loan disbusrsement

Chapter- 01

NCC BANK LTD.Where Credit and Commerce Integrates

“Loan Disbursement and Recovery System of NCC Bank Limited”

1

INTRODUCTION PART

1.1 TITLE OF THE REPORT:

The title of the report is “Loan Disbursement and Recovery system of NCC Bank Limited - A study on Shyamoli Branch”.

1.2 BACKGROUND OF THE REPORT:

For any business school student only curriculum activity is not enough for handling the real

business situation, therefore it is an opportunity for the students to know about the field of business

through the internship program. Internship program is a perfect blend of the theoretical and

practical knowledge. This report is originated to fulfill the requirement of the assign project

internship report on “Loan Disbursement and Recovery System of NCCBL” has been assigned

to me by Human Resource Division (HRD) of NCCBL, Head Office, Dhaka. In this regard, I have

worked as an internee in National Credit and Commerce Bank Ltd. (NCCBL), Shyamoli

Branch from 15th October 2010 to 15th January 2011.

During this period I learned how the host organization works with the help of the internal

supervisor. On the basis of working experience in this period I have prepared this report and I have

tried my level best to relate the theoretical knowledge with the practical work situation. And

during my internship, I had to prepare a report under the supervision of Md. Masum Iqbal,

Assistant Professor and Head of the Department, Bachelor of Business Administration (BBA),

Daffodil International University.

1.3 RATIONALE OF THE STUDY:

This report is a part of my academic program. The BBA program having 120 credits in total

contains six (6) credit hours on the internship program. The period of internship program has set

for three months. I believe this study will be beside me in future, especially if I have got involve


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myself in banks or other financial institutions. This program helped me a lot to understand the

working environment and behavior.

1.4 OBJECTIVES OF THE STUDY:

The study has been carried out with the following objectives:

To understand the activities of loan & advance department of NCCBL.

To know about all the products offered by the loans & advance department of NCCBL.

To know the terms and conditions of loans & advance department of NCCBL

To identify the loan disbursement & recovery process.

To measure the quality of loan disbursement & recovery process of NCCBL using

SERVQUAL model.

To identify the problems related to loans and advance department.

To make some recommendations to solve the problems.

1.5 SCOPE OF THE STUDY

Since, working at NCC Bank Ltd. Shyamoli Branch, get the opportunity to gain knowledge of

Loan Disbursement and Recovery system. My decisions and analyses are done based on the

practices applied at this branch. The report covers with the status of functional and operational area

of loan disbursement and recovery. The report provides a clear view of:

NCC Bank Ltd, its loan products, classifications, pricing, lending operations and

disbursement pattern.

Recovery status, recovery pattern based on type of loan and tenure of client.

1.6 METHODOLOGY OF THE STUDY:

Type of the study: Exploratory research has been used for the study.


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Sources of Data: The data used to furnish this report have been collected from the primary

sources and secondary sources. Among primary and secondary sources most of the data have been

collected from the secondary sources.

Primary Sources:

Officers of the bank

Clients of the Bank

Secondary Sources:

Company Confidential files.

Banker’s Foundation Training Course Book-2009.

Annual Reports of NCC Bank Ltd.-2009.

Office circular and other published papers, documents and reports.

Published specifications of different products in websites.

Choice of Methodology: For analysis part I prepared questionnaire on “Customers

Perceptions towards Service Quality of NCCBL: Specially Focused on Loan Services” for

collecting primary information from the customers and the officers and use SPSS software for

Data processing.

Sample size: Sample size was 30 as data was collected where 10 from the officers and other 20

from the customers of NCCBL, Shyamoli Branch.

Sampling method: Non probability sampling method was used as I collected data from the 30

respondents from NCCBL, Shyamoli Branch.

Method of contact: I used interview method to contact with the respondents.

Data Analysis: I analyzed data by SPSS software with descriptive analysis.


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A quantitative research was carried out to identify the “Customers Perceptions towards Service

Quality of NCCBL: Specially Focused on Loan Services”. This research is based on primary data

which was collected from the clients and officers of NCC Bank Limited.

Methods of Data collection :

For data collection I used “Interview method”. I had interview with the officers and clients of

NCCBL, Shyamoli branch through questionnaire.

Sampling Method: Convenience sampling method has been performed for selecting

samples.

Target population

All officers and clients of Shyamoli Branch, NCC Bank Ltd.

Sample size: There are 30 respondents.

Types of Sample Geographical Area Sample Size

Officers Shyamoli Branch, NCCBL 10

Clients Shyamoli Branch, NCCBL 20

Total 30


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1.7 LIMITATIONS OF THE STUDY:

I have faced the following obstacles while preparing this report.

Loan and Advance department of NCC Bank Ltd. Is highly confidential for the

employee.

Sufficient records, publications or website regarding customer services were not

available for Loan and Advance department of NCCBL.

The information of Loan and Advance department of NCCBL not found in a

structured way.

There were some restrictions to have access to the information confidential by

concern authority.


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Chapter- 02



7

ORGANIZATION PART

2.1. BANKING HISTORY:

The English word “Bank” is originated from Italian word “banco”. The Latin “bancus” and French

word banque which means a bench. They are of the opinion that the medieval European bankers

(i.e. money changers and money lenders) transacted their banking activities on the benches in

market place. This money changing and money lending business is known as ‘’Banking business’’.

Banks have to compete with local financial institution as well as foreign financial institution in the

market place, banks has to develop appropriate financial structure and should periodically review

and compare their performance with its competitor to build a sound banking institution.

Banks are financial intermediary institutions. The core is to mobilize the financial surplus of saver

in the form of deposits & allocate these savings to the credit worthy borrowers of different sector

of economy in the form of loans & advances. The advance of the intermediary functions between

the savers & investors would certainly in the lower level of savings & investment & thus lower the

economic growth. That development of the financial intermediaries & instrument (both in case of

deposit & advance) will lead to the development of the economy of a country.

