effective techniques for recognizing, tracking, and resolving non-
performing loans (NPLs), as these debts pose a severe danger to the stability of these
institutions.
To assess the quality of a loan portfolio, several factors must be looked at, such as
credit risk, asset quality, diversification, and underwriting standards. By proactively
identifying problematic loans, implementing corrective actions, and incorporating NPL
management into this evaluation, institutions can avoid losses. This cooperation is
necessary to preserve regulatory compliance, optimize lending practices, safeguard the
financial stability of banks, and safeguard the economy as a whole. The effectiveness of
this integration depends on data analytics, risk management practices, and proactive
decision-making since they give financial firms a solid platform for success in the
dynamic world of finance.
Chirinko and Guill (1991) performed one of the first empirical attempts to forecast the
credit risk associated with loan portfolios. Many quantitative models have been created
recently to evaluate loan portfolio loss distributions. Through their methodology, they
have tried to find out about the health of the loans.
A linear regression model of econometric technique was utilized by Akter and Roy
(2017) in their research to determine the non-performing loan (NPL) time-series
condition, including its growth, provisions, and relationship to bank profitability. The
results of the experiment show how high the non-performing loan (NPL) percentage is
for banks that are traded on the Dhaka Stock Exchange (DSE). More precisely, of the
30 banks listed in the DSE, they held about half of the total non-performing loans
(NPLs) between 2008 and 2013. It has a statistically significant negative influence on
listed banks' net profit margins (NPM) during the course of the study, making it one of
the key factors determining banks' profitability.
Joseph (2014) used statistical methods to investigate the percentage of non-performing

loans at Indian public and commercial banks. The study's conclusions indicate that non-
performing assets provide the banking industry with ongoing difficulties. Banks need to
regularly review their holdings in order to prevent the NPA ratio from rising. For banks
to succeed today, non-performing assets must be handled effectively and bound at a
resistance level. You can use the Early Warning Signals technique to help you spot the
6
first indications of loan erosion in your account. They intend to convince banks to take
preventative action in order to avert these issues by giving them earlier notice. He has
suggested several strategies that have worked well in an attempt to lower the number of
NPAs.
Evaluation and Credit Tracking: A bank's interests are at risk if its service point
employees lack the necessary training to carry out a policy that is clearly outlined for
managing its loan portfolio. This is because the employees will not be able to strictly
abide by the terms and conditions that were initially agreed upon when the loans were
made. The credit evaluation is carried out by branch officials, who have an obligation
to carry out the process impartially and in compliance with the explicit guidelines
specified for the loan portfolio. Every loan account needs to be routinely reviewed and
modified as necessary. Borrowers should have regular contracts with banks, and
management should be able to regularly assess the borrowers' financial situation.
Verifying that the management is capable of evaluating the market is also crucial.
Attending additional workshops and seminars could be beneficial for bankers and
financial advisors.
Boahene, Dasah, and Agyei (2012) conducted an additional investigation on six

commercial banks in Ghana over a five-year period from 2005 to 2009. In that study,
the dependent variable was the return on equity. The proportion of net total loans and
advances, the non-performing loan rate (NPLR), and the net charge-off rate (NCOTL)
were used to determine the credit risk, which was the independent variable. Among the
several control parameters were the bank's size, growth, and debt ratios. A fixed effect
model was utilized to determine the effect of the explanatory variable. Additionally, the
outcomes differed from the traditional research on the same topic.Profitability was
found to have a positive correlation with non-performing loans. During that particular
time frame, Ghana's banking industry was expanding and bank profitability was rising
as well.
Shingjergji (2013) made an effort to shed light on the relationship between non-
performing loans and several other banking variables in the Albanian banking industry
between 2002 and 2012. A variety of banking variables were considered as the
independent variables in this study, with the non-performing loan acting as the
dependent variable. These variables included the capital adequacy ratio, loan to asset
ratio, return on equity, natural log of the total loan, and natural log of the net interest
7
margin. Regression study revealed that there were very little negative correlations
between NPL and the loan-to-asset ratio (CAR) and NPL. On the other hand, the total
loan amount had a positive effect on the NPL. Thus, bank non-performing loans (NPLs)
will increase in tandem with lending levels. NIM and ROE are negatively correlated
with the NPL. Thus, when the NPL increased, the bank's profitability dropped.
In an analytical study, Lata (2015) looks into the important relationship that exists
between the profitability of Bangladesh's SCBs and non-performing loans (NPLs). She
added that it was necessary to create appropriate guidelines for all scheduled banks that
operate in our nation with regard to lending, credit, interest rate adjustments, risk
management, etc. The authorities should take all necessary and emergency measures as
quickly as possible to guarantee a stable environment for Bangladesh's banking sector.
There are several reasons why the debt is not being repaid. However, financial
diversion, political uncertainty, aggressive banking, a downturn in the real estate sector,
a lack of control, and a lack of coordination among related parties have all contributed
to the worsening of non-performing loans in recent times. Strict implementation of
existing regulations, regular and intensive monitoring, and collaboration among
connected parties can all help reduce non-performing loans (NPLs). Bangladesh Bank
must play a significant role in these affairs. Commercial banks should ensure
transparency in the credit-granting process, while Bangladesh Bank should ensure that
the application of credit sanctioning norms is being followed before awarding a new
loan. To lower NPLs, appropriate debt collection measures should be put in place, and
any new investments must be secure. A sizable amount of NPLs have the potential to
reduce banks' revenue and possibly even deplete their capital if they are not paid. Alam,
Haq, and Kader (2015) suggest that this could result in a man-made disaster in the
banking industry.
According to Hossain (2018), non-performing loans have become more apparent in

Bangladesh in recent times. A lack of solid governance, structural weakness, and a lack
of political will are the main reasons behind the demise of the bank industry. There
might be another reason for the tiny economy's move to the bank. The country's bank
industry will reduce the impact of family banking customs and immediately enhance
the ability of the central bank to counter this.
According to Roman and Tomuleasa's (2013) investigation, non-performing loans
negatively impacted the profitability of the banking industry. They conducted this
8
analysis in EU countries from 2003 to 2011, taking into account both external and
internal influences.
Karim et al. (2010) conducted further investigations about non-performing loans and
bank efficiency within the banking industry of Malaysia. He found that the bank's
efficiency was significantly reduced when the proportion of non-performing loans
increased. It would ultimately result in lower bank profits as well.
According to Azeez and Ekanayake's (2015) research, "Determinants of Non-

Performing Loans in Licensed Commercial Banks: Evidence from Sri Lanka," there are
several factors that contribute to non-performing loans (NPLs) in commercial banks in
Sri Lanka. The research results suggest that there exists a correlation between the
percentage of nonperforming loans (NPLs) and certain attributes of banks as well as
wider economic patterns. The data showed that an increase in nonperforming loans
(NPLs) corresponds with a decrease in a bank’s overall efficiency. They also
discovered that the loan to asset ratio predicts nonperforming loans. Banks are seeing a
significant rise in credit at the same time that their non-performing loan ratio is
declining. Loan default rates are lower at larger banks than at smaller ones.
Nonperforming loans (NPLs) are positively correlated with the prime lending rate, but
negatively correlated with GDP and inflation growth.
Lydnon, Peter, and Ebitare (2016) investigated The Effect of Non-Performing Loans
and Bank Performance in Nigeria by looking at how non-performing loans affected the
financial stability of Nigerian banks between 1994 and 2014. To complete the study,
secondary data was obtained from dependable sources such as the CBN, the NDIC, and
the annual reports of Nigeria's listed banks. Research 8 determined that substandard
loans, dubious loans, problematic loans, and return on capital employed (ROCE) were
the four variables.
Salas and Saurina (2002) established that credit growth, real GDP growth, capital ratio,
bank size, and market power are the elements that impact non-performing loans (NPLs).
They achieved this by examining data from Spanish commercial banks spanning the
years 1985 through 1997. Keeton (1999) argued that faster loan growth leads to more
loan losses or problem loans through a trend analysis of Federal Reserve Bulletin data
from 1967 to 1983 and 1990 to 1998. The study also found a relationship between
loans and delinquency rate for the years 1982–1996 using delayed salaries, lagged
loans, and lagged delinquent rate as independent variables.
9
A compilation of studies on "Nonperforming Loans and Macro Financial
Vulnerabilities in Advanced Economies" was published by Nkusu (2011). The purpose
of the study was to use two different but complementary techniques to look at the
relationship between macroeconomic performance and nonperforming loans (NPL).
First, the macroeconomic factors impacting nonperforming loans (NPLs) were
investigated using panel regressions. Findings indicated that increases in non-
performing loans (NPLs) were negatively correlated with macroeconomic expansion.
Subsequently, he employed a panel vector autoregressive model to examine the reasons
against nonperforming loans and the macroeconomic aspects involved. A persistent
increase of nonperforming loans will eventually affect the economy, he added. The
researcher in this study investigated NPL and macro-financial risks by posing the
following two factual questions: What are the roots causes of non-performing loans
(NPLs)? Are there any connections between NPLs and growth and development in the
economy?
Researchers Yu, Hussain, Wang, and Ali (2017) used empirical testing to determine
what factors contribute to non-performing loans (NPLs) in the Chinese banking
industry. High levels of banking system transparency reduce non-performing loans
(NPLs), but not in the case of government-owned banks, the researchers found. High
levels of competition in the banking industry enhance NPLs.Macroeconomic variables
especially real GDP, real interest rates, and inflation have a big influence on NPLs.
Last but not least, particular banks' characteristics, such their size and profitability,
have a significant influence on non-performing loans.
The main finding of this analysis emphasizes how difficult and ongoing it is to assess
the health of a loan portfolio and deal with non-performing loans. It is clear that this
project requires a well-balanced combination of strong risk management procedures,
proactive tactics, and the ability to adapt quickly to changing market and legal
conditions. These all-encompassing strategies are essential for helping financial
institutions maintain the integrity of their loan portfolios and ensure their survival in the
dynamic and intensely competitive financial sector.
10
Chapter 3: Methodology
11
3.1 Research Type
To assess the loan portfolio quality and determine the magnitude of non-performing
loans (NPLs) of the five private commercial banks (United Commercial Bank PLC,
Eastern Bank PLC, Bank Asia Limited, Dutch-Bangla Bank, and BRAC Bank PLC),
this study use quantitative approaches. Time series data from many banks are collected
to perform the study. Data from the most recent Ten years, from 2013 to 2022, are used
in this research.
3.2 Data Type and Sample Selection Procedure

