Internship Report on TBL
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An Internship Report On “The Performance Evaluation of the Trust Bank Ltd.” This report is submitted to the Southeast University in partial fulfillment Requirements for the degree of BBA major in marketing – 2006. Prepared for- Muhammad Musharuf Hossain Mollah Lecturer School of Business Administration (BBA) Southeast University Prepared by- Sayed Md. Emrul Hassan Intern ID- 2005010000108 Batch – 9 th (C.T)
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Transcript of Internship Report on TBL
An Internship Report
On
“The Performance Evaluation of the Trust Bank Ltd.”
This report is submitted to the Southeast University in partial fulfillment
Requirements for the degree of BBA major in marketing – 2006.
Prepared for-
Muhammad Musharuf Hossain MollahLecturer
School of Business Administration (BBA)Southeast University
Prepared by-
Sayed Md. Emrul HassanIntern
ID- 2005010000108Batch – 9th (C.T)
Southeast University.
Submission date: 18th April 2006.
Declaration
I here by declaration that this research report has been prepared as requirement of the internship towards the fulfillment of the decree of Bachelor of Business Administration (BBA) major in Marketing at Southeast University.
Sayed Md. Emrul Hassan
BBA (Major in Marketing)
Southeast University
Certificate of Approval
The internship report of Sayed Md. Emrul Hassan “ “The Performance Evaluation Of The Trust Bank Limited” “is approved and it accepted in quality and form.
I wish him every success in life.
Advisor
( Mohammed Musharuf Hossain Mollah)
Lecturer
School of Business Administration (BBA)
Southeast University.
Acknowledgement
We do hereby acknowledge the contribution of the persons whose assimilation induced
us a lot to fulfill this task. At the very outset I express my gratitude to my teacher
Mohammed Mosharuf Hossain Mollah for his sumptuous and suggestions and
necessary recommendations. I am very proud to announce that I have got such a
teacher as a advisor for my internship who is very much gracious and also cooperative
whenever I was in need of his cooperation. I also thanks to S. M Akram Sayed, Senior
Assistant Vice President of The Trust Bank Ltd. Head Office, Dhaka who supervised
me to complete the internship program and helped to prepare such report by giving
suggestions, information and guidelines. I also thanks all the officers in IT and Card
division of The Trust Bank Limited and all the people who help to prepare internship
report.
Abstract
The Trust Bank Limited is one of the leading private commercial Bank having a spread network of 18 branches across Bangladesh and plans to open few more branches to cover the important commercial areas in Dhaka, Chittagong, Sylhet and other areas in 2006. The Bank, sponsored by the Army Welfare Trust (AWT), is first of its kind in the country. With a wide range of modern corporate and consumer financial products The Trust Bank Limited has been operating in Bangladesh since 1999 and has achieved public confidence as a sound and stable Bank.
In order to ensure safety of advances, all advances shall be kept under supervision and
thereby under control. This will include supervision at the time of disbursement to ensure
proper utilization of bank credit, to supervise end use during the tenure of advance and to
ensure that the repayment is regular. The monitoring and control are done both Head Office
and Branch. Head Office takes the key step to monitor loans and advances.
All the analysis shows that the TBL is quite conservative, taking calculative risk,
smooth growth, have social value that will reach the top in the banking sector.
18th April 2006
ToMohammad Musharuf Hossain MollahLecturerSchool of Business AdministrationSoutheast University
Subject: Letter of Transmittal
Dear Sir,
In response to the precise instruction of The Trust Bank Ltd, prepared a report “The performance evaluation of The Trust Bank Ltd”. I have the pleasure to submit one copy of this mentioned paper to you for your kind evolution and necessary action. The term paper on the above mentioned topic to ascertain the fulfillment of partial requirement of the “Marketing” I have prepared this report on this basis of secondary data, which was collected from the TBL, Motizil, Dhaka. This report has been prepared under your able supervision and I do respectfully acknowledge your help and suggestion. I would also like to mention that due you my limited knowledge, there might be some errors and mistakes in the report.
Thank you again for your kind co-operation.
Sincerely yours,
Sayed Md. Emrul Hassan
ChairmanLt Gen Moeen U Ahmed, psc
Chief of Army Staff, Bangladesh Army,Army Headquarters, Dhaka Cantonment, Dhaka.
Vice ChairmanMaj Gen Md Matiur Rahman,ndu,psc
Adjutant General(AG), Bangladesh Army, Army Headquarters, Dhaka Cantonment, Dhaka.
Managing DirectorMr. Iqbal U. Ahmed
The Trust Bank Limited (TBL)-An Overview:
The Trust Bank Ltd. is a private, commercial, scheduled Bank, which obtained license from Bangladesh Bank on July 15, 1999. Presently Army Welfare Trust is the major shareholder. The authorized capital of the Bank is Taka two thousand million and paid-up capital of Taka five hundred million. Public shares are expected to be floated in the near future. The Bank was formally inaugurated and listed as a scheduled Bank on November 1999.
The idea of setting up a Bank by Bangladesh Army was first conceived in 1987 and on November 29, 1999 the first branch of the Trust Bank Ltd came into operation
Composition of the Board of TBL consists of Ex-officio Directors of in-service senior Army personnel, with the Chief of Army Staff as its Chairman and the Adjutant General as its Vice-Chairman.
SL. PARTICULAR FOR THE YEAR 2004
1. Deposit 9,040,183,740
2. Advance 6,804,448,553
3. Total Import L/C 5,755,000,000
4. Total Export L/C 907,600,000
5. Foreign Remittance 19.66
6. Profit after Tax & Provision 216,384,186
7. No. of Employee 276
8. Earning per share 44.16
9. Number of Branches 15
10. Price Earning Ratio 2.26%
Head Office : Peoples Insurance Building, 17th, 16th & 2nd floor, 36 Dilkusha C/A,Dhaka-1000.Tel: 9570261, 9570263, 9572012-3Fax: 880-2-9572315
Copyright© Trust Bank Ltd. 2006.
TABLE OF CONTENTSPage
Declaration …………………………………………………………………………………….. Certificate of Approval ………………………………………………………………………… Acknowledge …………………………………………………………………………………… Abstract ………………………………………………………………………………………… Letter of transmittal …………………………………………………………………………….
2 3 4 5 6
Chapter-1: Introduction ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 131.1 Origin of The Report.. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 131.21.3
Background ........................................................................................................At a Glance ……………………………………………………………………………
13
Chapter 2: Company profile 14
14 14 15 15 15
2.1 - Objective of the study…………………………………………………………… 2.2 - Methodology of the study………………………………………………………… 2.3 - Scope of the study ………………………………………………………………. 2.4 - Literature review ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... …….. 2.5 - Limitation of the study …………………………………………………………..