2.2. BANKING IN BANGLADESH:


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Economy of Bangladesh is in the group of word’s most underdeveloped economics. One of the

reasons may be its underdeveloped banking system. Modern banking system has been plays a vital

role for a nations economic development. Over the last few years the banking world has been

undergoing a lot of change due to deregulation, technological innovations, globalization etc. These

changes also made revolutionary changes of a country’s economy. It is well recognized that there

is an urgent need for better qualified management & better-trained staff in the dynamic global

financial market. Bangladesh is no excepting in that trend. Banking sector in Bangladesh is facing

challenges from different angles though its prospect is bright in the future. Money & Banking is

the center around which all-economic science clusters. So this report is carried on to find out the

problems faced by NCC Bank & recommend some measures to overcome these problems for

economic development of Bangladesh.

NCC Bank is one of the fast growing commercial bank with having well reputation & goodwill for

its commitment & service it provides towards the consumers & the nation. With day by day

function the bank also provides some services & facilities which are most equal to an international

banking system. It helps the banks to get closer towards the consumers. ATM, Credit card,

worldwide correspondence etc are the most recent products of this bank which has world wide

demand as well as into the country’s.

For my internship I choose this bank because of its potentiality & fast growing attitudes which

make it popular & well acceptable to all within a short period of time.

2.3. HISTORICAL BACKGROUND OF NCC BANK LTD.:

National Credit and Commerce Bank Ltd. is a scheduled commercial bank in Bangladesh. It

started its journey in the financial sector of the country as an investment company back in 1985.

The aim of the company was to mobilize resources from within and invest them in such way so as

to develop country's Industrial and Trade Sector and playing a catalyst role in the formation of

capital market as well. The company operated up to 1992 with 16 branches and thereafter with the

permission of the Central Bank converted into a full fledged private commercial Bank in 1993 with


9

paid up capital of Tk 39 core. Since its inception NCC Bank Ltd. has acquired commendable

reputation by providing sincere personalized service to its customers in a technology based

environment.

The Bank has set up a new standard in financing in the Industrial, Trade and Foreign exchange

business. Its various deposit & credit products have also attracted the clients-both corporate and

individuals who feel comfort in doing business with the Bank. In recent years the bank has given

much importance on financing small businesses through SME loan to reach its credit offering to

wide range of customer.

2.4. COMPANY PROFILE OF NCCBL:

Name National Credit & Commerce Bank Ltd.

Year Of Establishment Started as an investment company in 1985 and converted

to a full fledged private commercial bank in 1993

Corporate Office 7-8, Motijheel C/A , Dhaka-1000

Authorize Capital 2500 million

Paid –Up Capital 1352.01 million

Type of Company Public limited

Scope of Business Banking, capital market operations

No. of Branches 92

2.5. CORPORATE MISSION:


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To mobilize financial resources from within and abroad to contribute to Agricultures, Industry &

Socio-economic development of the country and to play a catalytic role in the formation of capital

market.

2.6. CORPORATE VISION:

To become the Bank of choice in serving the nation as a progressive and socially responsible

financial institution by bringing credit & commerce together for profit and sustainable growth.

2.7. CORPORATE CULTURE:

NCC Bank is one of the most disciplined Banks with a distinctive corporate culture. In this bank, it

believes in shared meaning, shared understanding and shared sense making. The people of bank

can see and understand events, activities, objects and situation in a distinctive way. They mould

their manners and etiquette, character individually to suit the purpose of the Bank and the needs of

the customers who are of paramount importance to them. The people in the Bank see themselves as

a tight knit team/family that believes in working together for growth. The corporate culture they

belong has not been imposed; it has rather been achieved through their corporate culture.

2.8. OWNERSHIP PATTERN:

Presently the bank is primarily owned by the Army Welfare Trust of the

country. It holds 60% shares and the rest (i.e. 40%) is held by the Financial

Institutions, Non-resident Bangladeshi and general public.

Particulars Taka

Sponsor 700,000,000

Financial Institution 163,557,000

Non-resident Bangladeshi 15,105,000

general public 288,008,000

Table: Ownership Pattern of NCCBL


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Figure: Percentage of Shareholdings of NCCBL.

2.9. CAPITAL STRUCTURE:

The bank has a strong capital base. Its authorized capital is TK. 2500.00 million while its paid up

capital is Tk. 1352.01 million. The share price of the bank is par value Tk.100.00. to meet the

overall requirement the bank borrow from Bangladesh Bank and other banks and financial

institutions. So far the bank has been able to meet its capital adequacy requirement successfully.


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2.10. PERFORMANCE OF NCCBL AT A GLANCE:

Five years Financial Highlights

Taka in Million (Where applicable)2005 2006 2007 2008 2009

Authorised Capital 2,500.00 2,500.00 2,500.00 2,500.00 5,000.00

Paid up Capital 975.04 1,201.79 1,352.01 1,757.62 2,284.90

Reserve fund and other Reserve 884.90 1,215.58 1,995.36 2,863.63 4,371.62

Equity fund 1,859.94 2,417.37 3,326.52 4,621.25 6,656.52

Deposits 21,478.22 28,147.34 34,901.77 46,904.66 53,900.15

Loans and Advances 20,533.13 24,678.36 32,687.75 46,332.69 50,387.68


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Investment 3,010.45 3,552.08 6,266.62 6,526.82 9,671.53

Import Business 16,296.30 17,646.80 28,779.21 38,796.88 33,078.44

Export Business 7,776.30 8,557.00 9,577.92 12,522.04 11,903.72

Operating Income 2,932.00 3,913.19 5,269.03 7,417.64 9,333.03

Operating Expenses 1,913.66 2,645.62 3,488.78 5,054.15 6,195.33

Operating Profit 1,018.34 1,267.57 1,780.25 2,363.49 3,137.70

Profit before Tax 687.60 1,056.51 1,356.32 1,788.96 2,686.49

Profit after Tax 352.08 479.22 677.18 882.28 1,719.50

Retained Profit 10.31 7.83 8.13 5.34 46.47

Total Assets (excluding contra) 26,114.13 32,615.01 42,522.85 57,365.52 65,937.49