For preparing this research, I will collect panel data only from secondary sources as
shown below:
• Annual reports from 2013 to 2022 of 5 commercial banks.
• Websites of the banks.
• Website of the Bangladesh bank.
• Various research papers published on this topic from Google Scholar.
• Annual publications of Bangladesh bank.
3.3 Data Analysis Tools

3.3.1 Analytical Statistical Instruments
The statistical tool employed for evaluating relationships among various variables in
this research is outlined below:
• Multiple Regression Analysis.
• Trend Analysis.
3.3.2 Variables
Dependent Variables: Non-performing Loan Ratios (NPL’s) are the dependent variables.
Independent Variable: Earning per share (EPS), Total asset, Return on equity, Net
interest margin, Capital Adequacy ratio are the dependent variable in the multiple
regression analysis
12
Chapter 4: Theoretical Framework
13
4.1 Composition of the Bank's loan Portfolio
4.1.1 Sector-wise Portfolio Concentration
To accommodate their clients' various financial demands, commercial banks provide a

broad selection of loan products. Each bank has a different loan portfolio composition
that reflects its unique customer base, risk tolerance, and strategic goals. All banks,
however, strive to reduce risk as much as possible by diversifying their holdings and
following the well-known tenet that "one should not put all their eggs in one basket" in
order to reduce the possibility of suffering significant losses in the event of unfavorable
economic conditions or unanticipated events. According to my study on five
commercial banks, how they make their loan portfolio is given below:
United Dutch-
Types of Credit Eastern Bank BRAC
Commercial Bangla
Exposure Bank Asia Bank
Bank Bank
Industrial Loan 60.29% 12% 49.84% - 27%
Commercial Lending 10.63% 4% 27.61% 15.80% 34%
House Building Loan 5.34% 2% 6.63% 1.50% -
Import Finance 5.47% - - -
Retail Loan 3.76% 10% - 17.80% 19%
Export Finance 0.63% 5.60% -
Transport Loan 0.80% 11% 0.92% -
Staff Loan 1.13% - 0.20% -
Agricultural Loan 1.34% 60% 2.67% 1.60% 6%
Loans to Financial
- 1% - - -
Institutions
Others 10.59% - 18.25 57.90% 14%
Total 100% 100% 100% 100% 100%
In the table above, it's evident that banks have strategically allocated a significant
portion of their loans to the industrial sector. This strategic choice is primarily driven
by the robust performance and substantial contribution of the industrial sector,
particularly the ready-made garments (RMG) industry, to our country's economy.
Given the sector's proven track record and promising growth prospects, banks have
allocated a considerable share of their loans to capitalize on these opportunities and
support the continued expansion of this vital economic segment.
14
4.1.2 Geographical Portfolio Concentration
United Dutch-
Eastern Bank BRAC
Commercial Bangla
Bank Asia Bank
Division Bank Bank
Dhaka Division 359,397.03 239,286 228,942 284,906.40 292,436.24

Chattogram Division 89,668.77 50,335 32,305 35,765.90 44,321.48
Sylhet Division 2,270.70 2,508 3,044 5,741.30 21,356.27
Rajshahi Division 6369.9 4,398 5,567 3,869.90 7,682.51
Khulna Division 8305.18 5,079 4,374 5,225.50 6,891.51
Rangpur Division 898.94 557 1,912 4,498.90 20,449.63
Barishal Division 801.17 455 1,181 2,311.70 12,180.55
Mymensingh Division 893.41 573 545 21,681.30 5,358.22
Outside Bangladesh - 5,723 - - -
Total 468,605.10 308,916 277,870 364,000.90 410,676.41
In conclusion, we can say that while the current approach of banks, concentrating their
loan distribution in Dhaka Division, may seem to yield significant returns due to the
capital's economic activity and large industries, it poses potential risks for the country's
overall economic stability. Depending too heavily on one geographic area leaves the
economy vulnerable to calamities or disasters that could disrupt the capital's activities,
thereby affecting the entire nation.
To ensure a more balanced and resilient financial landscape, it is imperative that banks
extend their lending efforts to other divisions of the country. Beyond Dhaka, numerous
rural areas are teeming with small and medium-sized businesses with substantial
growth potential. These businesses, along with other rural industries, are in need of
substantial financial support to thrive in the ever-evolving global economy.
By adopting a more diversified approach to loan distribution, banks can not only
contribute to the balanced economic development of the country but also mitigate risks
associated with over-dependence on a single division. Furthermore, reaching out to
rural and underdeveloped regions can open up new opportunities for banks to expand
their portfolios and realize greater returns, thus fostering a win-win situation for both
the banks and the broader economy.
15
4.2 Assessing Loan portfolio quality
4.2.1 Qualitative Methods for Assessing Credit Risk.
1. Data Analysis: Collecting and analyzing quantitative data related to the loans in the
portfolio, such as delinquency rates, charge-off rates, non-performing loan ratios, and
more. This data provides insights into the current state of the portfolio.
2. Credit Quality Assessment: Evaluating the credit quality of borrowers within the
portfolio. Analyze credit scores, payment histories, and other credit-related factors to
assess the likelihood of loan repayment.
3. Risk Diversification: Examining the diversity of loans within the portfolio. A well-
diversified portfolio contains loans to various borrowers across different sectors or
industries, reducing concentration risk.
4. Asset Quality Review: If loans are secured by assets, assess the condition and value
of those assets. High-quality collateral provides better security for loans and reduces
the risk of loss.
5. Loan Performance Trends: Identifying trends in loan performance, such as

improvements or deterioration's in delinquency rates and charge-off rates over time.
6. Provisioning and Reserves: Evaluate whether the institution has set aside sufficient
provisions or reserves to cover expected loan losses. This reflects the adequacy of risk
management practices.
7. Economic Conditions: Considering the overall economic environment and how it

may impact the loan portfolio. Economic downturns can increase the risk of loan
defaults.
8. Portfolio Concentration: Examining the concentration of loans in specific sectors