Chapter-3: Organization Part. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... . 15
2.1 TBL Background .... ....... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. 162.2 Vision Statement... ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 162.3 Mission Statement... ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... 162.4 Goals of TBL... ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 162.5 Core Objectives... ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 172.6 Business Objectives.. ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 172.7 Strategies ... ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 172.8 Business Philosophy of TBL... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 172.9 Strength of TBL... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 182.10 Branch Network of TBL.. ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 192.11 Board of Directors. ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 192.12 Capital Position... ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 202.13 Products and Services.. ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 202.14 New Product and Services ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 202.15 Correspondent Banking Relation.. ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 212.16 Management Set up.. ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 222.17 Corporate Social Responsibility. ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 22
2.19 TBL: A truly Online Banking ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... . 242.20 Deposit ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 252.21 Advances ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 252.22 Investments ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... . 26
2.23 Operating Profit... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 262.24 Human Resources ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... . 27 2.25 TBL’s Overall Activities.. ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 27Chapter-4:Credit Policies at TBL. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 283.1 Overview in TBL... ... ... ... . ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. 283.2 Types of Advances. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... . 283.3 Portfolio Management of Credit. ... ... ... ... ... ...... ... ... ... ... . ... ... ... ... ... . 293.4 Selection of Borrower... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 303.5 Processing of Credit... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... 30
3.5.1 Credit Report …………………………… ... ... ... ... ... ... 313.5.2 CIB Report ………………. ... ... ... ... ... ... ... ... ... ....... ........... 323.5.3 Visiting Client..........................………………. ... ... ... ... ... ... ... ... ... 323.5.4 Credit Line Application form.. ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. 323.5.5 Supporting Documents. ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. 333.5.6 Analysis of Clients Account... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. 34
3.6 Project Financing Evaluation. ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 353.6.1 Project Evaluation …………………………… ... ... ... ... ... ... 353.6.2 Technical Appraisal... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 363.6.3 Marketing Appraisal. ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. 373.6.4 Financial Projection and Analysis.. ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. 373.6.5 Managerial Aspect... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... . 383.6.6 Socio-Economic Approach.. ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. . 39
3.7 Pricing of Loan... ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 393.8 Approval Process. ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 393.9 Post Sanction Process.. ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 403.10 Documentations... ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 403.11 Creation of charges over security.. ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 413.12 Securities and Advances... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 423.13 Disbursement... ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 433.14 Monitor/Control of Credit Operations ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 44
3.14.1 Control on Overdrawn Account………………… ... ... ... ... ... ... 453.14.2 Control of Loan... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 463.14.3 Control of other Credit facilities... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. 47
3.15 Handling of Delinquent Loans/Advances .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 493.15.1 Identification of Delinquent Advances…… ... ... ... ... ... ... 493.15.2 Monitoring of the delinquent account... ... ... ... .. .. ... ... ... ... ... ... ... ... 50
3.15 Handling of Delinquent Loans/Advances .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 503.16 Loan Classification . ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... .. 513.17 Reservation of Provision. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 523.18 Treatment of Interest Suspense ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 523.19 Identification of Possible Recourses for Recovery of Delinquent Debts. 533.20 Litigation and Cost. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 533.21 Loan Loss Provision ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 533.22 Write Off. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 53Chapter- 5:Credit Management Guidelines by Bangladesh Bank... ... ... 544.1 Policy Guidelines.. ... ... ... . ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. 54
4.1.1 lending Guidelines………………………… ... ... ... ... ... ... ... ... ... ... ... . 554.2.2 Credit Assessment……………. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 564.1.3 Risk Grading... . ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 574.1.4 Approval Authority... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .... ... .... .... .. 58
4.2 Preferred Organizational Structure and responsibilities ... ... ... ... ... ... ... ... 59
4.3 Procedural Guidelines ... ... ... ... . ... ... ... ... ... ... ... ... ... ... ... ... .. 594.4 Credit Administration... ... ... ... . ... ... ... ... ... ... ... ... ... ... ... ... ... 60
4.4.1 Disbursement………………………… ... ... ... ... ... ... ... ... ... ... ... . 604.4.2 Custodial Duties……………. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 614.4.3 Compliance Requirements. . ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 61
4.5 Credit Monitoring ... ... ... ... . ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. 614.6 Credit Recovery ... ... ... ... . ... ... ... ... ... ... ... ... ... ... ... ... 62
4.6.1 NPL Account Management……………………… ... ... ... ... ... ... 634.6.2 Account Transfer Procedures ………………. ... ... ... ... ... ... ... ... ... 634.6.3 NPL Monitoring……………………… ... ... ... ... ... ... 634.6.4 NPL Provisioning and Write Off ... ... ... ... ... ... ... ... ... ... ... ... 64
4.7 Single Borrower Exposure Limit.. ... ... ... . ... ... ... ... ... ... ... ... ... ... ... ... . 65Chapter-6: Policy Comparison with Bangladesh Bank .. ... 665.1 Single Borrower/Group Limit …………………………… ... ... ... ... ... ... 665.2 Single Borrower/Group Limit …………………………… ... ... ... ... ... ... 675.3 Credit Assessment ………………. ... ... ... ... ... ... ... ... ... 675.4 Risk Grading…………………………… ... ... ... ... ... ... .......................... 675.5 Approval Authorities………………. ... ... ... ... ... ... ... ... ... 685.6 Credit Process .................…………………………… ... ... ... ... ... ... 685..7 Segregation of Duties ………………. ... ... ... ... ... ... ... ... ... 695.8 Preferred Organizational Structure………………. ... ... ... ... ... ... ... ... ... 695.9 Approval process ………………. ... ... ... ... ... ... ... ... ... 695.10 Credit Administration ………………. ... ... ... ... ... ... ... ... ... 695.11 Credit Monitoring ………………. ... ... ... ... ... ... ... ... ... 705.12 Credit Recovery ………………. ... ... ... ... ... ... ... ... ... 715.13 Account Transfer Procedures..........……………………… ... ... ... ... ... ... 715.14 NPL Account Management……………………… ... ... ... ... ... ... 71Chapter-7 :Operational Performance of TBL ....................................................................
72
6.1 Amount of Loans and Advances. ... ... ... ... ... ... ... ... ... ... ... ... ... 726.2 Type-wise loans & advances portfolio ........................................... 726.3 Maturity wise Loans and Advances. ... ... ... ... ... ... ... ... ... ... ... ... 726.4 Sector-wise Concentration of loans & Advances... ... ... ... ... ... ... ... ... .. 726.5 Location-Wise Loans & Advances... ... ... ... ... ... ... ... ... ... ... .. 736.6 Classified, Unclassified, Doubtful & Bad Loans & Advances:
73
Chapter- 8:SWOT Analysis2.18.1 Strength ... ... ... ... ... ... ... ... ... ... ... ... ... .2.18.2 Weakness ... ... ... .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...2.18.3 Opportunity .. ... ... ... ... . ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .2.18.4 Threats... ... ... ... ... ... ... ... ... .. .. ... ... ... ... ... ... ... ... ... .. .. ... ... ... ..
73
73 74 74 75
Acronyms 76Conclusions 77Recommendation 78Bibliography .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. .... .... .... ..... 79
Chapter-1: Introduction
1.1 Origin of The Report:
The proposed intern report on which the assigned internship program has conducted is “ The
Performance of The Trust Bank Ltd”. This report is a partial requirement of internship of BBA
program. Before preparation this report three months organizational attachment period has
been completed successfully. My assigned organization to the needful is The Trust Bank
Limited (TBL), a leading Private Bank in Bangladesh.
1.2 Background:
Throughout the last few years Bangladesh has been experiencing a rapid and significant
change in the banking sector. Not only in our country, all over the world the dimension of
banking has been changing rapidly mainly due to the technological innovation, globalization
and deregulation. This change all over the world has significantly affected the banking industry
of our country, the result of which is the change in this sector in our country. Now the condition
is such that banks must compete in the market place both with local institutions as well as
foreign ones.
TBL- a Bangladesh private scheduled commercial bank commenced formal operation from
June 3, 1964 now in a good position in the industry. The one of inherent aspects that reached
the bank in such position is the proper credit management because bank’s 70% revenue
comes from lending.
Credit risk management needs to be a robust process that enables banks to proactively
manage loan portfolios in order to minimize losses and earn an acceptable level of return for
shareholders. Given the fast changing, dynamic global economy and the increasing pressure of
globalization, liberalization, consolidation and dis-intermediation, it is essential that banks have
robust credit risk management policies and procedures that are sensitive and responsive to
these changes. So it is very much helpful to me to work my internship is such an area.
Chapter - Objectives of the report:
The objectives of the report are:
To critically analyze the credit policy of The Trust Bank Limited
To evaluate the credit performance.
To conclude whether the credit policy compliances with present situation.
To recommend of some guidelines.
1.4 Scope:
The report is an attempt to state the credit policy of The Trust Bank Limited as compared to
Bangladesh Bank Guidelines and to evaluate credit performance. A detailed credit policy
including borrower selection, credit worthiness analysis, credit approval process, credit
disbursement & monitoring , credit administration etc. has been explained and compared. The
credit performance of bank has analyzed with implementing credit policy. After completion of
internship program it is helpful to me to understand a total loans and advanced related works of
a bank.
1.5 Sources of Information:
The sources of information are both primary and secondary
Primary Sources:
- Practical Deskwork
- Conversation with credit officers and managers
- Conversation with clients.
Secondary Source:
- Practical case problems.
- Manual of Credit division.
- Bangladesh Bank Circulars
- Annual reports of TBL and MBL
- Different manuals, books, existing soft information.
1.6 Methodology:
Sample Design: The study represents comprehensive data of The Trust Bank Limited and
Bangladesh Bank credit management guidelines.
Collection of information: To conduct this study considerable information and expert opinion
will be collected from primary as well as secondary sources.Processing of information: A careful and systemic processing of information facilitates
comparison and evaluates performance to make decision whether the policy compliances with
present situation.
Analysis and interpretation: The information have been collected will be duly analyzed and
interpreted as to achieve the desired objectives. Credit policy data has analyzed by comparison
and credit performance evaluation is done by trend analysis
Final Report Preparation: The final report has been prepared on the basis of presentation,
analysis and interpretation of the information..
1.7 Limitations
To conduct internship, there are many problems arisen, which has limited the purpose of the
report. The limitations are:
Difficult to collect information as concern people are reluctant to disclose information.
Access to only a limited number of information sources.
Non-availability of secondary data
Chapter- 2 Organization Part
The Trust Bank Ltd. is a private, commercial, scheduled Bank, which obtained license from
Bangladesh Bank on July 15, 1999. Presently Army Welfare Trust is the major shareholder.
The authorized capital of the Bank is Taka two thousand million and paid-up capital of Taka
five hundred million. Public shares are expected to be floated in the near future. The Bank
was formally inaugurated and listed as a scheduled Bank on November 1999.
The idea of setting up a Bank by Bangladesh Army was first conceived in 1987 and on
November 29, 1999 the first branch of the Trust Bank Ltd came into operation
Composition of the Board of TBL consists of Ex-officio Directors of in-service senior Army
personnel, with the Chief of Army Staff as its Chairman and the Adjutant General as its
Vice-Chairman.
2.1 Background of TBL:
The Trust Bank Limited is a brainchild of founder chairman. Lt Gen Moeen U Ahmed, psc
FMO, a well reputed Holland based international financing institution has been extending their
services, especially in development of SSE, SME and many other socio-economic activities
mainly in the developing countries. Mr. Ahmed, however, opened dialogue with FMO regarding
the banking project some time in 1989. Mr. Groosman, a brilliant officer of FMO visited
Bangladesh and wrote to Mr. Iqbal U. Ahmed, Managing Director, FMO advocating Mr.
Ahmed's proposal. The proposed name of the bank at first was “Development Finance and
Commerce Bank Bangladesh Limited”.