Fixed Assets 308.14 353.71 522.00 775.31 849.10

Number of Branches 41 48 53 57 65

Number of Employees 1,000 1,118 1,230 1,400 1,496

Earning per Share 36.11 39.88 50.09 50.20 75.26

Dividend: Cash (%) 10.00 10.00 - - -

Bonus (%) 10.00 12.50 30.00 30.00 47.00

Return on Equity (ROE) (%) 18.93 19.82 20.23 21.76 28.49

Return on Assets (ROA) (%) 1.35 1.63 1.59 1.54 2.61

Capital Adequacy Ratio 9.02 9.78 10.61 10.61 13.55

Non performing Loans as % of Total Advances

4.82 4.95 4.17 4.14 2.84

Volume of Non-performing 981.54 1,212.26 1,353.31 1,902.58 1,420.57


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Loans

Amount of provision against Classified Loans 405.75 523.58 644.11 912.90 720.22

Amount of provision against Unclassified Loans

202.14 282.09 388.78 456.07 509.67

Amount of provision against Off-balance sheet exposures

- - 51.69 109.41 111.93

Advance/Deposit Ratio (%) 95.60% 87.68% 93.66% 98.78% 93.48%

2.11. BRANCHES OF NCCBL:

The bank now continues its operation with 92 branches across the country, mainly in Dhaka,

Chittagong, Noakhali, Comilla, Sylhet, Jessore, Rajshahi and Khulna. The district wise pictorial

presentation of the branches appears as follows:

= Branches Location


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2.12. MANAGEMENT TEAM OF NCC BANK LTD:

There are 25 members of Board of Directors manages National Credit and Commerce Bank

Limited. For efficient operation of the bank the Board of directors forms an Executive Committee

of 19 members. Besides, a management Committee looks after the affairs of the bank. The Bank


16

maintains transparency in its entire works. All decisions of the management come through

discussions in appropriate forum and required follow-ups are also made to see their effectiveness.

Here are the management team given in a chart and he hierarchy of the NCCBL is given in next

page-

Fig: Management Team of NCCBL


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Chairman

Vice Chairman

Directors

Managing Director & CEO


18

Chairman

Vice Chairman

Deputy Managing Director

Executive Vice President

Senior Executive Vice President

Senior Vice President

Managing Director

Board of Directors

Principal Officer

Senior Principal Officer

Assistant Vice President

Senior Assistant Vice President

Vice President

Senior Officer

Officer Gr-1

Management Trainee Officer

Assistant Officer

Junior Officer

Fig: The Hierarchy of NCCBL

2.13. ORGANIZATIONAL HIERARCHY OF SHYAMOLI BRANCH:

There are 25 employees in NCC Bank, Shyamoli Branch. The organizational structure of NCCBL,

Shyamoli Branch is given below:


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Officer Grade-1

Management Trainee Officer

Junior Officer

Senior Officer

Principal Officer)

Deputy Manager (Senior Principal Officer)

Manager (Senior Assistant Vice President)

Assistant Officer

Fig: The Hierarchy of NCCBL, Shyamoli Branch

2.10. PRESENT PROGRAMS OF THE ORGANIZATION:

The present programs run by NCCBL, Shyamoli Branch are shown below in a chart:


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NCCBL: Shyamoli Branch

General Banking

Department

Loan & Advance

Department

CashSection

Remittance Section

Clearing Section

Account Opening Section

Local Remittance

Foreign Remittance

Chapter- 03



21

LEARNING PART

3.1. LOANS and ADVANCES:

In the general sense, the loan means “document”- any written record which serves as an evidence

in respect of a transaction and be described as anything obtained for recording a transaction.

Documentation may be described as the process or technique of obtaining the relevant documents.

A banker must obtain proper documents executed from the borrower to protect himself against

willful defaults. Moreover, when money is lent against security of some assets, the documents

must be got executed in order to give to the banker a legal and binding charge against those assets.

NCCBL has its own policy formulated in the light of directives and guidelines issued by

Bangladesh Bank from time to time. The main focus of this policy is to maximize profit through

feasible investment ensuring sustainable growth. The bank always tries to extend credit facility to

unconventional sectors along with conventional ones. Various Agri-Projects, IPFF membership,

etc. helped largely to achieve fruitful results. During 2009, the Bank disbursed Tk.50987.68

million. Advance Deposits ratio was 0.93:1 in 2009.


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Loans & Advances (2005-2009)Figures in Million

20092008200720062005

20533

32688

50388

24678

46333

0

10000

20000

30000

40000

50000

60000

1 2 3 4 5

Fig: Loans and Advances of past 5 years

3.2. LOAN PRODUCTS:

1. Continuous Loan:a. Secured Over Draft Against Financial Obligation [SOD(FO)]

b. Secured Over Draft Against Work Order [SOD(G)]

c. Cash Credit (Hypothecation)

d. Cash Credit (Pledge)

e. Export Cash Credit (ECC)

2. Demand Loan:

a. Loan general

b. Demand loan against ship breaking

c. Payment against documents (pad)


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d. Loan against import merchandise (LIM)

e. Loan against trust receipt (LTR)

f. Forced loan

g. Packing credit

h. Secured over draft against cash incentives

i. Foreign documentary bills purchased (FDBP)

j. Local documentary bills purchased (LDBP)

k. Festival business loan

3. Term Loan

a. Project loan

b. Transport loan

c. House building loan

d. Small business loan

e. Consumer finance loan

f. Lease finance

g. Personal loan

3.3. CREDIT ANALYSIS: What makes a good loan?

Credit analysis is the analysis of financial statement of business/customers for the purpose of

lending. Credit analysis are conducted to determine whether the customer is creditworthy and

whether the customer has sufficient cash flow and back up assets to repay the loan. The main

purpose of credit analysis is to ascertain whether the loan can be serviced by the customer and

whether the bank is well protected to realize the loan in the event of default by the borrower to

repay the loan.

The quality of credit analysis in our country is very poor. Many of the credit officers even do not

know how to analyze credit proposal or what is its importance in credit making process.


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3.4. MAJOR ISSUES ANALYZED IN CREDIT ANALYSIS:

Is the borrower creditworthy?

Whether purpose of the loan is consistent with bank’s credit policies and Government

regulations.

Whether the customer or his business has the ability to generate enough cash to repay the

loan.

Whether sufficient security has been offered, so that in the event of default bank’s fund can

be recovered.

Whether bank claims on the security can be established without risk or with low risk.

Fixing of amount of loan, loan terms and conditions, documentations, etc. meet the needs

of the borrower and to protect the interest of the bank.

3.5. PURPOSE OF LOANS:

Customer must have a well defined purpose for requesting the loan.

