...as the first condition of sustained and rapid economic progress. Among various indicators of financial stability, banks’ non-performing loan (NPL) assumes critical importance since it reflects on the asset quality, credit risk and efficiency in the allocation of resources to productive sectors. Nonperforming loans (NPLs) refer to those financial assets from which banks no longer receive interest and/or installment payments as scheduled. They are known as non-performing because the loan ceases to “perform” or generate income for the bank. Choudhury et al. (2002: 21-54) state that the nonperforming loan is not a “uniclass” but rather a “multiclass” concept, which means that NPLs can be classified into different varieties usually based on the “length of overdue” of the said loans. NPLs are viewed as a typical byproduct of financial crisis: they are not a main product of the lending function but rather an accidental occurrence of the lending process (Woo, 2000: 2). This is because NPLs can bring down investors’ confidence in the banking system. Only for a few defaulting borrowers, the banks suffer, depositors suffer, performing borrowers suffer, shareholders suffer, Government suffers and consequently economy and the people of the country suffer. The latest data reveal that in Bangladesh banking sector the amount of NPL is Tk 2572.65 crores (7.17% of total loans) up to September 2011. The ratio of NPL was as high as 41.1% in 1999, which came down gradually to the present level as...
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...'Nonperforming Asset' For example, a mortgage in default would be considered non-performing. After a prolonged period of non-payment, the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement. If no assets were pledged, the lenders might write-off the asset as a bad debt and then sell it at a discount to a collections agency. http://www.investopedia.com/terms/n/nonperformingasset.asp#axzz1nV1MDFFm Definition A loan or lease that is not meeting its stated principal and interest payments. Banks usually classify as nonperforming assets any commercial loans which are more than 90 days overdue and any consumer loans which are more than 180 days overdue. More generally, an asset which is not producing income. http://www.investorwords.com/3329/nonperforming_asset.html Definition of 'Non-Performing Asset - NPA ' of banks A classification used by financial institutions that refer to loans that are in jeopardy of default. Once the borrower has failed to make interest or principal payments for 90 days the loan is considered to be a non-performing asset. Also known as “non-performing loan”. Investopedia explains 'Non-Performing Asset - NPA ' Non-performing assets are problematic for financial institutions since they depend on interest payments for income. Troublesome pressure from the economy can lead to a sharp increase in non-performing loans and often results in massive write-downs....
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...2013 2. Use financial ratio analysis to compare and contrast each year to see what happened to the banks financial performance. Be sure to comment on both its historical and current financial condition. Also, what accounts for the improved profitability of the bank? 3. Identify the five key reasons why the bank turned around based on your analysis. For question 2 - consider calculating the following: Profitability measures such as ROE and ROA Burden/Total Assets NIM Net Credit Loss/Total Loans Non-performing Loans/Total Loans % Growth in Total Loans Consider other ratios you may feel are appropriate to adequately address the questions. Due November 19th at the beginning of class. 2) 2010 2009 Return on assets (ROA) -4.62% -2.68% Return on equity (ROE) -46.63% -24.32% Burden Ratio 4.02% 2.89% Net interest margin 2.41% 3.05% Non-Performing Loans/ Total Loans 4.69% 4.10% Rates Paid on Funds (RPF) 1.98% 2.25% Capital Adequacy Ratio (CRAR) 19.20% 14.09% From these financial calculation, Return on Assets and Return on Equity in 2010 had decrease from 2009. It shows that NBC was receiving less revenue...
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......................................................................................................... 1 Consumer Lending Sees Positive Growth Following Change in Government .......................... 1 Stable Monetary Policies Supports Consumer Lending Growth ............................................... 1 Mortgages/housing Loans Increases in 2014; Continued Growth Expected in the Forecast Period ....................................................................................................................................... 1 Bad Loans Sees Marginal Decline ............................................................................................ 1 Consumer Lending Is Expected To Grow ................................................................................. 1 Key Trends and Developments .................................................................................................... 2 Customers Are More Willing To Take Out Loans...................................................................... 2 Mortgages/housing Lending Continues To Grow in 2014 ......................................................... 2 New Guidelines for Non-banking Financial Companies ............................................................ 2 Market Data .................................................................................................................................. 3 Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Table 11 Table...