or regions. High concentrations can expose the portfolio to sector-specific risks.
16
9. Quality of New Origination's: Assessing the underwriting standards and credit
quality of newly originated loans. If the quality of new loans is declining, it may affect
the overall portfolio quality.
10. Stress Testing: Conducting stress tests to assess how the portfolio would perform
under adverse economic conditions. This helps in understanding potential
vulnerabilities.
12. Regular Monitoring: Continuously monitor the loan portfolio quality, as it can
change over time. Regular reviews and updates are essential to identify and address
issues promptly.
4.2.2 Quantitative Method for Assessing Credit Risk.
Credit risk is the possibility of suffering losses if borrowers default on their loans or
don't fulfill their end of the bargain. Adopting a contemporary rating system is crucial
for establishing a solid credit risk management system.
The Lending Risk Analysis (LRA) approach was first applied to all lending exposures
of banks above 10 million Bangladeshi Taka (BDT) in 1993 by the Bangladesh Bank
(BB). For unclassified loan accounts, the LRA framework did not, however, provide a
Risk Grading System (RGS). In an effort to improve risk management procedures, BB
enforced the Core Risk Management Guidelines (CRMG) in 2003, requiring
unclassified accounts to be graded. The Bangladesh Bank then ordered all scheduled
banks to use the Credit Risk Grading (CRG) system for its borrowing clients in 2005
through its BRPD Circular No. 18. It is noteworthy that the CRG-2005 was relevant to
all types of exposures, with the exception of micro-credit, short-term agricultural loans,
consumer loans, and financing for small businesses.
But the characteristics of the sector have seen significant change in the past several
years. Furthermore, it has become necessary to review the various weights used in the
CRG framework. Bangladesh Bank believes that the Credit Risk Grading system has to
be updated in order to handle the increasing complexity in a more dynamic banking
sector.
17
On 1st July 2019 Bangladesh Bank introduced Internal Credit Risk Rating System
(ICRRS).The term "internal credit risk rating system" describes a method used to assess
a borrower's capacity to repay a loan based on details about the customer's financial
situation, such as their liquidity, cash flow, profitability, debt profile, market indicators,
experience in the business and industry, managerial skills, and other factors.
The "Internal Credit Risk Rating System" uses 20 (twenty) distinct rating templates for
20 (twenty) industries/sectors as opposed to the old CRG model's single template for all
sectors. Various benchmarks have been employed to evaluate the debtors in respective
industries. Each of these sectors has its own set of assessment criteria, and the best
parameters for each are determined by analyzing historical three-year data from 220
(two hundred and twenty) scheduled banks' audited financial statements of the firms,
companies, and institutions.
Selected Sectors:
A. Industry
1. RMG 8.Textile
2. Food and Allied Industries 9.Pharmaceutical
3. Chemical 10.Fertilizer
4. Cement 11.Ship breaking
5. Jute Mills 12. Ship building
6. Power and Gas 13. Steel Engineering
14. Other industry
B. Trade and Commerce

C. Argo Base and Argo Processing
D. Service:
1. Housing and Construction 3. Hospitals and Clinics
2. Telecommunication 4. Other service
18
Credit Risk Ratings Scores:
The quantitative and qualitative elements are covered by the 4-notch rating system that
makes up the ICRR. The following lists the ratings and scores:
Rating Rating
Excellent ≥80%
Good ≥70% to <80%
Marginal ≥60% to <70%
Unacceptable <60%
a) Excellent:
• Total ICRR score of 80 or higher;
• Strong borrower repayment capacity demonstrated by substantial liquidity, minimal
leverage, robust earnings, and cash flow
• The borrower has a solid and established market share.
• Excellent managerial knowledge and abilities.
b) Good:
• A quantitative score of at least 30 and an aggregate score of 70 or higher but less than
80.
• Although these borrowers don't have the same strength as "Excellent" borrowers, they
nonetheless show steady income, positive cash flow, and a solid track record.
• Outstanding management talent and experience; the borrower is well-known and
commands a significant portion of the market.
c) Marginal
• A combined score of 60 or above but below 70, as well as the a minimum of 30 in the
quantitative domain.
• Potential flaws in this grade call for careful consideration from management. Should
these shortcomings remain unaddressed, the borrower's chances of repaying the loan
could decline.
19
d) Unacceptable
• A combined score below 60.
• There is no ability or desire to repay and poor financial standing.
• There are serious management issues.
• If a facility's financial situation continues to deteriorate (consecutive losses, negative
net worth, excessive leverage), it should be degraded to this category.
Quantitative Indicators & Associated Weights:

Quantitative Indicators: (Total 60%) Qualitative Indicators (Total 40%)
1) Performance Behavior (10%) 1) Leverage (10%)
2) Business and Industry Risk (7%) 2) Liquidity (10%)
3) Management Risk (7%) 3) Profitability (10%)
4) Security Risk (11%) 4) Coverage (15%)
5) Relationship Risk(3%) 5) Operational Efficiency (10%)
6) Compliance Risk (2%) 6) Earning Quality (5%)
To sum up, financial institutions employ the Internal Credit Risk Rating System
(ICRRS) as a vital and advanced tool for assessing and managing credit risk. Through
the use of an organized framework that integrates both quantitative and qualitative
elements, ICRRS helps banks to effectively manage capital, make well-informed
lending decisions, and keep a close eye on the creditworthiness of both loan portfolios
and borrowers.
20
4.3 Theoretical Framework of NPL
4.3.1 NPL Situation in Bangladesh's Banking Sector
In accordance with Bangladesh Bank's revised Loan Classification Guideline of 2019,

loans are classified as non-performing if they fail to generate interest revenue or any
installments for a continuous period of at least 12 months. The classification is
triggered by two fundamental scenarios: deliberate defaulters who exhibit no intention
of repaying their loans and genuine defaulters who are unable to do so due to various
reasons, such as substantial business losses resulting from economic downturns or
inactive management. These non-performing loans pose a concern for lending
institutions as they do not contribute to the institution's income. Moreover, when
provisions are increased to cover potential losses, both the asset side of a bank's balance
sheet and its income statement are adversely impacted.
The alarming increase in the number of new non-performing loan cases in Bangladesh
has become a pressing issue. This research aims to shed light on the factors that
contribute to the phenomenon of non-performing loans (NPLs) and the implications for
the financial health of banks. Data from Bangladesh Bank spanning from 2013 to 2022
reveals that the country's average NPL rate is a concerning 8.16%, with a significant
portion held by State-owned commercial banks. In 2022, the total non-performing loans
in Bangladesh amounted to an astounding BDT 1252.58 billion, with State-owned
commercial banks holding BDT 449.8 billion, specialized banks holding BDT 41.9
billion, private commercial banks holding BDT 626.8 billion, and foreign commercial
banks holding BDT 29.6 billion.
The persistent problem of non-performing loans poses a grave threat to Bangladesh's

banking industry. Despite its gravity, this issue has received insufficient regulatory
attention and remains largely unaddressed. While stricter regulations could help, they
also risk limiting access to loans for legitimate, emerging sectors. Addressing this
requires unwavering accountability from the government and relevant authorities,
instilling discipline in the troubled banking sector. This is vital for restoring sector
integrity and safeguarding the nation's financial stability.
21
4.3.2 Framework of NPL
In the event that borrowers fail to repay loans made by the bank, the institution is
exposed to credit risk. Banks in the country must adhere to the rules and regulations set
forth by the Bangladesh Central Bank in order to keep their loan portfolios in good
standing. Banks can improve their profitability, decrease their risk of nonperforming
loans, and reduce their losses by managing their loans and advances prudently.
Therefore, prudent credit management is the top priority for every bank. The
Bangladesh Bank mandates that all banks create their own loan management policies.
Some guiding principles should underpin the management of NPL:
⚫ The customer's willingness to repay the loan is a key factor that the bank must take
into account.
⚫ There needs to be a balance between the bank's costs and the amount of money
coming in.
⚫ In the event of a debt settlement, there needs to be a swift recycling process with
little cost recovery.
⚫ The loans must be rescheduled in accordance with the rules set forth by the
Bangladesh Bank.
⚫ Banks must take into account the following details at the time of settlement:
⚫ It is imperative that they achieve as much as possible at the lowest possible
expense.
⚫ The committee needs to give its wise blessing to the compromise proposal.
⚫ The formation of new NPLs should be regulated by a committee that is both
efficient and sensible.
⚫ The process of converting regular loans into special loans requires extra care.
4.3.3 Loan Review Process
A bank's ability to lend money depends heavily on the quality of the projects they
assess. The presumptions behind the approval of each loan must be put to the test on a
regular basis as part of this review process.
⚫ If the economy as a whole improves, the borrower's business may benefit as well.
⚫ Changes for the better in the industry in which the borrower operates.
⚫ They need to check the borrower's credit and payback history.
⚫ The value, terms, and other aspects of the collateral securities must be examined.
22
⚫ Check the completed paperwork for accuracy.
⚫ A bank should be flexible in rescheduling loans if a borrower is having trouble
making payments owing to a recession.
4.3.4 Loan Workout Process
⚫ Banks have dedicated departments that deal specifically with loan workouts.
⚫ Loan workout authorities may keep up positive communication with delinquent
borrowers in order to assist them in strengthening their financial positions and
recouping their losses from the bank.
⚫ Defaulted borrowers can take use of your expertise in the areas of maximizing
profitability, cutting costs, and increasing productivity by following your advice.
⚫ If the government is going to make dangerous loans, they need to make sure they
have adequate documentation and security.
⚫ Determine the means available for boosting overdue credit.
23
4.3.5 Sector Wise NPL
Amount of NPLs by Types of Banks