The purpose of the loan must be consistent with the bank’s existing credit policy.

The purpose of the loan also should be consistent with the government policy and

regulation.

NCCBL outline industries or lending activities that are discouraged. NCCBL has segregated sectors to be

discouraged based on the following:

Government

Specified

Best Practice Company Specific

Military Equipment/Weapons Finance.

Lending to companies listed on CIB black list or known defaulters.

Highly Leveraged Transactions.

Logging, Mineral Extraction/Mining, or other activity that is ethically or environmentally sensitive.

Counter parties in

Finance of Speculative Investments.

Share Lending Taking an Equity Stake

in Borrowers. Lending to Holding

Companies. Bridge Loans relying on

equity/debt issuance as


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countries subject to UN sanctions.

a source of repayment.

Table: Discouraged Business Types for lending

3.6. BUSINESS POSITION:

1. Cash Flow:

Three source to repay loan:

i. Cash flow generated form sales or income,

ii. The sale or liquidation of assets or

iii. Funds raised by issuing debt or equity securities.

Bank prefers cash flow as the principal source of loan payment because assets sale

can weaken borrowing customers and make the bank’s position as creditor less

secured.

Cash flow= Net profit ( revenue less expenses) + Non cash expenses

( depreciation)

Cash flow= Net profit + Non-cash expenses + addition to account payable- addition

to inventories and accounts receivable.

History of earning and sales: Whether there is history of steady growth in earning or

sales and whether there is high probability that such growth will continue.

2. Condition:

Analyze recent trends in the borrower’s business and industry and whether

changing economic condition might affect business or loan.

3. Control:

Whether there are chances of change in government policy or law which adversely

affect borrower’s business.

3.7. SECURITY OF LOAN:

There are three securities of loan


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The most preferred is business’s income or cash flow from which the customer will pay the

loan

Second security consists of customers balance sheet – his assets that can be liquidated for

adjust of loan and

Guarantees from owner’s or from a third party.

Collateral Security: Collateral Security serves two purposes for a lender. First, if the borrower

cannot pay, the collateral gives the lender the authority to seize or sell those properties to cover the

amount of loan default. Secondly, Collateral Security gives the lender a psychological advantage

over the borrower. Borrower on this situation feel more obligated and works hard to repay the loan

to avoid losing valuable assets.

3.8. TYPES OF LOAN:

Loans are the largest asset item, which generally account for half to almost three quarters of the

total value of all banks assets. A bank’s loan account typically is broken down into several groups

of similar type loans. The Loan and Advances made by the NCCBL can broadly be classified by

following categories-


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Fig: Four types of Loans

3.8.1. Continuous Loan

There are different types of continuous loan are discussed below:

Secured Overdraft (FO)


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Other Special Scheme

Term Loan

Demand Loan

Continuous Loan

Loans & Advanc

es

Advance is granted to a client against financial obligations that is deposited in the bank. A client

can get up to 80% loan of the total deposited value. Loan repayment period is maximum 1 year. If

client can not repay the loan in this stated period then it is again renewed for 1 year more.

Interest rate is 14% to 16%.

Secured Overdraft (G)

This loan is granted against the work order of government departments, corporation’s autonomous

bodies and reputed multinational private organization. To arrive at logical decision, the client’s

managerial capability, equity strength, nature of scheduled work is to be judged. Disbursement is

made after completion of documentation formalities, besides usual charge documents like a

notarized irrevocable power of attorney to collect the bills from the concerned authority and a

letter from the concerned authority confirming direct payment to the bank. The work is strictly

monitored to review the progress at each interval.

Interest rate is 14% to 16%. Only renowned clients get this loan.

Cash Credit (Hypothecation)

The mortgage of movable property for securing loan is called hypothecation. Hypothecation is a

legal transaction where goods are made available to the lending banker as security for a debt

without transferring or possession of the property. The banker has only equitable charge on stocks,

which practically means nothing. Since the goods always remain in the physical possession of the

borrower, there is much risk. So, it is granted to parties of undoubted means with highest integrity.

Interest rate is 16%. Loan repayment period is maximum 1 year.

Cash Credit (Pledge)

In case of CC (pledge), the bank acquires the possession of the goods or a right to hold goods until

the repayment of credit. If loan is not repaid in due time then bank sells the goods to collect

money. But at present, bank didn’t give this loan because it has to maintain warehouse which

creates extra burden on officers.


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Interest rate is 16%.

Continuous loan for the last 5 years shown in a chart below:

Continuous Loan

20092008200720062005

1144.71

647.89

953.14

884.11014.98

0

500

1000

1500

2000

2500

1 2 3 4 5

Fig: Continuous loan (Tk. in million)

3.9.1. Continuous Loan3.9.1.

3.8.2. Term Loan

House Building Loan

House Building Loan facility starts from Tk. 6 lac to 40 lac. Maximum loan repayment period is

15 year including a grace period of 3 years and repayment is done through equal monthly


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installment. Registered mortgage of land and building is required. This scheme covers three

aspects for sanctioning loan to clients which includes- purchase of flat, purchase of building & self

construction.

Interest rate is 16% p.a.

Lease finance

This type of financing are usually provided for machinery, transport etc. Now a day this Lease

Financing is one of the popular financing projects. Loan period is 3 to 5 year. Maximum loan

facility is tk. 15 lac.

Rate of interest is 15%. For lease financing, registered mortgage of land & building as collateral is required.

Term loan for the last 5 years shown on chart below

Term Loan

454.56

4212.98

5562.38

2005 2006 2007 2008 2009

2330.22

8101.6

0100020003000400050006000700080009000

1 2 3 4 5

Fig: Term loan (Tk. in million)

3.8.3. Demand Loan

Loan (general)


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The loan which is sanctioned for more than one year is considered as loan (general). Under this

facility, an enterprise can get loan from setting up of the business to final production of goods or

services. NCCBL offers this facility only to big industries.

Loan against Imported Merchandise (LIM)

LIM is allowed for retirement of shipping documents and release of goods imported through L/C

taking. When the importer failed to pay the amount payable to the exporter against import L/C,

than NCCBL gives loan against imported merchandise to the importer. The importer will bear all

the expenses i.e. the warehouse charge, insurance fees, etc. and the ownership of the goods is

retaining with the bank. This is also a temporary advance connected with import, which is known

as post import finance.


