Performing Loan

Loans which are recovered quickly and will be recovering within 90 days fall on this category. These loans generate the interest and principal on time. So, the provisions maintained is very low i.e. 1% only of the total loan. Higher ratio indicates efficiency in utilizing the good loans.

Performing Loan to Total Loan=Performing Loan

Total Loan

Year Percentage

2003/04 96.23%

2004/05 97.31%

2006/07 97.87%

2. Non Performing Loan

Loan is said to be non-performing with the due date of 3 months to 6 months and 6 to 12 months and more than 1 year. Non-performing loan consists of substandard loan, doubtful loans bad loans. Higher non-performing loan ratio indicates worse management of assets.

Table below shows the classification of loans and required provisions:

Classification of Loans Provision Required

Substandard (3-6 months) 25%

Doubtful (6 months-1 Year) 50%

Bad Loans (more than 1 year) 100%

Non Performing Loan to Total Loan= Non-Performing Loan

Total Loan

3) Total Loan Provisions

In this category, banks have to keep certain amount of capital as provisions for Loan Loss. Not all loans which banks provide are recoverable, so to compensate for the loss, capital kept as provisions will be used. Banks always look to maintain a lower Loan Loss Provision ratio for high profitability.

2.1.3 Management Analysis

The success of any institution depends on the competency of its management. In fact, the management not only makes suitable policy and the business plans but also implements them for the short term and the long term interests, which helps achieve aimed objectives of bank and financial institution. It is evaluated by checking the effectiveness of the Board of Directors, the management, human resources, operating expenditure customer’s relation with the officials and institution, management information system, organization and working method, internal control system, power concentration, monitoring, decision-making process and policies.