600
500
400
In billion BDT
300
200
100
0
2013 2014 2015 2016 2017 2018 2019 2020 2021
SCBs (State-owned
166.1 227.6 272.8 310.3 373.3 487 439.9 422.7 438.4
commercial banks)
SBs (Specialized banks) 83.6 72.6 49.7 56.8 54.3 47.9 40.6 40.6 36.9
PCBs (Private Commercial
143.1 184.3 253.3 230.6 294 381.4 441.7 403.6 491.9
Banks)
FCBs (Foreign Commercial
13 17.1 18.2 24.1 21.5 22.9 21 20.4 24.9
Banks)
SCBs (State-owned commercial banks) SBs (Specialized banks)
PCBs (Private Commercial Banks) FCBs (Foreign Commercial Banks)
In the provided table, the data indicates a worrying trend in the increase of non-
performing loans (NPL) in all industries. Notably, state-owned commercial banks have
the biggest net worth losses (NPLs), with a forecast growth to 438.4 billion BTD in
2021. Closely behind, private commercial banks report 491.9 billion BTD in non-
performing loans (NPL) in the same year. This concerning trend indicates an
impending danger to the stability of the banking industry as well as the country's
economy. The continuous increase in non-performing loans (NPLs) suggests possible
issues with asset quality and financial stability. Since these figures are expected to rise
in the upcoming years, immediate action may be needed to address the underlying
causes and lessen the negative effects on the state of the economy as a whole. It will be
essential to act quickly and strategically to stop the situation from getting worse and to
promote a more positive financial environment.
24
4.3.5 Consequences of Non-performing Loan
1. Financial Losses: When borrowers default on loans, lenders suffer immediate

financial losses that affect the profitability of the institution.
2. Decreased Profitability: A bank's whole financial performance is impacted by non-

performing loans, which reduce interest revenue and erode profitability.
3. Increased Operational Costs: Managing non-performing loans raises operational

costs since it necessitates more resources for administration, legal actions, and
collections.
4. Weakened Capital Position: NPLs have the ability to reduce a bank's capital base
and may necessitate capital infusions in order to comply with regulatory standards.
5. The Credit Crunch: Increased non-performing loan levels have the potential to
make banks less eager to offer new credit by making them more risk cautious. This
may lead to a credit crunch, which would make it harder for people and companies to
get financing.
6. Impact on Interest Rates: Banks may raise interest rates to make up for losses on
non-performing loans, which will raise the cost of borrowing for both individuals and
companies.
7. Economic Slowdown: A high percentage of non-performing loans can impede credit

availability, discourage investment, and discourage entrepreneurship, all of which can
impede economic growth.
8. Financial System Instability: Extensive non-performing loans may be a factor in

the instability of the financial system, which may cause investors and depositors to
have doubts about the general soundness of the banking industry.
.
25
Chapter 5: Data Analysis and Discussion
26
5.1 Descriptive Statistics Analysis
The process of presenting and summarizing data to give a concise summary is known
as descriptive statistics. It comprises measurements of variability in addition to
statistics like mean, median, and mode. These figures support the analysis and
characterization of a dataset's key characteristics.
Variables Observation Mean Std.deviation Minimum Maximum

NPL 50 0.044371 0.002083904 0.0235 0.0893
EPS 50 0.048614 0.005438821 0.0131 0.2461
ROA 50 0.027456 0.000870122 0.0204 0.0385
ROE 50 0.133582 0.005348261 0.0781 0.2216
NIM 50 0.037686 0.002084369 0.0049 0.0653
CAR 50 0.099224 0.002086944 0.0751 0.1382
Interpretation: For the main financial factors, the table presents descriptive statistics.
Notably, the data shows low standard deviations and consistency, suggesting little
unpredictability. The mean Return on Assets (ROA) of 0.0275, for example, indicates a
consistent performance within a limited range (0.0204 to 0.0385). With a mean of
0.1336 and a standard deviation of 0.0410, return on equity (ROE) indicates a
comparatively stable level of financial leverage. With a mean of 0.0444 and a restricted
range (0.0235 to 0.0893), non-performing loans (NPL) show controlled credit risk. The
Capital Adequacy Ratio (CAR), which has a mean of 0.0992 and a small standard
deviation, shows some slight swings. Another indicator of stability is the Net Interest
Margin (NIM), which has a mean of 0.0377 and a modest standard deviation. The mean
of earnings per share (EPS) is 0.0486, and the standard deviation is 0.0054, indicating
consistency. Overall, modest standard deviations across all variables provide credence
to the date's suggestion of financial stability.
27
5.2 Multiple Regression Analysis
United Commercial Bank PLC

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.962202099
R Square 0.92583288
Adjusted R Square 0.833123979
Standard Error 0.006809124
Observations 60
ANOVA
Significance
df SS MS F F
Regression 5 0.002315 0.000463 9.986451 0.022306
Residual 4 0.000185 4.64E-05
Total 9 0.002501
Coefficients Standard Error t Stat P-value

Intercept 0.185739669 0.047377 3.920424 0.017242
Earnings per Share (EPS) -3.515556 1.141991 -3.07844 0.036988
Return on Assets (ROA) 0.685537012 1.961574 0.349483 0.744356
Return on Equity (ROE) 0.246160452 0.406746 0.605195 0.577706
Net Interest Margin (NIM) 0.193261696 0.605221 0.319324 0.765462
Capital Adequacy Ratio (CAR) -0.69931288 0.467595 -1.49555 0.209096
Multiple R: A strong linear relationship between the set of independent factors and the
dependent variable (NPLs) is suggested by the multiple R value of 0.9622. This
suggests a somewhat robust link.
R Square: The R-squared value of 0.9258 suggests that the independent variables in
the model account for roughly 92.58% of the variation in NPLs.
Adjusted R Square: This is a rather low adjusted R Square of 0.8331. It implies that
over-fitting may have occurred since the intricacy of the model may not have warranted
the inclusion of all independent variables.
Standard Error: The average discrepancy between the model's projected values and
the observed values of non-performing loans is represented by the standard error, which
is roughly 0.0068.
Observations: The data-set has sixty observations.
28
Analysis of Variance (ANOVA):
The regression model's overall significance is evaluated in the ANOVA table.
Regression: The associated p-value is 0.0223, and the F-statistic is 9.9865. This implies
that, at the 0.05 significance level, the regression model is statistically significant
overall.
Intercept: The intercept is statistically significant, as shown by its p-value of 0.0172.

When all independent variables are zero, the intercept of 0.1857 indicates the expected
non-performing loans.
Earnings per Share (EPS): This bank's EPS is a statistically significant predictor of
non-performing loans (NPLs), according to the coefficient of -3.5156 and p-value of
0.0369.
Return on Assets (ROA): ROA is not a statistically significant predictor, as shown by

the coefficient of 0.6855 and p-value of 0.7444.
Return on Equity (ROE) is not a statistically significant predictor, according to the

coefficient of 0.2462 and p-value of 0.5777.
Net Interest Margin (NIM): NIM is not a statistically significant predictor, as

indicated by the coefficient of 0.1933 and p-value of 0.7655.
Capital Adequacy Ratio (CAR): A p-value of 0.2091 and a coefficient of -0.6993

indicate that the CAR is not significant.
In conclusion, the regression analysis conducted on United Commercial Bank PLC

shows that the combination of independent factors and non-performing loans (NPLs)
generally have a statistically significant link. But only earnings per share (EPS) seems
to be a statistically significant predictor when the individual factors are examined. For
this specific bank, other factors like Return on Equity, Return on Assets, Net Interest
Margin, and Capital Adequacy Ratio do not significantly affect the prediction of Non-
Performing Loans (NPLs). Additionally, the R-squared and modified R-squared values
suggest that the model may have over-fitted and have some explanatory power.
29
Bank Asia Limited
SUMMARY OUTPUT
Multiple R 0.951229982
R Square 0.904838478
Observations 60
ANOVA
Significance
df SS MS F F
Regression 5 0.002263 0.000453 7.606759 0.035917
Residual 4 0.000238 5.95E-05
Total 9 0.002501

Intercept -0.09898761 0.098697 -1.00295 0.372637
Return on Asset (ROE) -0.01292079 0.011831 -1.09207 0.036169
Return on Equity (ROE) 1.215159914 0.468738 2.592408 0.047053
Capital Adequacy Ratio (CAR) 0.622720785 0.45513 1.368226 0.254306
Statistics of Regression:
Multiple R: The set of independent factors and the dependent variable (Non-
Performing Loans, or NPLs) have a strong positive linear relationship, as indicated by
the multiple correlation coefficient (R) of 0.9512.
R Square: The R-square value of 0.9048 indicates that the independent variables
account for about 90.48% of the variance in NPLs. This suggests that the model has a
significant explanatory capacity.
Adjusted R square: Although less than R-squared, the adjusted R-squared of 0.7859
indicates a strong match for the model. It corrects for the quantity of independent
variables and penalizes overly complex solutions.
Standard Error: The standard error between the projected and observed NPL values is
0.0077, which is a manageable minor variance. This implies that the model fits the data
rather well.
Observations: Sixty instances or data points were used in the analysis.
30
Analysis of Variance or ANOVA:
This table aids in evaluating the regression model's overall significance.
Regression: The total regression model has statistical significance, as indicated by the
p-value of 0.0359 for the F-statistic. Nevertheless, given that the model might not be
able to fully explain the variance in NPLs, the relatively low p-value advises caution.
Intercept: The intercept is not statistically significant, according to its p-value of

0.3726. The estimated value of NPLs when all independent variables are zero is
represented by the intercept.
Profits per Share (EPS): A statistically significant p-value of 0.0255 is indicated. A

correlation between EPS and NPLs that is negative is indicated by a value of -5.3042.
Return on Asset (ROA): There is statistical significance indicated by the p-value of
0.0362. A negative correlation between ROA and NPLs is implied by the negative
coefficient (-0.0129).
Return on Equity (ROE): A statistically significant p-value of 0.0471 is indicated.