Loan against Trust Receipt (LTR)

Trust Receipt is a document which creates the banker’s lien over the goods and practically

amounts to hypothecation of the proceeds of sale in discharge of the lien. Loans against Trust

Receipt to the clients are allowed when the documents covering an import shipment are given

without payment. However, prior permission of Head Office must be obtained for such advances.

The clients hold the goods or their sales proceeds until the loan allowed against the Trust Receipt

is fully paid off. This is also a temporary investment connected with import and known as post-

import finance and falls under the category "Commercial Lending".


Loan documentary Bill Purchase (LDBP)

The loan is made against documents representing sell of goods to local export oriented industries,

which are deemed as exports and which are dominated in local currency/foreign currency. The bill


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of exchange is held as the primary security. The client submits the bill and the bank discounts it.

This temporarily liability is adjustable from the proceeds off the bill.

Current interest rate is 16%.

Inland Bill Purchase (IBP)

Payment that is made through purchase of inland bills/cheques to meet urgent requirement of the

customer falls under this type of investment facility. This temporary investment is adjustable from

the proceeds of bills/cheques purchased for collection. It falls under the category of "Commercial

Lending".

Foreign Bill Purchase (FBP)

Payment that is made to customer through Purchase of Foreign Currency Cheques /Drafts falls

under this head. This temporary investment is adjustable from the proceeds of the cheque/draft.

Demand loan for the last 5 years shown on chart below:

Demand Loan

20092008200720062005

6280.52

5394.66

6577.85

7489.25

10054.29

0

2000

4000

6000

8000

10000

12000

Fig: Demand loan (Tk. in million)

3.8.4. Loan under SME


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Consumer Credit Scheme

This scheme is aimed to attract consumers from the middle and upper middle class population with

limited income. The borrower should have saving or current deposit account with the bank.

Minimum 25% of the purchase cost of the product is to be deposited by the borrower with the bank

i.e. equity before disbursement of the loan. The rest 75% is to be kept as cash collateral (FDR,

Shanchay Patra etc.) with the bank. The purchased items are hypothecated with the bank. Loan

amount is disbursed through pay order/demand draft directly to the seller after submission of the

indent, deposit of client equity and completion of documentation formalities. The bank obtains

post dated a/c payee cheque drawn in favor of the bank for the monthly installments covering the

lending period from the borrower and the loan amount is adjusted on the due date of installments.

Working capital loan

Loans allowed to the manufacturing businesses to meet their working capital requirement. Loan

facility starts from Tk. 1 lac up to Tk. 5 lac.


House Repairing/Renovation Loan

This loan is offered for renovation and modernization of the house/building/flat. The genuine

residential owners can avail this kind of loan. Loan facility starts from Tk. 1 lac upto Tk 5 lac.

Loan can be repaid by monthly equal installments including interst within maximum 5 years.


Small Business Loan

This loan is offered to the small and promising entrepreneurs to meet their capital requirement and

enable them to operate and expand the business purposely. It is apporved against collateral and

estimation of the revenue generation of the project for which the loan is sanctioned. The range of

this type of loan is one to five lac taka. Loan repayment period is maximum 5 years.

Personal Loan


34

This loan is provided to salaried persons in various organizations to meet any emergency cash

needs. The loan facility starts from Tk 20000 and maximum credit ceiling is Tk 1 lac. Loan

repayment period is maximum 3 years.

Interest rate is 15% p.a.

SME loan for the last 5 years shown on chart below:

SME Loan

20092008200720062005

182.22163.88147.63

198.55274.83

0

500

1000

1500

2000

2500

Fig: SME loan (Tk. in million)

From the above chart it is shown that, bank has invests a greater amount in demand loan. Second

highest loan is given to term loan category. Sanction of SME loan has fallen in comparison of

financial year 2005. Because bank now focus on term loan and demand loan as these sector earns a

higher interest rate than SME loan. Also, default risk is low in these two categories.


35

3.9.GENERAL PROCEDURES of SANCTIONING LOAN:

Approval Process

The approval process reinforces the segregation of Relationship Management/Marketing (RM)

from the approving authority. The responsibility of preparing the credit application is rest on the

Relationship Management. Credit Applications are recommended for approval by the RM team

and forwarded to CRM for their review and assessment. The credit subsequently approved by

proper approval committee.

NCCBL has established various thresholds, above which, the recommendation of the Head of

business unit is required prior to onward recommendation to CRM and subsequent appropriate

authority for approval.

The procedure for all the business units is as shown in the next page:


36

Executive Committee/Board

Credit Committee

Head of Credit Risk (HOCR) &

Head of Business Units (HOBU)

Zonal/HO Credit Risk Officer

(ZCRO/HCRO)

Credit Application

Recommended By RM

Application forwarded to Zonal Office or Head Office for review by the ZCRO or HCRO.

Advise the review to recommending branches.

ZCRO/HCRO supports & forwarded to Head of Business Units (HOBU) within their

delegated authority and to Head of Credit Risk (HOCR) for onward recommendation.

HOCR advises the review to ZCRO.

HOCR & HOBU supports & forwarded to Credit Committee.

Credit Committee advises the decision as per delegated authority to HOCR & HOBU.

Credit Committee forwards the proposal to EC/Board for their approval within their

respective authority.

EC/Board advises the decision to HOCR & HOBU.

The approval process may vary in NCCBL depending on the types of products and exposure. For

example, lending to Corporate and SME’s is mostly unstructured due to diverse nature of risk

exposure. On the other hand, consumer lending is mostly structured by standardizing the product

and risk aspects of individuals. As such applications for consumer lending may be done within the

head of consumer unit subject to delegation of authority to do so.

Lending ProcessThe main function of commercial bank is to take deposit and invest this fund. But in the process of

lending it has to safeguard the depositor’s money as well as business of the bank. Therefore proper

management supervision and follow-up is very important in the lending and recovery process.

NCCBL follows a three step process firmly to supervise and follow-up the lending and recovery

process.


37

Pre-sanction Stage

The very supervision of loans starts during pre-sanction stage. At this stage credit investigation is

very important as it involves selection of right and qualitative borrower. To select the borrower

NCCBL personnel at first interview the person to judge their capability to manage the finance or to

run the project effectively. The following steps are conducted to make sure that the loans are

authorized to the right persons.