FMO sent fact finding teams who initially responded negatively and commented that there is
little scope in Bangladesh to float a banking business. Mr. M.E.H.J. Groot of small-scale
department of FMO in his letter responded positively indicating that "Small Enterprises
Department of FMO is in a position to finance intermediary Bank" and accordingly asked for a
"Business Plan". The proposed name at that stage changed to “Long Term Credit and
Commerce Bank Limited. In the Year 1995, Bangladesh Bank vides their letter no.
DBOD(D)200/59-799/95 dated 23.07.1995 issued consent for establishing the Bank. The bank
started its business on June 03, 1996 with its name “Dutch-Bangla Bank Limited”. Dutch-
Bangla Bank Limited has gone into public floatation during the first quarter of 2001 and has
been listed with both DSE and CSE. Bank’s total issue is only 10%.
2.2 Vision Statement:
The Trust Bank dreams of better Bangladesh, where arts and letters, sports and athletics,
music and entertainment, science and education, health and hygiene, clean and pollution free
environment and above all a society based on morality and ethics make all our lives worth
living. TBL’s essence and ethos rest on a cosmos of creativity and the marvel-magic of a
charmed life that abounds with spirit of life and adventures that contributes towards human
development.
2.3 Mission Statement:
The Trust Bank engineers enterprise and creativity in business and industry with a commitment
to social responsibility. “Profit alone” does not hold a central focus in the Bank’s operation;
because “man does not live by bread and butter alone”
2.4 Goals of TBL:
Build up a realistic deposit mobilization plan.
Develop appropriate lending risk assessment system.
Develop capital plan.
Develop a system to make good advances.
Develop a recruitment, compensation, training and orientation plan.
Develop a plan for offering better customers services.
Develop appropriate management structure, systems, procedures and approaches.
Develop scientific MIS to monitor Bank’s activities.
2.5 Core Objectives:
The Trust Bank believes in its uncompromising commitment to fulfill its customer needs and
satisfaction and to become their first choice in banking. Taking cue from its pool of esteemed
clientele, The Trust Bank intends to pave the way for a new era in banking that upholds and
epitomizes its vaunted marques “Your Trusted Partner.”
2.6 Business Objectives:
- Build up a low cost fund base.
- Make sound loans and investments.
- Meet capital adequacy requirement at all time.
- Ensure 100% recovery of all advances.
- Ensure a satisfied work force.
- Focus on fee-based income.
- Adopt appropriate management technology.
- Install a scientific MIS to monitor Bank’s activities.
2.7 Strategies:
- Synchronized and steady growth of the bank.
- Utilize all available resources to develop various plans, policies and procedures in each of
the objective and goals area.
- Implement plans, policies and procedures.
- Draw upon the connections, advice etc. of the foreign partners.
- Utilize a team of professional employees.
- Search for a customized solution of IT for the purpose of full automation step by step.
2.8 Business Philosophy of TBL:
The objectives of The Trust Bank Limited remain to offer modern & innovative products &
services to its clients in Bangladesh. The partnership with FMO is optimistically scene to offer
scopes opportunities to draw on modern tools & techniques of banking from western world
which could be blended with the currently prevalent local customs & practice.
The Bank is committed to being a sophisticated prominent and professional institution,
providing a one window service to its customers. During the first five years TBL Bank’s strategy
was focused on continuing in provident of internal procedures and operating structures, to have
a greater control on the quality of our business and to provide better management direction.
After five years of working on the Banks structure, its culture and controls, the management is
confident that the Bank can move forward on a rapid growth path. The TBL’s corporate
philosophy is to build its non-funded fee and commission income stream, thus reducing its
reliance on interest income alone. TBL’s focus is to provide one counter service to the clients
covering:
a) Commercial Banking ( Deposit Accounts), b) Consumer Banking (Retail Baking ), c) Traveler
Cheque, d) Foreign & Inland Remittances, e) Foreign & Inland Remittances, f) Financial
Services, g) Corporate Banking, h) Asset & liability management , i) Liquidity & capital
Resources Management, j) In formation technology and l) Human Resources.
2.9 Strength of TBL:
- TBL is the first Bangladeshi-European joint venture Bank in Bangladesh.
- TBL directors and /or their family members do not maintain any sort of bank account with
TBL, since its inception.
- TBL directors do not avail of any facility or even any fee/remuneration from the bank for
attending the meetings of the Board/Executive Committee/Audit Committee.
- TBL’s sponsoring shareholders did not take any dividend for the initial 5 years in order to
increase the capital base of the bank.
- TBL allows all local remittances such as TT, DD, PO etc. free of cost.
- TBL’s classified loan as on December 31, 2004 is only 0.16% of total loans and advances.
- TBL’s regulatory capital as on December 31, 2004 stood at Taka 1.43 billion.
- TBL’s capital adequacy ratio (CAR) as on December 31, 2004 stood at 10.13% as against
Bangladesh Bank’s minimum requirement of 9.00%.
- TBL maintains general provision on unclassified loans and Advances @3% instead of
minimum requirement of 1% as set forth by Bangladesh Banks loan provisions.
- TBL expands free medical facilities under its “Rural Health Service Program” to the
members of the general public around the rural branches.
- TBL support humanitarian and philanthropic activities and causes and spends a substantial
amount from its income for these purposes.
- TBL promotes different socio-culture and sports activities.
- TBL awarded 500 scholarships to meritorious students of the country till this year. From the
year 2007, the number of scholarships will be 1250 for which the Bank will need to provide
taka 3.75 core each year.
- TBL provides 27% of its total advances as Term loan and a substantial amount as working
capital loan to support industrial development and boost up export earnings of the country.
- TBL has set up the Dutch-Bangla Bank Foundation for carrying out social and philanthropic
activities. From the last year, 5% of the Bank’s annual operating profit is earmarked for the
Foundation which was 2.50% earlier.
- TBL distributes up to 2.50% of its annual profit among its employees as profit sharing.
- TBL’s objective is not only to make profit, but also simultaneously contribute towards social
and human development through various altruistic activities.
2.10 Branch Network of TBL:
On January 30, 2005 The Trust Bank Limited has opened its Sylhet Branch. It is the 21st
branch of the bank. Another branch in Sever will be opened soon. It will be the 22nd branch of
the bank. All the establishment works have been done already. This year TBL will open more
new branches at different strategic business centers of the country.
2.11 Board of Directors:
Lt Gen Moeen U Ahmed, psc, renowned business elite of the country is the founder Chairman of
the Bank. Mr. Ahmed is the nominated representative of TBL in the Executive Committee of
Bangladesh Association of Banks (BAB). Under his dynamic leadership TBL has been growing
with sharp rise in comparison to the Banking companies in Bangladesh.
Mr. Abedur Rashid Khan is a reputed businessman. He is a Director of Pioneer Hatchery
Limited. He is the proprietor of M/s. Avanti International one of the leading indenting and
export-import trading firm of the country.
Mr. Iqbal U. Ahmed is a renowned businessman and industrialist. He is the Managing Director of
Pioneer Hatchery Limited. He has vast knowledge and experience in shrimp culture and
hatchery..
Mr. Md. Abdus Salam is engaged in business and industry. He is young, energetic and a
successful entrepreneur. He is a partner of Rupali Silk Industries, Narayangonj.
Ms. Momtaj Islam comes from a reputed industrial family. Their industrial heritage, especially
in the textile sector of the country started since early sixties.
Mr. Van Kampen is a Senior Investment officer in the Asia Department of the FMO. Before
joining FMO in 1992 he held various executive positions in banking, including international
banking and tread & commodity finance with AMRO Bank and Banque de Suez. Mr. Van
Kampen has a degree in International Economic Relations.
Mr. Iqbal U. Ahmed is a business man & director of TBL.
Mr. Zaheed Hossain is an alternate director of Mrs. Momtaj Islam.
2.12 Capital Position:
The Authorized Capital of the bank is Tk.400.00 million. Total shareholders equity capital at the
end of December 31, 2004 stood at Tk,978.39 million consisting of Paid-up capital of Tk.202.14
million, share premium Tk.11.07 million and reserves, retained earnings and others totaling
Tk.765.18 million. On the close of business on December 31, 2004 the capital adequacy ratio
was 10.13% as against accepted standard of 9%.
2.13 Product and Services:
The Trust Bank’s aims are to provide services to the clients like friends. For that reasons, the
bank offers different products and services for its clients, TBL has never compromised the
quality of services. TBL believes customers are the heart of the banking business. To provide
better services, TBL offers different product for its clients.
Depository Product
TBL is now offering the following depository products for mobilizing the deposits from the
people.