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...ASIAN JOURNAL OF MANAGEMENT RESEARCH Online Open Access publishing platform for Management Research © Copyright 2010 All rights reserved Integrated Publishing association Review Article ISSN 2229 – 3795 Non performing assets: Issues, Causes and remedial Solution Poongavanam.S H.O.D., Department of Management studies, Ranippettai Engineering College, Thenkaddapanthangal, Walaja Taluk, Vellore District. -632513 Tamil Nadu. s.poongavanam@gmailo.com ABSTRACT The banking industry has undergone a sea change after the first phase of economic liberalization in 1991 and hence credit management. While the primary function of banks is to lend funds as loans to various sectors such as agriculture, industry, personal loans, housing loans etc., in recent times the banks have become very cautious in extending loans, this is due to mounting nonperforming assets (NPAs). Therefore, an NPA account not only reduces profitability of banks by provisioning in the profit and loss account, but their carrying cost is also increased which results in excess & avoidable management attention. Apart from this, a high level of NPA also puts strain on a banks net worth because banks are under pressure to maintain a desired level of Capital Adequacy and in the absence of comfortable profit level, banks eventually look towards their internal financial strength to fulfill the norms thereby slowly eroding the net worth. Considering all the above facts banking industry has to give more importance to...
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...capital market, oil and gas sector, poor risk management practices and inadequate disclosure and transparency about the banks’ financial position characterised the Nigerian banking sector. The CBN, in June 2009 took a three –pronged approach to assess the financial condition of the twenty four (24) banks. One of the approaches was the special audit jointly carried out by the CBN and the Nigeria Deposit Insurance Corporation. The exercise highlighted inadequacies in capital asset and liquidity ratios as well as weakness in corporate governance and risk management in ten banks. These banks were found to be in distress as they failed to meet the minimum 10% capital adequacy and 25% minimum liquidity ratios. Apart from accumulating high non-performing loans, the banks were seriously exposed to the oil and gas sector as well as the capital market. Poor risk management practices in the form of necessary control measures were prevalent as the boards and managements of the banks had failed to observe established controls. Although the remaining fourteen banks had holes in their books, they were found to be in a relatively sound financial condition and did not require immediate intervention by the CBN. The major highlights of the CBN’s revelations was its decision to dismiss the Managing and Executive Directors of five of the ten audited banks, citing gross mismanagement of depositors' and shareholders funds. The Nigerian Banking system which is a subset...
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...INDEBTNESS 1) KENYA Kenyan borrowers promptly repay their loans despite the stiff interest rates and high inflation, presenting a lower default risk investment environment for banks compared to other parts of the world. The low default risk for banks has however not translated to lower interest rates for customers despite the credit referencing system taking effect. The credit risk is measured in terms of gross non-performing advances as a percentage of the total gross advances. A survey by audit firm RSM Ashvir, based on banks 2012 financial reports showed only 4.6 per cent of loans by banks in 2011 ended up as non-performing advances. The banking industry disbursed Sh1, 335 billion, out of which only Sh61.4 million was defaulted. The risk has consistently decreased from 7.9 per cent in 2009 to 6.3 per cent in 2010. With the increase in interest rates and inflation rate, non-performing advances were expected to go higher, but it is not the case. This shows that the risk in the Kenyan market is low Interest rates spiked in December 2011 after the Central bank increased its key lending rate to a high of 18 per cent to curb the inflation rate which had peaked at 19.72 per cent in November that year. Though both the Central Bank Rate and inflation rate have dropped to 9.5 per cent and 4.11 per cent, banks are still lending at an average of 17.84 per cent. Microfinance institutions in Kenya have suffered significant loan repayment default resulting into subsequently decreased...
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...1.0 Introduction 1.1 Background of the study Private Commercial Banks (PCBs) started their journey in Bangladesh in 1982. Since then, they play a vital role in the economic development of the country. With the help of developed banking technologies and client- focused mentality, they try to ensure quality services in quick time to their customers as per their expectation. Their prudence in selecting appropriate borrowers and sector of providing loans and monitoring them closely has decreased the percentage of non-per forming loan. Besides, the prudent regulatory measure of the central bank including guidance regarding prudential norms of capital adequacy, classification of loans, on-site and off- site super vision have made the PCBs sound in Banking operation. For these reasons, they are found profitable in their business. Their exposure in respect of the cost of debt helps them to ensure higher profitability and their potentiality in the banking industry. An effectively functioning financial system requires a banking system that can earn a reasonable return by taking an acceptable level of risks. 2.0 Statement of the problem In order to survive in the long run, it is important for a bank to find out what are the factors influencing cost of debt so that it can take initiatives to increase its profitability and performance. Bank performance is also vitally important for all stakeholders, such as ...