Information collection

Credit information bureau of Bangladesh Bank

Declaration of the party with regard to liability with other banks, financial institutions.

Account performance, reputation, track record, repayment capacity through NCCBL

internal sources.

Feasibility study: Following aspect are mainly noticed by NCCBL

1. Management Aspect:

a. Managerial ability

b. Honesty and integrity

2. Technical Aspect:

a. Whether the technology is outdated or modern to handle by the firm


38

b. Cross-check of the pricing as stipulated in the pro-forma invoice.

c. Productivity of the proposed plant and machinery matching with the firm’s goal.

3. Financial Aspect:

a. Operating performance and future earnings prospects.

b. Current financial condition.

c. Demand- supply gap keeping in view the other similar industries.

d. Net worth

e. Lending risk analysis.

Post-sanction/Pre-disbursement

Proper documentation and securitization is very important at this stage for safety of the credit

facility to be extended and enabling NCCBL to liquidate the loan liability in the event of the

borrower’s default.

Proper documentation serves three basic purposes to NCCBL:

1. Borrower’s unqualified assets of availing credit facility.

2. Bank’s legal right created to securities offered as loan.

3. In case of default, the documents can be placed before court for a decree to realize the

dues.

Direct and indirect securitization is also done in this stage.

Post disbursement stage:

At this stage NCCBL considered the following points:

The transaction in the loan account is being done satisfactorily.

Balance in the loan account remains within limit.

Fund disbursed has been used for the purpose the loan has been sanction for.

Stock reports are obtained and stocks are being inspected at a regular basis.

Stock and drawing power register and delivery order properly maintained.


39

Personal contact with the borrower at a regular basis.

Keen watch in irregularity of any form on the loan account.

Closely watch and supervise the financial and management position of the borrower.

Taking steps so that the loan does not turn time-barred.

Finally respective officer disburses the loan after sanction and completion of all formalities. The

officer writes cheque and provides it to the borrower. For this borrower has to open an account

thorough which he/she can withdraw the money.

3.10. LOAN RECOVERY PROCEDURES:

It is the duty of the Bank to recover the landed fund within the stipulated time and if the borrower

fails to repay the money within the said period Bank will declare him as a defaulter and recover the

fund by selling the securities given by the borrower or by freezing his account or make a suit

against him.

Strategies for recovery

Recovery of loan can be made in the following 3 methods.

1) Persuasive

2) Voluntarily

3) Legally

1) Persuasive recovery:

If the borrower didn’t paid the due amount of loan in time then the first step of bank is private

communication with him. It creates a mental pressure on borrower to repay the loan amount. In

this case bank can provide some advice to the borrower for repaying the loan.

2) Voluntarily recovery:


40

In this method, some steps are followed for recovering loan. This are-

Building Task Force

Arranging seminar

Loan rescheduling policy

Waiver of interest rate

3) Legal recovery:

When all steps fails to keep an account regular and the borrower does not pay the installments and

interests then bank take necessary legal steps against the borrower for realization of its dues. In this

case “Artha Rin Adalat Ain-2003” plays an important role for collecting the loan.

Recovery procedure of NCC Bank is the ultimate combination of time, effort of money. It follows

four procedural steps to recover the lending amount, which is joint effort of Bank, society and

legal institutions, which are shown below:


41

Reminder to the Court

Creating Social Pressure for the Payment of loans and advances

Execution of legal rules by the help of court

Providing legal notice

Fig: Recovery Procedure

3.11. PRINCIPLES of SOUND LENDING:

A. Safety

NCC Bank exercises the lending function only when it is safe and the risk factor is adequately

mitigated and covered. Safety depends upon:

The security offered by the borrower.

The repaying capacity and willingness of the borrower is to repay the advance.

B. Liquidity

The liability of a Bank is repayable of demand or at a short notice. So the Bank has to maintain its

liquidity at a sufficient level. Investment on building, plant, machinery, land etc. cannot be

recovered quickly, so it is less liquid.

C. Profitability

Profit is needed to pay interest to depositors, depreciation, and maintenance, declare dividend to

share holders, provide or reserve against bad and doubtful debts etc. so like all other Banks NCC

Bank also disburse advances to earn profit.

D. Security

To ensure safety of advances, Banks takes different types of securities like MTDR, Sanchaypatra,

land, work order etc. Banker should ensure that the securities are adequate, marketable and free

from encumbrances.

3.12. DIVERSIFICATION of RISKS:It is very risky for a bank to invest all its assets into a particular sector or a single borrower or to

one particular region. If somehow the business of that sector or area or borrower collapses, the

bank may fall in a critical situation. So it is better to invest in different sectors/borrowers and

spread over the country. That’s why NCC Bank invests its fund in various sectors.


42

3.13. DISCOURAGED SECTORS of INVESTMENT:

Investment in following sectors is discouraged by NCC Bank.

Military equipment/Weapons Finance

Highly Leveraged transactions.

Finance of Speculative Investment.

Logging, Mineral Extraction/Mining, or other activity that is Ethically of

Environmentally Sensitive.

Lending to companies listed on CIB blacklist or known defaulters,

Counter parties in countries subject to UN sanctions.

Share Lending.

Taking an Equity Stake in borrowers.

Lending to Holding Companies.

Bridge Investments relying on equity/debt issuance as a source of repayment.

Tannery Finance.

HB- residential who has no other business with the Bank.

3.14. LOAN MONITORING:

Loan monitoring implies that the checking of the pattern of use of the disbursed fund to ensure

whether it is used for the right purpose or not. It includes a reporting system and communication

arrangement between the borrower and the lending institution. The following steps are followed by

respective officer.

Regular checking the balance of SB/CD/STD accounts of the borrower.

Regular communication with the defaulter customers and guarantors physically over

telephone.

Issuance of letter to customers immediately after dishonor of cheque.


43

Issuance of legal notice to the defaulter customers and guarantors prior to classification of

the loans.

Issuance of appreciation or greeting letter to the regular customers.

Periodical visit with the customers to maintain relationship and supervision of supplied

articles.

Legal action to be taken after failings all possible efforts to recover the bank’s due.