1. Fixed Deposit 6. Foreign Currency Deposit Account
2. Saving deposit Account 7. Non Resident Taka Account
3. STD Account 8. NFCD Non Resident Foreign Currency
Account
4. Multi Currency Account 9. Non Residents Investors Account
5. Residence Foreign Currency
Deposit
10. Bank Money Scheme
Loan Product
1. Small & Medium Enterprise 6. Import Financing
2. Lease Finance 7. Export Financing
3. Working Capital Financing 8. Emergency Staff Loan
4. House Building Finance
Scheme
9. Staff car Loan
5. Industrial Financing
2.14 New Product and Services:
The Bank has its concentration for new product and developed service for satisfying its
customer and increasing its customer base. They prefer now faster service with least cost. For
delivering faster service the bank has introduced online banking service. There are other new
products and services that TBL has introduced. They are:
i) Truly Online Banking Services, ii) Internet Banking Services, iii) SWIFT services, iv) L/C
Delivery Services, v) Locker Services, vi) ATM services, vii) Point of Sale Service (POS)
2.15 Correspondent Banking Relation:
To deliver prime services to the valued clients, TBL has continued its efforts to reach every
corner of the world with the establishment of an effective correspondent relationship across the
globe. At present TBL has coverage in more than 110 countries through more than 100 world
class banks. TBL maintain adequate number of nostro accounts with key players in the world
money market to facilitate export and import payment needs of the clients. TBL also achieved
another milestone by installing SWIFT to channel remittance flow in a fast and effective way.
TBL is also considering establishment of exchange houses in some prospective locations
abroad and/or Taka Drawing Arrangement with internationally reputed exchange houses to
support governments effort of a building a comfortable foreign exchange reserve through
channeling inward remittance.
2.17 Corporate Social Responsibility (CSR):
The Trust Bank Ltd. (TBL) is the first Euro-Bangla Joint Venture Scheduled Commercial Bank
in the private sector in Bangladesh. The Bank commenced operation from 3rd June, 1996 with
equity participation from FMO, The Netherlands. Since inception besides progressive banking
activities, The Trust Bank Limited has been taking part in different national activities promoting
sports, culture, social awareness, etc. With this end in view, The Trust Bank Limited rendered
contribution to Mini World Cup Cricket Tournament-1999, National Youth Fair-1999, National
Olympic Day Run, 3 Day Cricket Match between Bangladesh and West Indies, etc.
In the global corporate world Corporate Social Responsibility is a new buzz word and is much
talked about and practiced by big and small corporate bodies alike, throughout the world. TBL
believe that only profit can not be the last word for the business entity as neither society without
business nor business without society is like to bring about any sort of development in true
sense. There must a confluence and harmony of social and corporate goals and strategies.
TBL since its inception was active in various social activities, which increased manifold over the
period of time with its growth. In this backdrop, TBL Board of Directors in order to discharge its
corporate social responsibilities in a greater perspective increased its contribution to The Trust
Bank Foundation (TBF) from 2.50 to 5.00 percent of Bank’s profit after changing loan loss
provision.
Apart from contributing to provide blankets to the cold stricken needy people, scholarship to
meritorious students, ‘Smile Brighter Program’ for cleft lip operation, donation of Taka 40.00
million to Ahsania Mission Cancer Hospital the first full-fledged Cancer Hospital in Bangladesh,
donation of Tk.5.00 million to Prime Minister’s Relief Fund for rehabilitation of flood affected
people, TBF for the frost time has taken a program of supporting 23 HIV positive patients by
providing medicines, clinical supports, food supplements and other necessary essentials. Other
notable areas where TBF extended its helping hands are:
Donation of Tk.75000/- per month to Narayanganj Diabetic Hospital.
- Donation to Blind Education and Development Organization.
- Donation for Lactation Management Center of Sir Salimullah Medical College and
Hospitals.
- Donation to purchase machinery & equipments for Sandhani Blood Bank at Bangladesh
Medical Hospital.
- Donation to nature center for Disabled and Paralyzed to purchase machinery and
equipment.
- Donation to Endangered Health for treatment of obstetrical fistula patients.
- Donation to Special Education for the Intellectually Disabled Trust to help intellectually
disabled children.
- Donation of tk.10000.00 each to 223 dowry victims and 100 acid victims for helping them to
set up small scale business for their batter living. A massive plan in this regard has been
planned to extend soft term financial assistance to the prospective and successful recipient
of such donation.
- Besides , TBL also actively participated in scores of other social activities arising from the
its sense of responsibility to the need of society it belongs. Some of the important events
are:
- Cooked foods were supplied to flood affected people of Dhaka and adjoining areas of for
seven days in some designated relief camps.
- 750 bundles of GCI sheets were provided to the tornado affected people.
- Gannit Olympiad (Bangladesh Mathematical Olympiad) were co-sponsored at a cost of
Tk.3.00 million with Prothom Alo for the second time in which students from different
educational institutions all over Bangladesh participated.
- TBL sponsored Foreign Hockey Coach and Physical trainer for Bangladsh Hockey
Federation.
2.18 SWOT Analysis:
2.18.1 Strengths:
Quality Product & Services: TBL offers different depository products and loan products that
make it a good position in the market. For example- TBL gives daily basis interest that does not
provide by the other banks. TBL also provides different loan products such as House Building
loan, different term loans of low interest rate.
Financial Strength: TBL’ financial strength is good in comparison to other private banks. Its
capital is Tk.142 core, capital adequacy ratio is 10.13%, share price is Tk.1700.00 , cost of
fund is 6.90% etc.
Competent Management: TBL has a competent, experienced management people. TBL has
a qualified, honest, dedicated work force.
Social Value: TBL participated and donate different social activities that creates value to TBL
Truly Online System: TBL established a truly online system that offers better services to the
customer. Clients can make transaction at any branch at any place in the country.
2.18.2 Weaknesses
TBL offers less diversified depository products such as It does not offer monthly interest
payment products, DPS etc. TBL also concentrate its loan products on the textiles sector. It
makes the bank more risky if this sector is collapsed.
2.18.3 Opportunities
Social Support: TBL has good social support because it participates in different social
activities. TBL can use its social value for the business
Online Banking: Most of the private bank in Bangladesh does not introduced online banking
which TBL did. TBL can use its online banking to improve its business.
2.18.4 Threats:
Competition: In Bangladesh almost 50 banks are operating. So such a small market,
competition is vigorous. To survive in the market every bank should frequently make a real
strategy.
Merger and Acquisition: There is probability in near future to merge different bank in near
future because competition is increasing day by day.
Political attack: There may be attacked by political parties/ruling parties in case any thing that
hamper their interest.
2.19 TBL: a truly Online Banking:
The year 2004, is a landmark in the history of TBL, as the Bank successfully implemented its
online system. Online Banking system provides better services for the customers and makes
the bank cost effective. After implementing online system, customers can enjoy the following
world class banking services at a reasonable and affordable price through the full automated
real-time any where any branch banking services covering 24 hours a day:
Through Branches:
- A customer can avail services with any branch of TBL.
- Customer can withdraw or deposit money in any branch of TBL.
- International financial transactions can be carrid out by the on-line SWIFT interface of the
banking software.
- Customer can enjoy facilities of loan installment payments from savings/ current accounts,
Fund transfer to other accounts.
- Sweep-out facility, enabling to transfer the money from any account when it exceeds pre-
defined amounts.
- Sweep-in facility, enabling to bring money from another account when the first account
balance falls below a pre-defined amount.
Through ATMs:
- By using TBL’s own ATM pools any where in the country, the valued customers of the Bank
can perform the following functions at any time:
- Account balance enquiry
- Cash withdrawal 24 hours a day, 7 days a week, 365 days a year.
- Cash deposit to some designated number of ATM’s at any time
- Mini statement printing.
- Statement request.
- Personal Identification number change
- Request for cheque book
- Fund transfer within his/her own account.
- Payment of mobile/T&T phone, gas , electricity, water , internet , credit card bills from the
customer’s savings and current account.
- Payment of School/College/University fees by debiting one’s savings a/ current account.
- Purchase of activation number for Mobile/Internet pre-paid card.
Through Point of Sale (POS) terminals: Bill settlement at any TBL POS terminals installed at
strategic locations.
Through Internet:
- Through internet banking of TBL, the following can be performed:
- Checking of account balance
- Print-out of account statement for a particular period.
- Transfer of fund within the customer’s own accounts
- Payment of mobile/T&T phone, gas, electricity, water, internet bills from the customers
account.
- Payment of School/College/University fees by debiting one’s own account
- Purchase activation number of Moblie/Internet pre-paid cards.
- Deposit of loan installments
- Stop cheque payments.
- Opening of an FDR account by debiting one’s savings/current/STD account
- Submission of L/C application online
- Foreign currency exchange rates and interest rates enquiry.
2.20 Deposits:
The deposit base of the bank continued to register a steady growth and stood at Tk.21067.56
million as on December, 2004 as against Tk.17133.81 million in December 2003, which is an
increase of 22.96%.
Financial Year 2000 2001 2002 2003 2004
Deposit (mln.) 6119.57 11457.76 15975.45 17133.81 21067.56
Figure 1: Deposit Mobilization Trend
2.21 Advances:
All activities relating to credit of the bank are being carried out as strictly and cautiously as
before with proper risk management strategy starting from the selecting credit worthy quality
borrowers followed by a well-defined credit appraisal and approval process, again carried out
by the competent personnel at different level. TBL is in the forefront in implementing the
guidelines for managing five core risks in banking. Due to this, the classified loan reduced to
0.16% in 2004 from 0.36% in 2003. Loan and advances at different level are shown in the
following:
Financial Year 2000 2001 2002 2003 2004
Advance (mln.) 4588.09 8044.43 9191.64 11431.32 14976.06
3.22 Investments:
The bank investment during the year 2004, were made in government securities and in call
money market only, which stood at Tk.2034.97 million as on December 31, 2004 as against
2537.62 million in 2003. Out of total investments of Tk.2034.97 million, Tk.2027.82 million were
in government securities.
