Status of Classified Loan: A Study on Private Commercial Banks of Bangladesh

Abstract

Credit creation and management are the main operations of banks and the prime sources of banks’ revenue. So, a good loan is the stair of banks’ growth as well as of economic development of a country, but a classified loan can be a threat not only for banks’ survival but also for the overall financial system of a country. This paper mainly tries to present a comprehensive picture of present condition of classified loan in the Private Commercial Bank (PCB) of Bangladesh. In order to do so, a study has been initiated to find the trend of classified loan, its categories, provisioning system and relation to profitability by using some percentages and ratios. In Bangladesh, the banks are classified into four generations, based on establishment period. For the analytical purpose, three consecutive year’s (2015–2017) data, collected from 20 sample banks selected randomly from four generations, have considered. This study mainly uses secondary data collected from annual reports of sample banks, central bank, related websites and published articles. The result of this research indicates that the classified loan has a significant negative impact on banks’ profitability. By analyzing the quantitative data, it is found that there is a decreasing trend of classified loan from 1st generation to 4th generation, but it’s not smooth and is very slow. This paper also identifies some multidimensional reasons for the classified loan and proposes some corrective measures, which will ensure a sustainable economic development for the upcoming future.

Keywords: Profitability, Provision, Trend, Generation, Bangladesh Bank

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