3.15. HANDLING of NON-PERFORMIG LOANS:

When a borrower cannot repay interest and/or installment on a loan after it has become due then it

is qualified as default loan or non-performing loan. It is known as non-performing because the loan

ceases to “perform” or generate income for the bank.

3.15.1. Implications

The very implication of non-performing loans are not only depriving of interest but also stoppage

of creating new loans for blockage of the fund and erosion of banks profitability, liquidity and

solvency, which might sometimes lead towards collapse of a bank. So, it is become essential for

policy makers of a bank to study the loan default scenario on a routine basis for estimating

classified loan, making appropriate provisioning, adopting effective recovery strategy and thus

ensuring soundness and efficiency of the bank.

3.15.2. Classification & provisioning of non-performing loans

Loan classification means giving each and every loan a status like unclassified, sub-standard,

doubtful or bad/loss through verification of borrower’s repayment performance while provisioning

means setting aside funds from the profit against possible loan losses. This is essential for

determine the financial health and efficiency of a bank.


44

In order to get rid of default loans, Bangladesh Bank introduced a circular (BCD circular no. 34)

on 1989 for classification & provision of loan thereof. The circular states the banks themselves will

carry out the classifications of their loans at least once in a year on the basis of the position

existing on December 31 in accordance with the guidelines given in the circular. In 1994,

Bangladesh Bank revised policy on classification and provisioning on quarterly basis.

The rules for classification and to maintain provisions as per overdue criteria are shown in the

table shown in next page:

Status and types of classification

Length of overdue Status of

classification

Rate of provision

Frequency of

classification

All current loans overdue for less than 6 months.

Unclassified 1%

Loans overdue for 6 months but less than 9 months. (When degree of risk for non-payment is high but there is reasonable prospect

Sub-standard (SS)

20%


45

that the loan condition can be improved)

Quarterly

Loans overdue for more than 9 months but less than 12 months. ( When chance of repayment is uncertain but there is little hope of recovery)

Doubtful (DF) 50%

Loans overdue for 12 months or more. (When chance of recovery is remote)

Bad/loss (B/L) 100%

Chapter- 04


46

ANALYSIS & FINDINGS


4.1. QUESTIONNAIRE DESIGN & MEASURES:

In the questionnaire there are 12 statements. These statements are based on SERVQUAL Model

where the questionnaires divided in to five dimensions- Reliability, Responsiveness, Assurance,

Empathy, Tangibles. I designed 5 points Likert scale for answering. These questionnaires based on

the 5 point Likert scale. There are five answering options and I put marks for each option and the

marks are:

Strongly agree =5

Agree = 4

Neither agree or Disagree = 3


47

Disagree = 2

Strongly Disagree = 1

Reliability Dimension:

Descriptive Statistics

Statements N Minimum Maximum Mean Std. Deviation

1. Keeps promises 30 2.00 5.00 4.3667 .76489

2. Maintains error free records

30 2.00 5.00 4.2000 .71438

3. Reliable for documents submitted

30 3.00 5.00 4.6667 .54667

Valid N (list wise) 30


48

4.36674.2

4.6667

3.8

44.2

4.44.6

4.8

Mean

Keepspromises

Maintainserror freerecords

Reliable fordocumentssubmitted

Statements

Reliability Dimension Mean

In reliability dimension there are three statements, where I calculate mean value of those statements through SPSS software.

On the basis of the first statement it is found that NCCBL keeps promises to the customer.

Since the mean value is 4.3667.

From the second statement, it is found that NCCBL maintains customers’ error free

records. Hence, the mean value is 4.20.

On the basis of third statement, it is found that the documents and papers submitted by the

customers to NCCBL are very much reliable. Since the mean value is 4.6667.


49

Responsiveness Dimension:



4. Willing to help customers

30 3.00 5.00 4.6000 .56324

5. Informed customers about services

30 3.00 5.00 4.1000 .54772

6. Satisfaction with the loan products

30 2.00 5.00 3.5333 .81931


4.64.1

3.533

00.51

1.52

2.53

3.54

4.55

Mean

Willing tohelp

customers

Informedcustomers

aboutservices

Satisfactionwith the

loanproducts

Statements

Responsiveness Dimension Mean


50

In responsiveness dimension there are also three statements, are-

On the basis of fourth statement of the questionnaire, it is understood that employees of

NCCBL are always willing to help the customers. Hence, the mean value is 4.60.

From the fifth statement of the questionnaire, it is found that the customers of NCCBL are

informed when services or loan services will be performed. Since the mean value is 4.10.

On the basis of sixth statement of the questionnaire, it is assumed that the customers of

NCCBL are not very much satisfied with the present loan products. While, the mean value

is 3.533.

Assurance Dimension:



7. Safe transactions 30 3.00 5.00 4.7333 .52083

8. Ability of Relationship Officer

30 3.00 5.00 4.6333 .61495



51

4.733

4.633

4.58

4.6

4.62

4.64

4.66

4.68

4.7

4.72

4.74

Mean

Safe Transactions Ability ofRelationship

Officer

Statements

Assuarance Dimension

In assurance dimension there are two statements, are-

From the seventh statement of the questionnaire, it is found that the customers are feeling

very much safe in transactions with NCCBL. Hence, the mean value is 4.733.

On the basis of eight no. statement of the questionnaire, it is understood that the

relationship officer of NCCBL has the ability to answer the questions regarding loan to the

customer. Since, the mean value is 4.633.


52

Empathy Dimension:



9. Satisfied with loan interest

30 2.00 5.00 3.2000 .84690

10. Gives individual attention

30 3.00 5.00 4.4000 .67466


3.2

4.4

0

1

2

3

4

5

Mean

Satisfied withloan interest

Gives individualattention

Statements

Empathy Dimension

In empathy dimension there are two statements, are-


53

From the nine no. of statement of the questionnaire, it is assumed that the customers of

NCCBL are not very satisfied with the present loan interest rate. Since, the mean value is

3.2.

On the basis of ten no. statement of the questionnaire, it is found that maximum customers

feel individual attention from employees of NCCBL. Hence, the mean value is 4.40.

Tangibles Dimension:


Statements N Minimum Maximum MeanStd.