The positive correlation (1.2152) indicates that ROE and NPLs have a positive
association.
Net Interest Margin (NIM): There appears to be no statistical significance, as

indicated by the p-value of 0.2810. Although a positive link is implied by the positive
coefficient (0.9438), the p-value calls for caution.
Capital Adequacy Ratio (CAR): There is no statistical significance, as indicated by

the p-value of 0.2543. Although a positive relationship is implied by the positive
coefficient (0.6227), the p-value calls for caution.
In conclusion, the fluctuation in Non-Performing Loans for Bank Asia Limited cannot
be well explained by the model. With the exception of ROE and EPS, none of the
independent variables (EPS, ROE, NIM, and CAR) are statistically significant at a
standard significance level of 0.05. Results should be interpreted cautiously, and
additional research may be required to enhance model fit.
31
Eastern Bank PLC.
SUMMARY OUTPUT
Multiple R 0.888732
R Square 0.789845
Observations 60
ANOVA
Significance
df SS MS F F
Regression 5 0.001975 0.000395 3.006716 0.154264
Residual 4 0.000525 0.000131
Total 9 0.002501

Intercept -0.34512 0.261453 -1.32002 0.2573
Return on Asset -1.79532 3.587185 -0.50048 0.04302
Return on Equity (ROE) -0.67809 0.334109 -2.02956 0.112269
Capital Adequacy Ratio (CAR) 1.841612 0.70977 2.594661 0.030387
Regression Statistics:
Multiple R: A very strong yet positive linear association between the combination of
independent variables (EPS, Total Assets, ROE, NIM) and Non-Performing Loans
(NPLs) is indicated by the multiple correlation coefficient, or multiple R (multiplicative
R) of 0.8887.
R Square: With an R-square value of 0.7898, the model appears to account for roughly
78.98% of the variation in non-performing loans. This suggests that the chosen
independent factors account for NPLs to a significant extent.
Adjusted R Square: At 0.5272, the adjusted R-square is positive but lower than R-
square, suggesting that the model may be over-fitting or inadequately explaining the
variation in non-performing loans.
Standard Error: The real NPL variation around the expected values is estimated by
the standard error 0.0115.
32
Regression: The F-statistic is 3.0067 and the p-value is 0.1543, meaning that there is
no significant relationship between the independent variable combination and NPLs.
There is no statistical significance for the model's significance.
Intercept: The predicted value of NPLs is -0.3451 when all independent variables are
zero, and the intercept's p-value of 0.2573 indicates that it is not statistically significant.
Earnings per Share (EPS): The coefficient is -1.5827 and the p-value is 0.0913.
When it comes to explaining non-performing loans, EPS is not statistically significant.
Return on Asset (ROA): -1.7953 is the coefficient, and the p-value is 0.0430. In terms
of forecasting NPLs, ROA exhibits considerable statistical relevance.
Return on Equity (ROE): The coefficient is -0.6781 and the p-value is 0.1123. There
is no statistical significance for ROE.
Net Interest Margin (NIM): 2.6484 is the coefficient, and the p-value is 0.0622.
Statistically, NIM is not significant.
Capital Adequacy Ratio (CAR): 1.8416 is the coefficient, and the p-value is 0.0304.
CAR's ability to forecast NPLs is statistically significant.
In conclusion, For Eastern Bank Limited, the model offers a partial explanation for the
fluctuation in non-performing loans. Although there is some statistical significance in
the data for Total Assets and Capital Adequacy Ratio, NPLs are not significantly
predicted by other variables like EPS, ROE, or NIM. To increase the model's
explanatory power, more adjustments or research into new variables might be required.
33
Dutch-Bangla Bank
SUMMARY OUTPUT
Multiple R 0.925528
R Square 0.856602
Observations 60
ANOVA
Significance
df SS MS F F
Regression 5 0.000761 0.000152 4.778861 0.077417
Residual 4 0.000127 3.18E-05
Total 9 0.000888

Intercept 0.145605 0.041378 3.518924 0.024474
Earnings per Share (EPS) 0.003296 0.102266 0.032226 0.975836
Total Assets -0.00319 0.007224 -0.44143 0.681717
Multiple R: The multiple correlation coefficient, or multiplicative R, for Dutch-Bangla
Bank Limited is 0.9255, suggesting a significant positive linear association between the
combination of the independent variables (EPS, ROA, ROE, NIM, CAR) and non-
performing loans (NPLs).
R Square: With an R-square value of 0.8566, it can be inferred that 85.66% of the
variation in Non-Performing Loans (NPLs) is explained by the independent variables
taken together. This suggests that the model fits the data well.
R-squared adjusted: 0.6774 is the adjusted R-squared value. Despite being marginally
lower than the conventional R-squared, this nevertheless indicates a well-fitting model,
especially in light of the intricacy.
The standard error: A strong fit for the model is shown by the standard error of
0.0056, which shows a minimal variation between the projected and observed NPL
values.
34
Regression: The F-statistic is 4.7789 and the associated p-value is 0.0774. This shows
that the regression model's overall statistical significance is marginal, implying that
there could be a relationship between the non-performing loans of Dutch-Bangla Bank
and at least one of the independent variables.
Intercept: The intercept has a value of 0.1456 and a p-value of 0.0245. When all
independent variables are zero, this is the expected NPLs.
Profits per Share (EPS): 0.0033 is the coefficient and the p-value is 0.9758. For NPLs,
EPS is not a statistically significant predictor.
Return on Assets: The coefficient is -0.0032 and the p-value is 0.6817. There doesn't
seem to be a statistically significant correlation between total assets and NPLs.
Return on Equity (ROE): The coefficient is -0.0758 and the p-value is 0.5194. ROE
and NPLs do not statistically significantly correlate.
Net Interest Margin (NIM): The coefficient is 0.3771 and the p-value is 0.2918.
There is no statistically significant association found between NIM and non-performing
loans.
Capital Adequacy Ratio (CAR): The coefficient is -1.0729 and the p-value is 0.0450.
CAR has a statistically significant negative impact on the NPL forecast.
In conclusion, For Dutch-Bangla Bank Limited, the model offers a partial explanation
for the fluctuation in non-performing loans. Only the Capital Adequacy Ratio (CAR)
seems to be a statistically significant predictor, despite the marginal importance of the
entire model. At the traditional level of 0.05, the other independent variables (EPS,
Total Assets, ROE, and NIM) do not show statistical significance. Refinement of the
model or consideration of other factors might be required for a more thorough
understanding.
35
BRAC Bank PLC
SUMMARY OUTPUT
Multiple R 0.977778
R Square 0.95605
Observations 60
ANOVA
Significance
df SS MS F F
Regression 5 0.001452 0.00029 17.40255 0.008082
Residual 4 6.67E-05 1.67E-05
Total 9 0.001519