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...n Management of Non Performing Assets σ Abstract - In India the magnitude of the problem of bad debts was not taken seriously. Subsequently, following the recommendations of Narasimham committee and Verma committee, some steps have been taken to solve the problem of old NPAs in the balance sheets of the banks. It continues to be expressed from every corner that there has rarely been any systematic evaluation of the best way of tackling the problem. There seems to be no unanimity in the proper policies to be followed in resolving this problem. There is also no consistency in the application of NPA norms, ever since these have been recognized. Non Performing Assets are also called as Non Performing Loans. It is made by a bank or finance company on which repayments or interest payments are not being made on time. A loan is an asset for a bank as the interest payments and the repayment of the principal create a stream of cash flows. It is from the interest payments that a bank makes its profits. The problem of NPA is not limited to only Indian public sector banks, but it prevails in the entire banking industry. Major portion of bad debts in Indian Banks arose out of lending to the priority sector at the dictates of politicians and bureaucrats. If only banks had monitored their loans effectively, the bad debt problem could have been contained if not eliminated. The top management of the banks was forced by politicians and bureaucrats to throw good money...
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...AN INVESTIGATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS, MACROECONOMIC FACTORS, AND FINANCIAL FACTORS IN CONTEXT OF PRIVATE COMMERCIAL BANKS IN BANGLADESH by Syeda Zabeen Ahmed ID # 0120269 An Internship Report Presented in Partial Fulfillment of the Requirements for the Degree Bachelor of Business Administration INDEPENDENT UNIVERSITY, BANGLADESH April 2006 An investigation of the relationship between Non-performing Loans, Macroeconomic Factors, and Financial Factors in context of Private Commercial Banks in Bangladesh by Syeda Zabeen Ahmed ID # 0120269 has been approved April, 2006 _________________ Shubhankar Shil Lecturer School of Business Independent University, Bangladesh TABLE OF CONTENTS Page List of Tables Abstract 1. Introduction 2. Problem Statement 3. Purpose of the Study 4. Limitations of the Study 5. Research Timeline 6. Review of Literature 6.1 Non-performing Loans 6.2 Development of hypotheses 6.3 Macroeconomic factors and NPLs 6.4 Bank specific indicators and NPLs 6.5 Terms of Credit and NPLs 7. Methodology 7.1 Research Approach 7.2 Sampling Method 7.3 Measure of variables 7.4 Data Collection Procedure 7.5 Data Analysis 8. Results 8.1 Descriptive 8.2 Correlations 8.3 Regression 9. Significant of the Study 11. Conclusion Reference Appendix 1 I 1 1 2 2 3 3 3 4 5 6 7 7 8 8 8 8 9 9 10 10 11 12 13 13 14 16 List of Tables Page 1. Demographics of respondents 2. Occupational experience of respondents 3. Responsibility statements 4. Reliability...
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...RECOVERY OF NPA STATUS AND CHALLENGES IN THE INDIAN BANKING SYSTEM EXECUTIVE SUMMARY: Non-performing Assets means a loan which has been classified by a bank or financial institution as substandard or loss assets. According to this default status would be given to borrower if the dues are not paid for 90 days. Asset Classification: * Standard: are the ones in which the bank is receiving interest as well as the principal amount of the loan regularly from the customer. If asset fails to be in this category i.e. amount due more than 90 days then it is NPA and NPAs are further need to be classified in sub categories. i) Sub-standard: the account holder comes in this category when they don’t pay three instalments continuously after 90 days and up to 1 year; ii) doubtful NPA; iii) Loss Assets: under this 100% provision is made. When account holder comes in this category their account can be written off by the banks. Types of NPA: * Gross NPA: reflects the quality of the loan made by the banks. * Net NPA: reflects the actual burden of the banks. The main reason behind NPA would be lack of proper enquiry by the bank, wilful defaulter, change in government policies etc. which could affect the bank by restriction on flow of cash by the bank for sanctioning a loan, drain of profit, bad affects on goodwill, etc. There are different acts and institution for the NPA recovery like SARFAESI ACT, 2002; SARC; ARC; DRT; Lokadalats; etc. Current...