3.23 Operating Profit:
The operating profit of the bank has been increased each year. For the year 2004 was
Tk.632.41 million as against Tk.453.79 million in 2003. Income performance of the Bank
shown below:
Financial Year 2000 2001 2002 2003 2004
Profit (mln.) 238.78 397.26 423.57 453.80 632.41
Figure 2: Operating Profit trend
2.24 Human Resources:
TBL, since its inception, has always laid emphasis on Human Resource Development. TBL
believes in the factor that helps the banks survive is closely interlinked with the quality of
service and satisfaction of the requirements of the clientele and that directly depends on the
qualification and efficiency of the employees. With this objective in view, TBL excels the
performance of its member of the staff by creating opportunities through providing proper
training, rewards and recognition. To attract and retain qualified and efficient staff, TBL has
formulated a number of well thought policies for the welfare of its employees, in the form of
gratuity funds, TB Superannuating fund, TBL employees House Building Loan Scheme, Car
loan scheme, group insurance policy etc.
2.25 TBL’s Overall Activities:
SL # Particular 2004 (Tk.) 2003 (Tk.)
1 Paid-up capital 202135000.00 202135000.00
2 Total Caital 1429020239.00 1136288623.00
3 Surplus/(Shortage) of capital 159256006.00 136234296
4 Total Assets 24560546063.00 19965596181
5 Total Deposits 21067558418.00 17133812704.00
6 Total Loan & Advances 14976056619 11431318979
7 Total contingent liabilities and
commitments
11588252297 6786518913
8 Ratio on loans and deposits 71.09 66.72
9 Ratio on classified loans to total loans
and advances
0.16 0.36
10 Profit before tax & provisions 632412185 453785211
11 Classified loans for the year - -
12 Provision held for the classified loans 19043356 19043356
13 Surplus/(Shortage ) of provision 13698707 10381825
14 Cost of fund 6.90% 8.53%
15 Interest earning assets 22161756773 18342854479
16 Non-interest earning assets 2398789290 1622741702
17 Return on Invstment (ROI) 26.12% 22.98%
18 Return of Assets (ROA) 1.06% 1.11%
19 Income on Investment 126620851 224317597
20 Earning per share 116.93 103.97
21 Net Income per share 116.93 103.97
22 Price earning ratio (Times) 15.84 4.15
Chapter-3: CREDIT POLICY OF TBL
3.1 Credit Overview in TBL:
In a financial system of any economy, we know, financial surpluses mobilized from surplus
economic unit and transferred to the deficit economic unit. In the banking world, the bank acts
as an intermediary in between deficit economic unit & surplus economic unit. Bank mobilizes
the fund from surplus economic unit as deposit & makes the fund available to the deficit unit.
The style of making the fund available to the deficit unit is nothing but creation of credit. Credit
is in true sense, making provision of fund by one party to another party under certain terms &
conditions.
3.2 Types of Advances:
The credit facilities granted by the bank are classified under different account heads as under:
Loan (like short/ mid/ long term in nature)
Overdrafts (allowing frequent debit/credit transactions within an agreed limit)
Trade related credit facilities (like bills port folio)
Short Term Advances (like continuing facilities)
Contingent facilities (like Letters of Credit, Letters of Guarantee)
Generally all facilities, except term loans are repayable on demand. Trade related credit
facilities are self-liquidating in nature. Cash Credit /Overdrafts are reviewed annually or at
regular intervals in case a closer monitoring of the accounts is necessary.
Continuing Advances:
Secured Overdraft (including Collateralized overdraft one)
Cash Credit (Hypothecation)
Loan against Trust Receipts (LTR)
Loan against Imported Merchandise (LIM)
Export Cash Credit (ECC)
Loans:
Loan General (usually short term in nature)
Transport Loan
House Building Loan
Term Loan (Industrial/project financing)
Term Loan (others)
Demand Loan:
Loan against Accepted Documentary Bill (local/ foreign)
Loan against Bills Discounted/Purchased (local/ foreign documentary)
Payments against Documents (PAD)
Own Accepted Bills Purchased (Forced Loan)
Contingent facilities:
Letters of Credit (sight/ usance/ Back to Back)
Letters of Guarantee
There is also lease finance in TBL
3.3 Portfolio Management of Credit:
Portfolio Management of Credit implies the deployment of loanable fund among alternative
opportunities through proper allocation. The objective of portfolio management of credit is the
best and efficient management of loan to ensure profitability. A prudent loan portfolio
management can be done by careful consideration of the factors mentioned in the following:
i) Bank's Capital position, ii) Deposit mix (Tenure of deposit), iii) Credit environment, iv)
Influence for monetary and fiscal policies, v) Credit needs of the respective commanding area
and vi) Ability & experience of the bank personnel to handle the loan portfolio
In designing a loan portfolio, three things should be decided: first- the type of customers the
bank wants to serve. Second- involvement of risks with various kinds of loans. And finally- the
relative profitability of various kinds of loans. Diversification of credit can be made by extending
credit to different sectors, to different geographical area, to different line of product or business
and allocating the loanable fund into different type of credit. Secondly, the concentration of
credit into a particular sector or area, product or business should also be observed carefully. If
credit is already been concentrated to a particular streamline mentioned earlier, that should be
avoided. Finally, the type & tenure of deposit should be analyzed carefully in determining the
loan portfolio of a bank. How much quantum of fund will be earmarked for long term lending
and how much for short term, depends to a large extent on the deposit structure.
3.4 Selection of Borrower:
Selection of borrower is a very significant part of a credit decision. The borrower should be
diagnosed prudently. Degree of risk has an inverse relationship with the selection of borrower.
Selection of right borrower reduces the risk of non-repayment of the loan. To the contrary,
degree of risk of non-repayment increases with the selection of wrong borrower. In our country,
the huge volume of non-performing loan is mainly the result of failure in selecting right
borrower. So, if it is found that, line of business is prospective and profitable but the potential
borrower is not right one, the proposal should not be entertained. There are some parameters
for selection of a borrower. Some ‘C’s commonly expresses the parameters. And thus the
criteria for selection of a borrower are popularly known as 5 C's such as:
i. Character: Market reputation, morality, family background, and promptness in
repayment
ii. Capacity: Ability to manage the business, ability to employ the fund in the right way,
ability to overcome unforeseen problems
iii. Capital: Equity strength, assets & properties
iv. Collateral: The easy marketability of the properly given as security
v. Condition: Over all business condition
If the borrower's found satisfactory in terms of all C’s only then it is suggested to entertain the
borrower.
3.5 Processing of Credit:
Credit proposals must be prepared for all credit facilities. The processing of a credit proposal
falls into mainly two stages as under:
Obtaining due approval of the competent authority of TBL
Steps for allowing the client to avail the credit facility.
Management approval levels splits into following authority:
Head Office Credit Committee: The Credit Committee is responsible to review, and approve
or reject any credit limit proposals on the basis of approval lending policy, criteria of lending,
sectoral exposure and/ or on other genuine grounds. Credit Committee usually sits on every
week or more frequently as the need may arise. The proposals after thorough discussion/
deliberation if found suitable is recommended for approval by the Executive Committee of the
Board through the Managing Director:
Delegated authority to the Managing Director: Under delegated lending authority to the
Managing Director, credit proposals, one time or specific gets approval after scrutiny is done by
Head Office Credit Division. From time to time the Managing Director may delegate the branch
managers discretionary powers with due approval from the competent authority.
Executive Committee of the Board: If the facilities required further approval from the
executive committee of the board, then the proposal send. The credit proposal has been sent
to the executive committee of the board if the credit committee thinks to require further
approval.
Credit limit proposal originates in the branch. Proposal after due checking, analysis is sent with
recommendation signed by the manager and the credit officer in-charge. After the credit
proposal has been finally approved by the competent authority as the case may be, the
resolution /decision thereof are sent to the branch for further action as follows :
Convey offer to the borrower and obtain acceptance there against.
Branch credit /loan administration perfect the security and charge documents considering
the nature and the terms of the facility.
Setting –off client file account record.
3.5.1 Credit Report:
The branch manager should ensure preparation of credit report on the client to determine its
past record, business performances, market reputation etc. The credit report should contain the
following:
i. The nature of client’s business.
ii. The names of owners and details of their associated business concerns.
iii. Net worth of the individual person owing the firm /company (obtain through
declaration at the time of submission of loan application).
iv. The financial health of the business concern.
3.5.2 CIB Report:
For processing credit proposals (both funded & non-funded) banks and FIs need to obtain
mandatory satisfactory CIB report from Bangladesh Bank. Present criteria for obtaining
mandatory CIB report may be changed from time to time at the discretion of Bangladesh Bank.
Branch manager must obtain satisfactory CIB report prior to processing of credit proposals and
mention the status of the client and its allied concerns /persons of the borrower in the credit line
proposal as it is revealed in the latest CIB report.
3.5.3 Visiting Client:
The visit and meeting the client at their door-step may help to confirm the business decision
reach by the manager with regard to the clients financial status, management efficiency and
technical details about the good sense and services in which the client deals. This will also help
to judge its quality and acceptability as a reliable security. A set of question, which may be
asked, should be prepared before hand.