Intercept 0.076099 0.01965361 3.872028 0.017962
Return on Asset 0.675347 0.296796361 2.275455 0.045213
Net Interest Margin (NIM) -0.55025 0.182751797 -3.01091 0.039515
Multiple R: A very strong positive linear association between the combination of
independent variables (EPS, ROA, ROE, NIM, CAR) and Non-Performing Loans (NPLs)
for BRAC Bank is indicated by the multiple correlation coefficient, or multiplicative R,
of 0.9778.
R Square: With an R-square value of 0.9561, it can be inferred that 95.61% of the
variation in Non-Performing Loans (NPLs) can be explained by the independent
variables taken together. This suggests that the model fits the data remarkably well.
R Squared Adjusted: The adjusted R-squared value is 0.9011, which shows a well-
fitting model that takes the complexity into account, although being marginally less
than the standard R-squared.
Standard Error: The standard error between the projected and observed NPL values is
0.0041, indicating a very tiny variation and a very good fit for the model.
36
Regression: The F-statistic is 17.4026 and the associated p-value is 0.0081. This
suggests that at least one of the independent variables is related to the non-performing
loans at BRAC Bank and that the regression model is statistically significant overall.
Intercept: The value of the intercept is 0.0761 and its p-value is 0.0179. This is the
expected non-performing loans when all independent variables are equal to zero.
Earnings per Share (EPS): The coefficient of variation is -0.2644 and the p-value is
0.4001. NPLs cannot be statistically predicted using EPS.
Return on Asset (ROA): The coefficient is 0.6753 and the p-value is 0.0452. In terms
of forecasting NPLs, Return on asset seems to be statistically relevant.
Return on Equity (ROE): -0.03995 is the coefficient, and the p-value is 0.5407. ROE
and NPLs do not statistically significantly correlate.
Net Interest Margin (NIM): -0.5503 is the coefficient, and the p-value is 0.0395. A
statistically substantial association has been shown between NIM and non-performing
loans.
Capital Adequacy Ratio (CAR): The coefficient is -0.1141 and the p-value is 0.3779.
CAR has no discernible impact on the NPL prediction process.
In conclusion, the model offers a substantial explanation for the fluctuations in BRAC
Bank's non-performing loan portfolio. Only Net Interest Margin (NIM) and Return on
Asset (ROA) seem to be statistically significant predictors, even though overall
significance is demonstrated. At the traditional level of 0.05, the other independent
variables (EPS, ROE, and CAR) do not show statistical significance. This implies that
for a more thorough understanding, greater improvement or examination of other
aspects could be required.
37
5.3 Trend Analysis
5.3.1 NPL to Equity Ratio
A financial indicator used to evaluate the health of a bank's loan portfolio is the NPL to
Equity Ratio, sometimes referred to as the Non-Performing Loan to Equity Ratio. It
calculates the percentage of loans that are non-performing or at risk of default in
relation to the equity capital of the bank. A larger percentage suggests a higher chance
of poor loans, which could jeopardize the bank's profitability and stability. The formula
of computing NPL to Equity Ratio is,
NPL to Equity Ratio = (Total Non-Performing Loans) / (Total Equity)
NPL to Equity Ratio
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
UCB Bank PLC. Eastern Bank PLC. Bank Asia Limited Dutch-Bangla bank BRAC Bank PLC.
Interpretation: The graph shows that the NPL to Equity ratio of United Commercial
Bank peaked in 2017 at 72.68%, indicating a high percentage of bad loans compared to
equity, either as a result of issues with underwriting or general economic conditions.
Even though this ratio decreased in the years that followed, it rose to 68.55% in 2022
possibly as a result of new economic difficulties. In contrast, BRAC Bank PLC held a
low ratio of 6.79% in 2014, indicating a solid financial situation. The ratios of other
banks were moderate. Changes in each bank's risk management policies, economic
stability, and lending practices could all have an impact on these swings.
38
5.3.2 Non-Performing Loan (NIM) Ratio
The Non-Performing Loan (NPL) ratio is a crucial financial indicator that indicates the
percentage of loans in a bank's portfolio that are either non-performing or have not
been repaid by borrowers after a set period of time, typically 90 days or more. Non-
performing loans (NPLs) are frequently caused by borrower defaults, economic
downturns, and financial difficulty. The non-performing loan calculation formula is,
NPL Ratio = (Total Non-Performing Loans / Total Outstanding Loans) * 100
NPL Ratio
10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Interpretation: The graph's data indicates that, in 2013, United Commercial Bank had
the highest Non-Performing Loan (NPL) ratio (8.93%). On the other hand, at 2.35%,
Eastern Bank PLC had the lowest NPL ratio. Positive NPL ratios from the other banks
also indicated possible problems with their loan portfolios. The banking sector as a
whole isn't benefiting from this trend because it suggests some risk and possible loan
defaults.
The graph also shows how the NPL ratios fluctuate over time. Numerous economic
factors that affect borrowers' capacity to fulfill their loan commitments can be blamed
for these differences. NPL ratios fluctuate depending on a number of factors, including
the state of the economy, the financial stability of borrowers, and the general credit
quality of loans. These variations may have an effect on a bank's creditworthiness,
profitability, and provisioning needs.
To summarize, the 2013 NPL ratios of various banks show differences in asset quality
and risk control. The issue facing the banking sector is to reduce these risks and
39
preserve a balance between cautious lending practices and profitability, particularly in
light of shifting economic conditions.
5.3.3 Loan Loss Reserve Ratio
A bank's contingency for possible loan losses is expressed as a percentage of its whole
loan portfolio by the Loan Loss Reserve Ratio. A higher ratio denotes a better quality
loan portfolio and a more cautious approach to risk. Higher reserves can lessen losses
during economic downturns which influences capital adequacy and financial stability in
the banking sector. The formula of computing non-performing loan is,
Loans Loss Reserve Ratio = (Loan Loss Reserves / Total Gross Loans) x 100
Loan Loss Reserve Ratio
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
UCB Bank PLC. Eastern Bank PLC. Bank Asia Limited dutch bangla bank BRAC Bank PLC.
Interpretation: The information demonstrates noteworthy patterns in the loan loss

reserve ratios of the banks that are listed. With a peak ratio of 29.10% in 2013, Eastern
Bank had the highest ratio at first. This indicates a significant provision for possible
loan losses. But as time went on, it gradually dropped, suggesting better risk
management and loan portfolio quality. BRAC Bank, on the other hand, continuously
kept the lowest ratio at 0.14% between 2014 and 2016, indicating careful risk
management. This indicates that BRAC Bank has maintained an exceptionally strong
position in terms of risk mitigation, while Eastern Bank has successfully decreased its
exposure to potential loan losses. The methods used by each bank to control credit risk
and maintain financial stability are shown in these ratios.
40
5.3.4 Coverage Ratio
A bank's capacity to absorb possible loan losses is evaluated by the Coverage Ratio,
which compares loan loss reserves to non-performing loans (NPLs). A greater coverage
ratio denotes improved loan portfolio quality and financial stability as well as a bank's
ability to take on non-performing loans (NPLs). Because strong coverage ratios lessen
the impact of NPLs on a bank's solvency and profitability, it has an impact on the
banking industry by ensuring banks are prepared to handle NPLs, lowering financial
risks, and boosting industry health overall. The formula of computing non-performing
loan is,
Coverage Ratio = (Loan Loss Reserves / Total Non-Performing Loans) x 100
Coverage Ratio
200.00%
150.00%
100.00%
50.00%
0.00%
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Interpretation: The graph's data shows that the banks' coverage ratios vary
significantly. With a coverage ratio of 168.46% in 2022, Eastern Bank PLC
demonstrated the highest level of strength in covering potential loan losses. Bank Asia
Limited, on the other hand, had the lowest coverage ratio in 2009 (0.09%), which
would suggest a reduced ability to withstand loan losses. Notably, the coverage ratios
of all banks remained positive and, on average, rose with time. This raises the
possibility of a cautious approach to risk management and a dedication to reserve
building as a defense against loan losses, which strengthens the banks' overall resilience
and stability financially.
41
5.3.5 Net Charge-Off (NCO) Ratio
A financial indicator called the Net Charge-Off (NCO) Ratio is used to evaluate the
caliber of a bank's loan portfolio. It gauges the proportion of loans that are either
written off as losses or have become non-collectable, demonstrating the bank's capacity
to control credit risk. The bank's financial stability may suffer from an increase in non-
performing loans, which is shown by a larger NCO ratio, which also raises questions
about the quality of the loans. The formula of computing net charge-off (NCO) ratio is,
NCO Ratio = (Net Charge-Offs / Average Total Loans) x 100
Net Charge-Off (NCO) Ratio
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Interpretation: An intriguing pattern in the Net Charge-Off (NCO) ratios for Bank
Asia and BRAC Bank PLC can be seen in the graph. With an NCO ratio of 9.60% in
2014, Bank Asia has a noticeably riskier loan portfolio. But as time went on, they were
able to raise the quality of their loans, as seen by a drop to 3.07% in 2022. On the other
hand, BRAC Bank PLC started 2014 with a lower NCO ratio of 0.69%, indicating
higher credit quality right away. The credit risk management tactics used by each bank
can be blamed for these variations. Because they show a bank's ability to reduce losses
from non-performing loans, lower NCO ratios are indicative of stronger loan portfolios
and eventually strengthen financial stability.
42
5.3.6 Delinquency Ratio
The percentage of past-due loans compared to all outstanding loans is measured by the
Delinquency Ratio, which is a crucial indicator of the health of a bank's loan portfolio.
A riskier portfolio, which could result in more non-performing loans (NPLs), is
indicated by a higher ratio. Because non-performing loans (NPLs) are loans with non-
performing balances, they have an adverse effect on a bank's solvency and profitability.
A better loan portfolio is indicated by a reduced delinquency ratio.
Delinquency Ratio = (Total Delinquent Loans / Total Gross Loans) x 100
Delinquency Ratio
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
UCB Bank PLC. Eastern Bank PLC. Bank Asia Limited