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...banking sector developed very appreciate. The RBI also nationalized good amount of commercial banks proving socio economic services to the people of the nation. The public Sector banks have shown very good performance as far as the financial operations are concerned. The total income of the public sector banks has also shown good performance since the last few years. The public sector Banks have also shown comparatively good result. The gross profits and the net profits of the Public Sector banks have been on a high from past few years. The private sector banks are also showing good results in case of profits. However, the only problem of the Scheduled Commercial Banks these days are the increasing level of the non performing assets. The Non-Performing Assets (NPAs) problem is one of the foremost and the most formidable problems that have shaken the entire banking industry in India like an earthquake. Like a canker worm, it has been eating the banking system from within, since long. It has grown like a cancer and has infected every limb of the banking system. At macro level, NPAs have choked off the supply line of credit to the potential borrowers, thereby having a deleterious effect on capital formation and arresting the economic activity in the country. At the micro level, the unsustainable level of NPAs has eroded the profitability of banks through reduced interest income and provisioning...
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...Credit Risk Management (CRM) is responsible for the planning, monitoring and reporting of the credit portfolio. The monitoring of loans on obligor and portfolio basis as well as the reporting of these to Management and the Board remains the core responsibility of CRM. The monitoring unit is delineated along the strategic business units (SBUs) to provide independent support and guidance to the relationship teams in the management of facilities, by ensuring early warning signs of deterioration are promptly picked up and remedial action is set in motion. The credit control unit is responsible for ensuring adherence to control measures, confirming approval of credit, conveying approvals and ensuring conditions are satisfied. CRM has ownership of all rating systems/scorecards and recommends and monitors the credit risk appetite for the year, and reports periodically to the Board and Management. The department serves as the credit secretariat and manages the documentation and other credit process initiatives for the Group. Credit risk management verifies and manages the credit process from origination to collection. In designing credit policies, due consideration is given to the Bank’s commitment to: Create, monitor and manage credit risk in a manner that complies with all applicable laws and regulations; Identify credit risk in each investment, loan or other activity of the Bank; Utilise appropriate, accurate and timely tools to measure credit risk; Set acceptable risk parameters;...
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...MICROFINANCE STANDARDS RATIOS A maturing microfinance industry needs standardized methods to measure and analyze financial performance and risk management. The proposed Microfinance Financial Reporting Standards: Measuring Financial Performance of Microfinance Institutions (the Standards) seeks to address this need. These Standards are designed for use by all microfinance institutions (MFIs): non-governmental organizations, non-bank financial institutions or companies, commercial banks, rural banks, credit unions, and cooperatives. Below are the detailed description of each ratio and table. 1. Profitability Ratios All MFIs, from non-profit NGOs, to for-profit banks, must be profitable over the long-term in order to be self-sustaining. Profitability allows an MFI to continue operating and to grow. Profitability ratio is any ratio that measures a company's ability to generate cash flow relative to some metric, often the amount invested in the company. Profitability ratios are useful in fundamental analysis which investigates the financial health of companies. An example of a profitability ratio is the return on investment which is the amount of revenue an investment generates as a percentage of the amount of capital invested over a given period of time. Other examples include return on sales, return on equity, and return on common stock equity. Operational Self-Sufficiency (originally called “Operating Self-Sufficiency” or OSS) and Financial Self-Sufficiency (FSS)...
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...Syllabus CODE CHAPTER WEEK NOTE Ppt 1- 4 Introduction and Overview of Financial System 1-3 Ppt 5-6 Interest rates and the role of a central bank 4 Test 1 Ppt 7-8 Money Market & Foreign Exchange market 5-6 (15%) Ppt 9-10 Capital market – Equity and Bond market 7-8 Ppt 11 Derivatives market Ppt 12 Offshore market 9 - 10 Ppt 13 Financial Legal Framework 10 - 11 Test 2 Ppt 14 Banking products & services 11 - 12 (15%) Ppt 15-16 Banking regulation and management 12 - 14 9 2 Chapter Outline NO. 1. LOGO CONTENT Asset quality – loan portfolio and problem loan management Bank credit process (loan life cycle) Problem loan detection (red flags): (i) accounts operation, (ii) business operations and (iii) external factors Loan recovery techniques – Collective workout agreement, collateral liquidation and bankruptcy 2. Performance evaluation of banks – financial statement analysis Ratios – Profitability, Liquidity, Asset Quality, Capital Adequacy (calculation and analysis) 3 Scope of Bank Management 5) Financial Ratios of Financial Institutions 4) Assets Quality LOGO 1) Capital Adequacy 2) Liquidity Management 3) Assets and Liquidity Management 4 4) Assets Quality LOGO Assets quality refers to the level of credit risk associated to a particular asset. For example of...
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