3.5.4 Credit Line Application Form:
A credit proposal is its funds or non-funds based at the stage of primary scrutiny, credit officers
prime consideration is to ascertain with reasonable accuracy, due date liquidation of loan
/credit exposure. There are different sections covered in the credit proposal format which is
explained below:
01. Client introduction: Giving the exact name and style of the client as per registration in case
of limited company. Also indicate the nature of the proposal “Fresh” or “Renewal/ Revision”.
Use figures in denomination of Taka in million. State exact nature of business/description of the
project. Provide business capital /equity capital of the owner based on financial statements.
02. Particulars of owners: State whether proprietor, partners or directors. Show the
percentage of the shareholdings of the directors as per record. Provide declared assets / net
worth as the case may be by individually.
03. Allied concerns: Provide name of allied business concern of the owners/ client, their
nature of business and their investment / interest in the business.
04. Credit facility from other banks: Obtain declared statement from the client. Also refer to
CIB report of Bangladesh Bank.
05. Account maintained with DBBL: State all accounts including Fixed Deposit, if any, showing
average deposit/ current deposit.
06. Existing credit lines(s): Give details and nature of facility. The amount of respective limit and
the outstanding on the date of the proposal. State validity/ maturity. State primary and collateral
security in brief.
07. Proposed credit line(s): In case of renewal /revision, this section should be completed only
after careful review of the conduct of the account. Client’s financial requirement, managing of
business affairs in terms of available facility (ies). In case of fresh proposal, and after having a
preliminary discussion with the client to have a clear view of client’s account, his future plans and
financing requirements, the size of limit, period and proposed security to be structured.
08. Analysis of credit proposal: In this section, provide general background of the client, business
profile, project details and management aspects of the business house/industry.
09. Third party information: Provide status of upto date CIB report. Credit checking with other
sources. Previous banks account transaction.
10. Financial information: This section reflects the financial soundness of the business concern
and information to be collected / prepared from spreadsheet analysis on the basis of client’s
management certified financial statements or audited financial reports. Furnish comments on the
liquidity, profitability and leverage position of the client. This exercise / assessment should be done
carefully pinpointing the strong and weak areas.
11. Prospects: Here business prospects market outlook of the product to be given. Salient
features of the products, pricing, market strategy to be provided in case of manufacturing products.
12. Assessment of financing requirement: Client’s financing requirement to be assessed on the
basis of business cash flow / working capital assessment / future plans. Exact requirement to be
assessed and recommended after preliminary discussion with the client.
13. Inadequacy in the documentation: Mention non-fulfillment of any documentation /
mortgage perfection etc. Also indicate audit objection on client’s account.
14. Collateral security: Give details of security in the form of land, building, machinery, its
written down value or surveyed value. Also show nature of marketable securities, its face value
and average market value.
15. Risks Analysis: Furnish comments on LRA exercise, if done, and indicate the LRA rating.
Indicate possible risks in the business and its mitigation.
16. Accounts/ business performance: Give details of client’s deposit/ loan accounts
performance during last 12 months. Show debit/ credit summation, minimum/ maximum
balances, L/Cs opened, export documents negotiated during last 12 months.
17. Bank’s earning: Give break-up of earnings from the relationship.
18. Recommendation: Give meaningful comments, consideration of the business line with clear
recommendation.
19 Proposed facility (ies): Give facility wise proposed/renewed/restructured loan/ credit limits,
purpose of the facility, source of repayment, pricing of the facility, security support and validity of the
facility. Other conditions/ special conditions including requirement of Bangladesh Bank approval
to be highlighted.
3.5.5 Supporting Documents:
The branch manager while processing a credit proposal for Head Office approval, he must see
that the proposal recommended is based on following supporting documentation:
i)Credit report on the client, ii) Financial statements, iii) Spreadsheet analysis, iv) Net worth
analysis and v) Acceptable security details
This report should be updated when renewal of credit facilities are considered. Third party
credit report / CIB report along with credit report on the client should be kept in the file at the
branch. Business/ financial performance analysis to be based on audited accounts if they are
available.
3.5.6 Analysis of Client’s account:
The objective of analyzing financial statements from the point of view of the bank is to
understand the manner in which client’s own resources are employed, its liquidity position, the
ratios of net worth to borrowing and of current assets to current liabilities. The analysis should
provide answers to following areas:
1. Borrower’s net worth: To see if the borrower’s net worth justifies the level of credit facilities
being requested. Net worth is calculated by total debt liabilities from total assets. From another
point of view, the net worth is the owners’ total interest in the business made up of paid up
capital and accumulated surplus consisting of written earnings and reserves.
2. Working capital: To see whether the current assets are sufficient to meet the client’s
current commitments and liabilities. Working capital is arrived at by deducting the current
liabilities from the current assets.
3. Profitability: To see whether sufficient earnings from the operation of the business are there
to repay the bank debts living sufficient balance /return on equity.
4. Capital Gearing: To see how much amount of equity is in the business compare with the
borrowed funds. As a good banking proposition substantial equity investment should be
insured.
5. Cash flow: When assessing the client’s liquidity position and profitability, the timing of
client’s commitment must be considered. His commitments must be spread in such a way that
the business would never face a cash shortage in the foreseeable future.
3.6 Project Financing Evaluation:
Systematic analysis is required to be undertaken to provide a rational basis for decision
making. Socio-economic objectives of the country needs to be considered in addition to the
soundness of the project in terms of technical, commercial, financial and management
considerations while making investment decision.
3.6.1 Project Evaluation
The proposal may be for a new project or an existing project requiring Balancing,
Modernization, Replacement and Expansion (BMRE). The project appraises in terms of
technical, commercial, financial, management and socio-economic aspects while making
investment decision.
The proposal to be developed in the following areas:
a) Cost of the project: The cost of the project represents all fixed capital expenditures
incurred or to be incurred for acquisition of its fixed assets and the net working capital to run
the project. Proper assessment of the cost of the project is very important for fixation of
debt/equity contribution of the Bank. After determining cost of the project, financing plan shall
have to be worked out realistic basis.
b) Means of financing/ Debt-equity ratio: Contribution from the sponsors in the form of paid
up capital, director’s loan etc. form part of the equity. Contribution from the bank is considered
as debt. Debt equity ratio should be set in a manner that the sponsors have reasonable stake
in the project. In case of BMRE project, debt equity ratio shall be fixed on incremental cost of
the project.
c) Working Capital: A portion of working capital remains tied up in the business over the
years, called net working capital, requires funding from long term source. The other portion of
working capital varies from time to time, generally met from short-term sources like commercial
bank borrowing and creditors.
While computing working capital requirement, Banks policy and Bangladesh Bank’s instruction
from time to time to be kept in mind. Following are the generally accepted guideline for
calculation of working capital:
Capacity utilization
a) Existing unit : 5% above the last year’s actual capacity utilization
b) New unit : 60% of attainable capacity/rated capacity
d) Credit investigation and selection of sponsors: The credit investigation conducted by a
banker seeks to evaluate the entrepreneurial ability, managerial experience, business acumen,
integrity, reputation and financial worth of promoters applying for Bank’s financial assistance for
setting up industries or BMRE of a project. The credit investigation of the clients also look for
their individual liabilities for a realistic assessment of their worth.:
e) Balance sheet and statement of accounts: The analysis of financial statements of a
concern would provide information on liquidity, activity and profitability position of the concern.
The financial soundness of a business can be determined by using different indicators from the
Balance Sheet and Profit and Loss Account which is known as the ratio analysis.
f) Bank’s past experience: In many cases, the applicant may have already availed loans
either for the project or for some other purposes from TBL or from different financial institutions.
In such cases, the credit inquiry will provide valuable information about their worth, dealings
and present status of the liabilities. Credit Investigation Report should be obtained from other
Banks as well as from other divisions of the same bank.
g) Govt. report publications; There is another documentary source of information namely the
official gazette, press reports regarding suits by or against persons and parties insolvency and
liquidation of particular individual or enterprise, black listing and/or similar punitive action
against individuals, firms etc. by the Govt./Autonomous bodies etc. which are very valuable.
h) Banking Transaction: Clients carry on normal business, maintain deposits and also avail
overdraft facilities. A detailed review of these accounts will give very valuable information about
the financial standing of the clients.
i) Report from Trade Circle: More information relating to sponsor’s worth, size of business,
turnover, integrity, reputation, honesty, business morality conduct etc. of the clients can be
obtained from other traders in the same line. A client engaged in a manufacturing business
must invariably have constant trade links with the wholesale market.
j) Source of equity: It may be necessary to raise cash either raising of equity through
borrowing on the security of the sponsor’s property or through sale of property. Borrowed fund
will be discouraged, if the borrowed fund thus raised is to be paid back out of earnings of the
new project. The sponsors may have several other sources of mobilizing equity e.g., cash in
hand, bank deposits, dividend income, marketable securities, internal cash generation of the
existing business etc. All these sources should be thoroughly examined.
3.6.2 Technical Appraisal:
Following areas to be looked into during technical appraisal:
a) Product, process and the capacity: Product to be identified, production process to be
chalk down and capacity of the project to be determined.
b) Land and location: Location of the project should be suitable with all infrastructure facilities.