Dutch-Bangla bank BRAC Bank PLC.
Interpretation: According to the graph, Bank Asia Limited had the highest
Delinquency Ratio in 2014 (42.94%), indicating a significant percentage of past-due
loans. But as time has gone on, this rate has progressively dropped, suggesting better
loan management and lower credit risk.
On the other hand, BRAC Bank PLC's 2014 Delinquency Ratio of 0.94% was the
lowest, indicating a robust loan portfolio. Although this percentage has gone up, it is
still quite low when compared to other banks, which may indicate a controlled rise in
past-due loans brought on by the bank's increasing lending activity.
The other banks' moderate Delinquency Ratios over time demonstrate a careful and
balanced approach to controlling credit risk and loan quality.
43
5.3.7 Risk-Weighted Assets (RWA) Ratio
Banks utilize the Risk-Weighted Assets (RWA) ratio as a metric to evaluate the caliber
of their lending portfolio. It establishes the minimum capital required of a bank based
on the risk of its assets. A riskier portfolio is indicated by a greater RWA, which could
result in higher capital needs. A bank may be underestimating risk if its RWA is
excessively low, which raises the possibility of non-performing loans and threatens the
bank's ability to remain solvent. The formula of computing Risk-Weighted Asset
(RWA) is,
RWA Ratio = (Total Risk-Weighted Assets) / (Total Capital)
Risk-Weighted Assets (RWA) Ratio
20.00%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Interpretation: With a 2019 Risk-Weighted Asset (RWA) ratio of 17.90%, Bank Asia
Limited had the highest percentage on the graph, indicating a significant exposure to
risk-weighted assets that would have impacted the quality of their loan portfolio. This
ratio remained relatively high even though it declined in the following years. Dutch-
Bangla Bank, on the other hand, had the lowest RWA ratio in 2020 at 0.80%. However,
over the following two years, the ratio significantly increased, rising to 16.40% in 2021
and 14.04% in 2022. This increase can be ascribed to a number of economic causes,
including adjustments to the asset portfolio's composition and adjustments to the assets'
perceived risk, which affects the RWA computations. The rest of banks have moderate
risk-weighted asset ratio.
44
5.3.8 Loan Concentration Ratio
A measure that evaluates the risk attached to a bank's loan portfolio is the Loan
Concentration Ratio. It calculates the percentage of a bank's overall loan portfolio that
is classified under a given heading, like a given sector or loan kind. Given that a
decline in that industry could result in an increase in non-performing loans, which
would affect the bank's overall portfolio quality and financial stability, a high
concentration ratio suggests higher risk. The formula of computing Loan Concentration
Ratio is,
Loan Concentration Ratio = (Total Loans to a Specific Industry or Borrower /
Total Gross Loans) x 100
Loan Concentration Ratio
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Interpretation: Based on the graph, it is clear that Bank Asia had the greatest loan
concentration ratio in 2016 (66.98%), meaning that a sizable amount of their loans were
concentrated in one particular sector during that year. They were able to diversify their
credit portfolio over time, though, and as a result, the concentration ratio dropped to
more reasonable levels. On the other hand, Eastern Bank PLC. maintained a consistent
loan disbursement rate over the years, with the lowest concentration ratio in 2016 (3.49%).
The loan concentration ratios of the other banks remained mild. It is probable that
strategic choices to diversify risk, lessen exposure to particular industries, and adjust to
changing market conditions led to this shift in the ratios.
45
Chapter 6: Findings,
Recommendations and Conclusion
46
6.1 Findings
⚫ There has been a discernible rise in the distribution of loans among different
industries in the last few years. Still, there is a concern because a sizable chunk of
the loan portfolio is still focused on the industrial sector. Concerns are raised by
this sector's high reliance because a decline in industrial performance could result
in a significant increase in non-performing loans.
⚫ It is important to recognize that, despite their effectiveness in assessing the quality

of loan portfolios, qualitative and quantitative methods for monitoring portfolio
risk are not perfect and may not provide 100% accuracy.
⚫ The industry standard for assessing the quality of loan portfolios is the Internal
Credit Risk Rating System (ICRRS), which offers particular industry-specific risk
assessment parameters. Banks can assess consumer risk more effectively because
to this methodology.
⚫ Non-performing loans have increased noticeably during the last few years,
especially in private commercial banks. State-owned commercial banks continue to
lead the industry in non-performing loans notwithstanding this trend.
⚫ A few of the factors influencing non-performing loans are the economic downturn,
interest rates, unemployment, industry-specific risks, borrower credit
quality, inadequate risk assessment, and a lack of lending standards.
⚫ There is a strong negative correlation between net profit and categorized loans
(NPL) and higher NPL levels have a significant negative effect on net profit. This
highlights the significance of controlling and reducing non-performing loans to
maintain long-term financial stability.
⚫ United Commercial Bank (UCB) had the greatest percentage of non-performing

loans out of the five banks I examined, which suggests a somewhat high risk
profile. This emphasizes how crucial it is to use strict risk management techniques
in order to improve financial stability and lessen any negative consequences.
47
⚫ Significant deposit accumulation is a sign of improved leverage capacity for
private commercial banks (PCBs). PCBs are in a good position to use these assets
for lending and investing activities because they can accumulate substantial
deposits. The total financial stability and operational adaptability of private
commercial banks are enhanced by this strategic advantage.
⚫ The concerning trend of increasing non-performing loan (NPL) growth annually is

causing the banks' rate of return to decrease. Given that many industries depend on
bank loans to expand their operations, this trend is extremely concerning for both
the banking sector and the economy as a whole. It is imperative that this issue be
resolved in order to maintain financial institution stability and economic viability.
6.2 Recommendations
To ensure the financial stability and prosperity of any lending institution, effective
portfolio management is essential. Monitoring the quality of the loan portfolio and
taking proactive measures to address non-performing loans (NPLs) are important
components of this management. A financial institution's general health, risk profile,
and profitability can all be greatly impacted by non-performing loans (NPLs). I offer
recommendations in this paper to improve the way non-performing loans are managed
and the quality of the loan portfolio is assessed.
1. Adopt Robust Risk Management techniques: Financial institutions should use

robust risk management techniques to guarantee the quality of the loan portfolio.
During the loan origination stage, this involves thorough risk assessment procedures
that take into account variables including creditworthiness, collateral, and prevailing
economic conditions. Update risk models frequently to reflect shifting economic and
market conditions, allowing for a proactive approach to risk reduction.
2. Enhancing Oversight and Surveillance of Credit Operations: Install a proactive

credit monitoring system that keeps tabs on the performance of borrowers instantly.
Use key performance indicators (KPIs), which include measures like liquidity levels,
debt service coverage ratios, and delinquency rates, to evaluate the health of your
portfolio. Review and improve reporting systems on a regular basis to enable prompt
detection of possible NPLs and prompt action.
48
3. Strengthen Credit Underwriting requirements: In order to stop the creation of
dangerous loans, credit underwriting requirements must be strengthened. Make sure
you perform comprehensive due diligence on borrowers in order to arrive at an accurate
evaluation of their ability to repay debt. Underwriting rules should be updated often to
take into account shifting market conditions and business developments.
4. Diversify Your Loan Portfolio: One of the most important risk-reduction tactics is
diversification. To lessen susceptibility to financial crises or difficulties unique to your
industry, try to avoid being overly concentrated in any one area or category of loans.
Stability of the entire portfolio can be increased by a well-diversified portfolio's ability
to offset losses in one area with profits in another.
5. Implementing Proactive Early Warning Systems for Risk Detection: Create and
put into place early warning systems that are able to recognize indicators of possible
financial difficulty in borrowers. To identify trends pointing to declining credit quality,
these systems may incorporate machine learning and data analytics. Early detection
makes it possible to act quickly and put plans in place to keep loans from going non-
performing.
6. Proactive Performing Loan Management: Create a department or team specifically

