Loan Portfolio Management and Bank Efficiency: A Study on Private Commercial Banks in Bangladesh

Abstract

We introduce loan portfolio management as the process of Managing, diversifying, and optimizing loans. 5 Commercial banks’ namely Uttara Bank PLC. Meghna Banks PLC. Premier Banks Limited. Standard Chartered Bank PLC. Midland Bank PLC. Loan portfolio management is discussed. The prime objective of this report is to analyze the “Loan Portfolio Management & Bank Efficiency of Commercial Banks in Bangladesh”. We collect data only from secondary sources such as annual report, financial statements, articles etc. Quantitative analysis has been used to collect and analyze the gathered data through different types of software are used for reporting such as- Microsoft Word, Microsoft Excel, Microsoft PowerPoint, STATA. Premier bank, Midland bank, SCB, Meghna Bank & Uttara Bank manage their loan portfolios by conducting thorough risk assessments to evaluate borrowers' creditworthiness and ensure loan repayment. They diversify loans across sectors and regions to minimize concentration risk and regularly monitor borrowers' financial health and repayment behavior. Loans are classified based on their performance, with appropriate provisions made for non-performing loans. Banks also implement recovery strategies for overdue loans, such as restructuring or legal action, while adhering to regulatory guidelines and using credit scoring models to mitigate default risks. These measures help maintain a healthy and balanced loan portfolio. The lending and credit policies of these five bank emphasize risk management, compliance with Bangladesh Bank regulations, and diversified financing across sectors such as SMEs, retail, agriculture, and green projects. They prioritize borrower creditworthiness, proper collateral, and repayment capacity while offering special schemes for women entrepreneurs and startups. Regular loan monitoring and recovery mechanisms are in place to minimize defaults and promote sustainable growth. They also collect deposits through various accounts, like, current, saving and fixed and other attractive schemes. Banks employ comprehensive loan risk management frameworks to safeguard their loan portfolios. These frameworks typically involve rigorous credit assessment processes, robust loan monitoring systems, and well-defined recovery strategies. The banks utilize various tools and techniques, such as credit scoring models, financial statement analysis, and industry risk assessments, to evaluate borrowers' creditworthiness. Regular monitoring of loan performance, including financial ratios and market trends, helps identify potential problem loans early on. In case of loan defaults, the banks have established recovery mechanisms that may include legal actions, debt restructuring, and asset realization. The specific approaches and emphasis on different risk management aspects may vary among these banks based on their size, risk appetite, and target market segments. The Non-Performing Loan (NPL) problem in Bangladesh's banking sector has been a significant concern for several years’ Effective loan monitoring processes are essential to identify any signs of distress in borrowers, manage nonperforming loans (NPLs), and maintain the stability of the banking sector. The main limitation of loan management is credit risk, where borrowers may default on loans, leading to financial losses for the bank. Some external factors like market forces can also create negative impact on banks loan management section