Other relevant issues like proximity to market, availability of raw materials and worker,
environmental issues to be looked into before selecting of location.
c) Building: The area and nature of construction should be determined as per requirement of
the project. The estimates should be based on quantitative analysis in respect of various
building materials rather than on a flat rate basis.
d) Machinery and equipment: The cost of machinery, spares etc. constitute the largest
component of total cost of the project. All costs related to machinery including duty, tax,
insurance, freight, installation etc. should be taken into consideration. The value of machinery
and equipment should generally be determined on the basis of three competitive genuine price
quotations.
e) Other fixed assets: The project should include furniture, fixture, office equipment etc. as
per requirement. Preliminary expenses, cost for trial production, interest during construction
period should also be included in the cost of project. It should be kept in mind that no item is
left out and if there is any requirement of contingencies.
f) Pre-operating expenses: Initial cost like survey, plan, drawing, salary allowances of the
employees during implementation, promotional fee, legal documentation fee, consultant fee,
commission, interest during construction period etc. are the part of project cost and to be
included during preparation of project cost.
g) Requirement of raw materials: Item wise requirement of raw materials to be quantified and
the price and duty structure to be mentioned to arrived at the actual cost of raw materials.
Sources of raw materials whether imported or local to be mentioned. Requirement of packing
materials should also be taken care of.
h) Requirement of utilities: Requirement of utilities, source and the cost thereof are to be
attended.
i) Waste disposal: Wastage of raw materials during processing and handling are to be
determined with utmost care. Impact of wastage during calculation of raw materials and
finished goods needs to be addressed properly. Necessary arrangement for disposal of
wastage also to be made.
j) Environmental impact and pollution control: Effect on environment and pollution hazards
may be taken into consideration. Measures must be prescribed regarding negative effect on
environment. Steps required to control the possible pollution should be identified and
mentioned in the report.
3.6.3 Market Appraisal:
Market in a broader sense, is termed as the sum of contracts between buyers and sellers of a
product or service, the price and quantity exchanged and which are determined by the forces
of demand and supply. Following areas need to attended in the market appraisal:
i) Application of product and services, ii) Target market – Local/Export, iii) Demand/Supply
analysis
Substitute and competitors, iv) Proposed marketing/Distribution Arrangements, v) Proposed
Buyers
vi) Price competitiveness, vii) Promotional Aspects.
3.6.4 Financial Projections and analysis:
a) Earning forecast: The earning forecasts measure cost of production and profitability
relating to a particular period or a number of periods as may be used for the purpose of
forecasts. A three-year period is needed to be seen by the Bank to arrive at an investment
decision. The earning forecast involves the estimation of sales and estimation of associated
costs that shall have to be incurred to achieve the projected sales.
b) Estimation of sales: In estimating sales, the quantity to be sold is to be determined first and
then the selling price to be applied to estimate the sales in monetary terms.
c) Estimation of cost of sales: Major items of costs should be identified and highlighted in
estimating the total cost of sales. Some cost items such as those relating to raw materials, rent,
tax, insurance, water, power, fuel, interest etc. can be estimated at actual with great deal of
accuracy. On the other hand many of the administrative and sales expenses can be estimated
only with rough approximation.
d) Cash flow: One of the major tasks in financial forecasting is to assess the requirement of
funds and to find out how those requirements can be met. It involves estimation of cost and
sources of fund, estimation of income from future operation, liabilities that shall have to be
incurred and the proposed investment in future assets.
e) Analysis: In case of BMRE loan proposal, the project will have relevant operating past. The
analysis of the past operation of an existing concern is of great usefulness in predicting, with a
fair degree of accuracy, the future results of business activity and the future ability of an
enterprise to meet its credit obligation. In such cases, the financial statement of the concern for
the past three consecutive years should be reviewed to form a correct opinion.
f) Ratio analysis: The financial statement of an existing concern or future projections for a
proposed investment may be analyzed through calculation of a number of financial ratios.
Many types of financial ratios may be calculated and used. But the purpose for which the
analysis is made will suggest emphasizing one set of ratios in preference to another.
g)Sensitivity Analysis: Sensitivity analysis provides the picture of relative changes in overall
profitability due to change in any variable. Usually changes (increase) in material and other
variable cost or changes (decrease) in selling price are being taken into consideration for
making sensitivity analysis.
h) Break-even analysis: The basic strength of a project lies in its overall profitability. But it is
equally important to know the point of sales, capacity utilization, level of production or price to
cover the expenses and starts profit earning. The point of activity at which the project would
neither earn profit nor incur loss is called Break-even point.
i) Financial Rate of Return (FRR): Financial rate of return measures the potential earning
power of a project considering time value of money covering entire life of the project.
FRR = Lower discounting rate + (NPV at lower discounting rate/(NPV at lower discounting
rate minus NPV at higher discounting rate) X (Higher discounting rate minus lower discounting
rate))
3.6.5 Managerial Aspect:
This is another important aspect of the appraisal. Managerial feasibility refers to the
assessment of ability of management personnel in managing a project efficiently. The following
managerial skills should be analyzed:
- Technical skill to use knowledge, method and Techniques (acquired from experience,
education and training) to perform the job.
- Human skill to maintain interpersonal relationship within or outside the organization.
- Conceptual skill to understand the complexities in overall organization
3.6.6 Socio-economic Aspect:
The observation of this aspect is to see whether the project is socially desirable. How much
contribution will be made by the project to the G.D.P. and how many numbers of employment
will be generated by the project should be ascertained.
3.7 Pricing of Loan:
Pricing of loan is a great important element in banking business. Because through pricing, bank
usually create margin/profit. So it is to be determined carefully. In pricing, four components are
to be calculated prudently otherwise pricing of that loan will create a definite loss for the bank.
The components are:
i. Interest Expense or Cost of Fund: The interest to be given to the depositor and to central
banks for borrowing
ii. Administrative Cost
iii. Cost of Capital: Return expected by the investors for their capital invested in the bank
iv. Risk Premium
3.8 Approval Process:
In order to fully understand TBL's procedures relating to sanctioning and control of advances a
necessary first step is to examine the Bank’s organization structure.
The organization structure has three levels – Branch, Head Office, and Executive Committee of
the Board (in lieu of Board of Directors).
Branch: The first level of organization in TBL is the branch. Function of the branch have been
split into four main categories; Advances, Foreign Exchange, General banking, and Accounting
& Establishment. The size of the advance function depends on the number of borrowers and
the size and complexity of their accounts.
The work of the advance department at the branch is to prepare all the detailed schedules in
the Credit Line Proposals. To ensure that the security for the advance is perfected and to
provide all information required on the creditworthiness of the customer the department also
monitors the advances accounts regular basis.
The branch manager or officer-in-charge of advance department should conduct the initial
interview with the customer. If the proposal meets TBL’s lending criteria and is within the
manager’s discretionary powers, the credit line should be approved by the Manager.
Head Office: The second level of TBL's organization is the Head Office under Managing
Director’s discretionary power and /or the Credit Committee formed at Head Office level. The
Credit Committee is headed by its Chairman who is at present ex-officio Deputy Managing
Director. Other members of the Credit Committee are the departmental heads relating to credit,
credit administration and fund management. Normally Credit Committee is a recommending
forum. Credit line proposals recommended by the Credit Committee are either sanction under
discretionary power of the Managing Director or anything beyond the capacity of the M.D. is
sent to the Executive Committee of the Board for approval.
It is the responsibility of the Credit Committee to review, and approve or reject all credit line
proposals above the branch managers’ discretionary powers. Using the powers delegated to it
by the Board of Directors, Credit Committee can finally recommend all credit line proposals up
to the approved limit of M.D. and Executive Committee of the Board.
In the Head Office organization structure the reviewing departments are known as the Credit
Division and Loan Administration and Monitoring Division. This departments deal with all the
detailed work of reviewing credit line proposals and controlling overdrafts and loans on a
continuous basis.
Executive Committee of the Board:
The third organizational level within TBL is the Executive Committee of the Board comprising of
the members from the Board of Directors and the Managing Director as an ex-officio member
of the committee. This Committee has the power to approve all other credit line proposals
beyond the capacity of branch in-charges and the Managing Director. The Executive
Committee of the Board is responsible for sanctioning, reviewing large credit line proposals and
monitoring credit policy of the bank as determined by the Board of Directors.
3.9 Post sanction process:
After the credit Line Proposal has been finally approved by the appropriate sanctioning
authority in the Bank’s credit organization structure it enters the post sanction processing
stage. At this stage the signed credit line proposals is returned to the branch/ credit officers,
following four further steps are to be taken by the branch manager before the borrower can use
the credit lines that have been sanctioned to him. These steps are as follows :
- Convey offer /sanction letter to the borrower.
- Branch credit officers perfect the security and charge documents considering the nature
and the terms of facility and the securities and in accordance with the laws of the land.
- An account number is allocated to the new credit facility.
- The account record is set up and borrower’s file is prepared.
When these four steps have been complied with, the post sanctioning process is completed
and the borrower can draw on his account.