Deviation

11. Feel any loan charges and fees

30 2.00 5.00 3.4667 .73030

12. Modern looking equipments

30 3.00 5.00 4.2333 .67891


3.4664.233

00.51

1.52

2.53

3.54

4.5

Mean

Feel any loancharges and

fees

Modern lookingequipments

Statements

Tangible Dimension

The last dimension of the questionnaire is tangible dimension. There are two statements-


54

From the eleven no. of statement of the questionnaire, it is understood that the customers

feel low charges and fees face from NCCBL regarding loan. While, the mean value is 3.46.

On the basis of last statement of the questionnaire, it is found that the NCCBL has some

modern looking equipments but it needs more to give better service to the customers.

Since, the mean value is 4.233.


55

4.2. FINDINGS:

During my internship period I had worked mainly in Loan and Advances Section as well as in

General Banking Section in NCCBL, Shyamoli Branch. Throughout this three months the major

findings of the study are:

The risk is concentrated in loan products as the total loan outstanding is highly dominated

by a few products.

Small range of loan products offered by NCCBL, Shyamoli Branch is another problem in

diversifying its loan risk.

In most of the cases loan disbursement is centrally controlled from the Head Office,

sometimes which creates problem in choosing the right client for the bank.

Before sanctioning loan some times CIB report is not obtained from Bangladesh Bank.

Foreign Exchange related loan or LC loans are not transacted in this branch.

The credit proposal evaluation process is lengthy. Therefore sometimes valuable clients are

lost.

Monitoring of loan is not sufficient

Branches of NCC Bank are not sufficient to compared with other private banks.

Innovation of new financial products is a rare case in NCC Bank rather they hardly upgrade

their offerings on the basis on some changes in interest rate and maturity.

The website does not contain information about loan and other sections.


56

Chapter- 05



57

RECOMMENDATIONS & CONCLUSION

5.1. RECOMMENDATIONS:

On the basis of the findings the following recommendations are made for the NCCBL, Shyamoli Branch:

At first NCCBL should find out the way to reduce its bad loan amount further as improve

its loan quality.

NCCBL should increase their loan products to compete in the market.

The loan policy and loan sanction procedure should be made flexible and easy.

NCCBL can give attention to the foreign exchange and remittance services to maximize

profit.

NCC Bank could give more attention to advertisement and promotion of products, which is

helpful to collect more deposits and increase investments scope. Bank could use various

media for advertisement like TV, News Paper, Internet and Billboard.

Strict supervision must be adopted in case of high-risk borrowers. Time to time visit to the

projects should be done by the bank officers.

NCCBL should introduce more ATM booth instead of manual banking system. It will save

huge amount of establishment and other cost.

The website of the bank should be more informative that customers get the all information

about the different activities and facilities of the bank.


58

5.2. CONCLUSION:

Banks always contribute towards the economic development of a country. Compared with other

Banks NCC Bank is also playing leading role in socio-economic development of the country. The

bank is currently doing average. By analyzing it’s performance it is observed that a potential

growth might be accelerated through effective implications of some policy. Being an old

generation bank it has an advantage compared to newly established bank in the form of wide range

of activities. However policy implication needs to be as fast as possible to grab the early mover

advantage.

The bank through years has been able to spread operation in mass banking rather than

concentrating in niches. It can hedge poor performance of one sector by some other sector for its

wide range of offering. Capital market operation has become a great potential for the bank to

increase its profitability. NCC bank brokerage house is concentrating to establish new work

stations in order to facilitate investor of remote places.

The bank has been able to create a multi component loan portfolio. However non performing loan

are a real challenge to the sound credit management. Default is increasing for lack of monitoring.

The bank is trying to increase its loan quality by accelerating its recovery policy. The bank can


59

concentrate on the loan sector where default risk is low and its investments are profitable. The loan

procedure has been made more calculative, logical to keep the credit sound.

BIBLIOGRAPHY

Annual report (2009), National Credit and Commerce Bank Limited.

Annual report (2008), National Credit and Commerce Bank Limited.

Foundation Training Course Book-2009, NCC Bank Ltd.

Office circular and other published papers, documents and reports.

Brochures of NCC Bank Ltd.

Service Marketing by Zeithaml -4th edition, 2010, SERVQUAL Model (pg: 116-

155).

Websites:

www.NCCbank-bd.com

www.bangladesh-bank.org.bd


60

http://www.bangladesh-bank.org.bd/

http://www.NCCbank-bd.com/

Chapter- 06



61

APEENDIX

Questionnaire on

Customers Perceptions towards Service Quality of NCCBL: Specially Focused on Loan Services

(Only for Internship Report Purpose)

Name :

Age : 18 to 24 25 to 30 31 to 40 41 to 50 50 to 60

Type of A/C : Current Savings SND /SSS/ FDR/MDDP Loan A/C

Occupation : Service Business Student Other

Contact No :

[Please rate (√) your opinion about the following statements range from Strongly Disagree to Strongly Agree]

Sl.

No

Statements Strongly

Disagree

(1)

Disagree

(2)

Neither Agree nor Disagree

(3)

Agree

(4)

Strongly Agree

(5)

Perceptions Statements in the Reliability Dimension

1 When NCC Bank Ltd. promises to do something by a certain time, it does so-


62

2 NCCBL insists on error-free records-

3 For loan transaction submission of documents and papers in NCCBL is reliable for you-

Perceptions Statements in the Responsiveness Dimension

4 Employees in NCC Bank Ltd. are always willing to help you-

5 NCCBL keeps customers informed about when services/ loan services will be performed -

6 Are you satisfied with the loan products of NCCBL-

Perceptions Statements in the Assurance Dimension

7 You feel safe in your transactions with NCCBL-

8 The Relationship Officer of NCCBL have the ability to answer your all questions regarding loan-

Perceptions Statements in the Empathy Dimension

9 As a customer are you satisfied with the loan interest rate of NCC Bank -

10 NCC Bank Ltd. gives you individual attention-

Perceptions Statements in the Tangibles Dimension

11 Do you feel any charges and fees for loan from NCCBL-

12 NCCBL has modern looking equipments-


63

Thank You


64


65


66


67


68


69


70


71

loan disbusrsement

Economy & Finance

recovery system of nccbl

knowledge of loan disbursement

loan products

sources of data

type of loan

customers of nccbl

loan services

officers of ncc bank