Effects and Consequences of Emphasizing Sectoral Recovery Rate and Sectoral Proportion in Loan Portfolio on Approving New Project Loans of Bangladesh Shilpa Bank

Abstract

This study is designed for the identification of the effects and consequences of emphasizing the sectoral recovery rate and sectoral proportion in loan portfolio on approving new project loans of the Bangladesh Shilpa Bank (BSB). This study primarily focus on the role of sectoral recovery rate and the sectoral proportion of the loan portfolio, then conducts empirical studies considering the sacrifices of the profitability and growth opportunities, and leverage problem of the respective sectors. Empirical studies are conducted under two phases. The results of the empirical tests of Phase-I indicate the lack of reliability of the model under that phase in explaining the characteristics of the population. Empirical results of Phase-II have found significant results indicating the positive relationship of the sectoral recovery rate and sectoral proportion of loan portfolio in approving new projects. The empirical results have also found the evidence of approving project loans to high levered sectors.

Keywords: Sectoral Recovery Rate, Sectoral Proportion in Loan Portfolio, Return on Investment, Debt to Asset Ratio.