tasked with managing non-performing loans. Establish a transparent and unambiguous
procedure for locating, classifying, and dealing with non-performing loans. This could
entail reorganizing, refinancing, or, if required, taking legal action. To increase the
likelihood of recovering money from non-performing loans (NPLs), create a strong
recovery plan.
7. Continuous Training and Development: Provide ongoing training for staff involved
in the loan origination and portfolio management processes. Keeping teams abreast of the
latest industry trends, regulatory changes, and best practices will ensure that the institution
is well-equipped to adapt to evolving market conditions and maintain a high standard of
risk management.
49
6.3 Conclusion
In summary, safeguarding a robust loan portfolio is imperative for a bank's fiscal well-
being, demanding swift appraisals to mitigate non-performing loan (NPL) risks. Vital
strategies encompass vigilant monitoring, thorough borrower analysis, and judicious
credit management. Fostering a culture of responsible lending involves rigorous
application reviews, regulatory compliance, and proactive borrower engagement.
Upholding a positive capital adequacy ratio, frequent audits, and prudent collateral
usage mitigate risks. Integrating trend analysis and regression analysis enhances risk
assessment, aiding in proactive decision-making. Counteracting hurried approvals and
curbing external influences like nepotism are pivotal in curbing NPL escalation.
Adhering to these measures ensures banking sector profitability, stability, and
stakeholder trust, bolstering the financial system's resilience through trend and
regression analyses.
50
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Appendices
NPL Ratio
Year 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
UCB
Bank 5.99% 4.41% 2.55% 3.63% 6.79% 7.38% 8.01% 5.23% 4.62% 8.93%
Eastern
Bank 2.78% 3.70% 2.72% 3.35% 2.35% 2.50% 2.69% 3.27% 4.36% 3.59%
Bank
Asia 4.87% 5.14% 3.24% 4.61% 4.10% 4.38% 5.41% 4.26% 5.31% 5.60%
Dutch-
Bangla
bank 2.62% 3.05% 2.73% 4.38% 5.46% 4.70% 5.20% 3.70% 4.40% 3.90%
BRAC
Bank 3.72% 3.90% 2.93% 3.99% 3.10% 3.40% 3.40% 5.99% 5.72% 6.49%
Loan Loss Reserve Ratio
Year 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
UCB
Bank 1.16% 4.12% 3.59% 3.23% 3.15% 2.84% 2.64% 0.46% 0.84% 0.73%
Eastern
Bank 0.49% 0.98% 0.48% 0.72% 1.04% 1.51% 1.66% 1.80% 28.59% 29.10%
Bank
Asia 0.96% 0.78% 0.47% 1.13% 0.88% 2.02% 2.04% 1.12% 0.10% 1.49%
Dutch-
Bangla
bank 0.96% 1.09% 0.30% 1.49% 0.19% 0.18% 1.31% 0.10% 0.64% 0.97%
BRAC
Bank 0.53% 1.00% 0.41% 0.44% 0.12% 0.11% 0.14% 0.18% 0.14% 6.80%
Coverage Ratio
Year 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
UCB
Bank 19.6% 93.5% 140.8% 89.1% 46.5% 38.9% 32.9% 8.9% 18.3% 18.1%
Eastern
Bank 168.5% 141.3% 179.5% 120.4% 150.4% 159.5% 147.0% 116.8% 83.9% 96.7%
Bank
Asia 21.9% 15.2% 14.6% 24.7% 0.2% 0.1% 8.4% 0.3% 0.2% 26.6%
Dutch-
Bangla
bank 22.5% 29.0% 14.2% 34.0% 4.8% 4.0% 25.4% 3.0% 14.7% 24.8%
BRAC
Bank 111.0% 124.0% 171.0% 97.0% 123.0% 132.0% 143.0% 110.0% 121.0% 103.0%
53
Net Charge of Ratio (NCO)
Year 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
UCB
Bank 4.15% 3.06% 1.75% 2.49% 4.70% 5.16% 5.56% 3.62% 3.24% 4.03%
Eastern
Bank 2% 2.59% 1.94% 2.72% 1.63% 2.49% 6.77% 2.41% 3.23% 3.91%
Bank
Asia 3.07% 3.50% 2.21% 3.13% 4.50% 5.19% 6.90% 2.85% 9.60% 5.60%
Dutch-
Bangla
bank 2.97% 2.62% 1.47% 3.02% 2.85% 3.28% 3.65% 2.62% 3.08% 3.92%
BRAC
Bank 2.67% 2.73% 1.97% 2.74% 2.14% 2.49% 2.38% 0.71% 0.69% 7.30%
Delinquency Ratio
Year 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
UCB
Bank 5.91% 4.41% 2.55% 3.63% 6.79% 7.38% 8.01% 5.23% 4.62% 4.02%
Eastern
Bank 2.77% 3.70% 2.71% 4.29% 2.35% 2.49% 8.93% 3.55% 4.58% 3.91%
Bank
Asia 4.38% 5.13% 3.24% 4.61% 4.52% 2.12% 24.40% 37.84% 42.94% 5.60%
Dutch-
Bangla
bank 4.27% 3.74% 2.16% 4.38% 4.13% 4.65% 5.18% 3.69% 4.40% 3.92%
BRAC
Bank 3.72% 3.89% 2.92% 3.98% 9.58% 3.56% 3.40% 1.00% 0.98% 7.39%
Risk-Weighted Assets (RWA) Ratio

Year 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
UCB
Bank 13.06% 13.64% 14.92% 14.68% 12.90% 12.07% 11.39% 12.16% 10.56% 11.53%
Eastern
Bank 10.73% 10.31% 10.78% 9.99% 9.33% 10.24% 10.80% 10.22% 10.19% 9.44%
Bank
Asia 17.70% 15.72% 17.16% 17.90% 15.05% 14.89% 12.42% 12.46% - -
Dutch-
Bangla
bank 15.60% 16.40% 0.80% 17.20% 15.50% 15.60% 13.10% 13.70% 13.80% 13.70%
BRAC
Bank 14.04% 14.36% 14.55% 15.07% 13.67% 11.97% 12.06% 12.29% 15.12% 11.42%
54
Loan Concentration Ratio
Year 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
UCB
Bank 5.27% 5.90% 6.16% 6.12% 6.53% 6.84% 8.15% 5.70% 5.17% 6.22%
Eastern
Bank 8.10% 8.81% 9.40% 10.90% 9.10% 9.70% 3.49% 9.38% 8.01% 9.77%
Bank
Asia 8.12% 9.05% 8.86% 8.69% 8.96% 52.70% 66.98% 8.26% 7.70% 8.81%
Dutch-
Bangla
bank 6.87% 7.43% 7.93% 7.71% 8.30% 8.61% 10.51% 7.39% 7.23% 8.69%
BRAC
Bank 6.09% 7.39% 7.94% 7.48% 8.08% 8.81% 10.49% 7.64% 7.37% 9.00%
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Internship Report

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An Internship Paper on

Assessing Loan Portfolio Quality

Department of Banking and Insurance

Date of Submission: 20th December 2023

Date: January 5, 2023

Subject: Submission of Internship Report

I would want to use this opportunity to express my sincere gratitude to my wonderful

I, Ashak Ahmed, a student in the University of Dhaka's Bachelor of Business

I wish every success and prosperity of his career and life.

The complicated dynamics of loan portfolio concentration are theoretically

Essentially, this thesis offers a comprehensive investigation of NPL management and

Evaluating the performance and health of a bank's loans is known as "assessment of

The economy of Bangladesh is gravely concerned about the rising amount of

1.2 Research Aim

1.3 Objective of the Study

1.4 Limitation of the Study

Joseph (2014) used statistical methods to investigate the percentage of non-performing

Boahene, Dasah, and Agyei (2012) conducted an additional investigation on six

According to Hossain (2018), non-performing loans have become more apparent in

According to Azeez and Ekanayake's (2015) research, "Determinants of Non-

3.2 Data Type and Sample Selection Procedure

3.3 Data Analysis Tools

To accommodate their clients' various financial demands, commercial banks provide a

Dhaka Division 359,397.03 239,286 228,942 284,906.40 292,436.24

5. Loan Performance Trends: Identifying trends in loan performance, such as

7. Economic Conditions: Considering the overall economic environment and how it

8. Portfolio Concentration: Examining the concentration of loans in specific sectors

4.2.2 Quantitative Method for Assessing Credit Risk.

B. Trade and Commerce

Good ≥70% to <80%

Marginal ≥60% to <70%

Quantitative Indicators & Associated Weights:

In accordance with Bangladesh Bank's revised Loan Classification Guideline of 2019,

The persistent problem of non-performing loans poses a grave threat to Bangladesh's

4.3.3 Loan Review Process

4.3.4 Loan Workout Process

Amount of NPLs by Types of Banks

1. Financial Losses: When borrowers default on loans, lenders suffer immediate

2. Decreased Profitability: A bank's whole financial performance is impacted by non-

3. Increased Operational Costs: Managing non-performing loans raises operational

7. Economic Slowdown: A high percentage of non-performing loans can impede credit

8. Financial System Instability: Extensive non-performing loans may be a factor in

Variables Observation Mean Std.deviation Minimum Maximum

United Commercial Bank PLC

Coefficients Standard Error t Stat P-value

Observations: The data-set has sixty observations.

The regression model's overall significance is evaluated in the ANOVA table.

Intercept: The intercept is statistically significant, as shown by its p-value of 0.0172.

Return on Assets (ROA): ROA is not a statistically significant predictor, as shown by

Return on Equity (ROE) is not a statistically significant predictor, according to the

Net Interest Margin (NIM): NIM is not a statistically significant predictor, as

Capital Adequacy Ratio (CAR): A p-value of 0.2091 and a coefficient of -0.6993

In conclusion, the regression analysis conducted on United Commercial Bank PLC

Coefficients Standard Error t Stat P-value

Observations: Sixty instances or data points were used in the analysis.

Intercept: The intercept is not statistically significant, according to its p-value of

Profits per Share (EPS): A statistically significant p-value of 0.0255 is indicated. A

Return on Equity (ROE): A statistically significant p-value of 0.0471 is indicated.