3.10 Documentation:
Documentation of Loans & Advances: Immediate after sanctioning of loan, documentation is
to be made properly before disbursement of loan. Documentation formalities are commonly
known as completion of ‘Charge document’ in the banking world. Type of documents to be
signed by the client varies depending upon the nature of loan and advances given. Some
common documents are listed below:
i) Demand Promissory (DP) Note, ii) Letter Arrangement, iii) Letter of Agreement, iv) Letter of
continuity (in case of continuous loan), v) Letter of pledge (in case of Pledge), vi) Letter of
Hypothecation (in case of Hypothecation), vii) Letter of Undertaking, viii) Letter of Debit
Authority, ix) Letter of Installment (in case of term loan to be paid in installment) and x) Letter
of Guarantee (Personal Guarantee)
Type of
advances
Securities
Loans Lien of various kinds of Sanchay Patra, Govt. Securities, Shares quoted in
the Stock Exchange, Debenture, Fixes Deposit Receipt, hypothecation of
vehicles, hypothecation of machinery, hypothecation of other moveable
assets, hypothecation of book debts and receivables. Collateral of immovable
properties.
Over draft Sanchay Patra, Non-resident Foreign currency deposit (NFCD), Shares,
debenture, government promissory notes, fixed deposit receipts, life insurance
policies.
Cash credits Pledge or hypothecation of stock-in-trade, stock-in-process, goods-in-
transit, produce and merchandise, machinery collateral of land & building
on which machinery are installed and collateral of third party mortgage of
immovable property
Inland bills
purchased
Bill itself
PAD Shipping documents for imports having title to the bank
TR Trust receipt obtained in lieu of import documents
Export Pledge or hypothecation of goods or export Trust Receipts
Foreign bills
Purchased
Shipping documents for exports
3.11 Creation of Charges over Securities:
As a safety measure, bank has to create charges over the securities against the risk of non-
repayment of loan. The most common modes of charge creation are defined below in a very
brief from:
1. Pledge: According to the section 172 of the Contract Act, when a borrower surrenders his
business goods to the banker's custody as the security of loan given by the bank then it is
called pledge. The pledged goods remain with the possession and control of the bank and the
client draw the goods in case of need with the permission of the bank by repaying adequate
amount of loan. Bank usually permits drawing power (DP) to the borrower to draw the goods
from its custody after checking the stock report.
2. Hypothecation: When loan is given to the borrower against hypothecated possession of
goods then it is called Hypothecation, The physical possession & control remain with the
borrower's custody. Bank creates charge over the hypothecated goods in case of default. For
creation of this charge bank takes the letter of hypothecation from the borrower.
3. Lien: Lien is the right of the creditor to retain the goods or properties given by the borrower
to the creditor as the security against the loan. The creditor deserves the right of lien until the
debt is paid.
4. Assignment: Assignment is the transfer of a right, property or debt, existing or future by one
person to another person. In banking the usual subject of assignment is "auctionable claims".
5. Set-off: Right of set-off is the right of a banker to combine all the accounts of a customer to
realize the debt. Set off accrues to the banker as a result of banker-customer relationship. If a
customer maintains more than one account with the bank, usually bank obtains a prior letter of
set-off so that bank can combine them at its discretion without giving any notice to the
customer.
6. Mortgage: As per the declaration of the Transfer of Property Act 1882 under section 58 (a)
mortgage is the transfer of an interest in specific immovable property for the purpose of
securing the repayment of money advance or to be advanced by way of loan, existing or future
debt, or the performance of an engagement which may give rise to a pecuniary liability. The
transferor is called the mortgagor and the transferee is called the mortgagee. The mortgagor
gets back all his rights to the mortgaged property on repayment of loan due three on. The
most two common types are:
a. Registered or Simple Mortgage: Where without delivering possession of the mortgaged
property, the mortgagor binds himself personally to repay the debt. The mortgage (Bank) can
sell the property by obtaining decree from the court.
b. Equitable Mortgage: Where mortgagor delivers the documents of title of immovable property
with intention to create a security thereon, the transaction is called mortgage by deposit of the
deeds or equitable mortgage.
3.12 Securities and Advances:
The following securities are to be obtained by the branches depending on the nature of
advances while allowing secured advances to the clients.
- Wage Earner Development Bond, Bangladesh Bank Investment Bond and other approved
securities that can be marked lien.
- Fixed Deposit Receipt issued by any branch of The Trust Bank Limited.
- Fixed Deposit Receipts issued by other banks (Normally, TBL should not encourage this
security against our loan).
- Shares quoted in the Dhaka Stock Exchange Limited, Chittagong Stock Exchange Ltd., and
Sylhet Stock Exchange Ltd.
- Pledge of goods and produce
- Hypothecation of goods, produce and machinery.
- Immovable property
- Fixes assets of manufacturing unit.
- Cheque, Drafts, Pay order, Railway Receipts, Steamer Receipts, Burge Receipts of the
Government or Corporations.
- Shipping documents.
- All other moveable and floating assets such as, book debts, receivables etc.
3.13 Disbursement:
Loans: Advance made in a lump sum repayable either on fixed installment basis or in lump
sum having no subsequent debit except by way of interest, incidental charges, etc. is called a
loan. After creation of loan, there will be only repayment by borrower. The whole amount of
loan is debited to the customer’s name on a loan account to be opened in the ledger and is
paid to the borrower either in cash or by way of Credit to his current or savings account.
Over drafts: Advance in the form of over draft is always allowed on a current account operated
upon by cheque. Within the sanctioned limit, the borrower can overdraw his account within a
stipulated period. Here, withdrawals or deposits can be made any number of times at the
convenience of the borrowers, provided that the total amount overdrawn does not, at any time
exceed the agreed limit. Interest is calculated and charged only on the actual debited balances
on daily products basis.
Cash Credit: Cash credit as a form of advance is a separate account by itself and is
maintained in a separate ledger. The borrower may operate the account within stipulated limit
as and when required. The drawings are subject to drawing power. Cash credit is an active &
running account to which deposit and withdraws may be made frequently. The debit balance of
the account on any day cannot exceed the agreed limit.
Inland Bills purchased: Sometimes banks are to purchase bill of exchange of businessmen to
facilitate commercial transactions. Besides bills, banks also purchase cheque drawn by
Government, Semi- Government institutions, local authorities, or any first class parties for
extending accommodation to the parties requiring funds. In case of purchase and discounting
of bills, the banker credits the customer’s account with the amount of the bill after deducting his
charges or discount. In case of purchase of cheque, amount of the cheque is credited to the
party’s account to the debit of bills or cheque purchased account and on receipt of the
proceeds of the cheque, after collection, bill or cheque purchase account is liquidated.
Payment against documents (PAD): PAD is associated with import and import financing. The
bank opening letter of credit is bound to honor its commitment to pay for import bills when
these are presented for payment provided that it is drawn strictly in terms of letter of credit.
The foreign correspondent, which negotiates the documents; debits the account of the opening
bank and in fact, the amount thus stands advanced on behalf of the importer. The opening
bank on receipt, will lodge the shipping documents to their book and will respond to the debit
advice originated by foreign correspondent to the debit of “Payment against documents (PAD)”
account and present the bill to the importer for payment/ acceptance.
Trust Receipts: Advance against a Trust Receipt obtained from the customer, are allowed
when the documents covering an import shipment are given without payment. The customer
holds the goods or their sale proceeds in trust for the Bank, till such time, the loan allowed
against the Trust Receipt is fully paid off.
Long Term loan: Long-term loan is meant for setting up of a project/ industrial undertaking, i.e.
financing for the development of the infra structural facilities including procurement of
machinery, either from abroad or from local market. Disbursement may be made in one
installment depending on the item for which financing is being offered or more than one
installment matching with the equity investment of the borrower.
Disbursement of equity and loan shall be made strictly in accordance with the disbursement
schedule incorporated in the loan sanction advice for implementation of the project within the
stipulated period. Disbursement of each phase is always subject to satisfactory utilization of
previous phase. Utilization of phase wise disbursement must be verified by an Officer and
Engineer of the Bank. In addition, branch must closely supervise the utilization of disbursement
amount from time to time.
i
3.14 Monitor/ Control of Credit Operations:
Advance allowed should be very closely watched to see whether the same are being
conducted in accordance with the terms and conditions under which the limits were sanctioned
or not. The result of the inspection should be an effective guide in sorting out the measures to
be adopted in respect either of correcting the unsatisfactory operation of the advances or
recovery of the same.
In order to ensure safety of advances, all advances shall be kept under supervision and
thereby under control. This will include supervision at the time of disbursement to ensure
proper utilization of bank credit, to supervise end use during the tenure of advance and to
ensure that the repayment is regular. The control of credit operations falls into two main parts,
namely: Regular monitoring of all accounts and review of all EOLs and Monitoring of delinquent
accounts
Monitoring/controlling contains the following main sections:
3.14.1 Control of overdrawn accounts: For The Trust Bank limited, the procedures for
controlling overdrafts are explained in two parts: Branch control of overdrafts; & Central control
of overdrafts.
Branch control of over drafts: The branch control of over draft has the following five main
elements:
i) Sanctioning the overdraft limit : When an overdraft limit is first sanctioned a Loan Account
Input Form for input of details in the computer records must be completed at the branch. The
form has three parts,: Customer record, Account record, and Credit line record.
All three parts must be completed if the borrower is a new customer who has no other accounts
with the bank. The customer record is transcribed from the account opening form, which is
completed by the borrower at the branch. If the borrower has an account with the bank, then
only the account record and credit line record need to be completed. When the Loan Account
Input Form has been completed, it is checked and signed by two authorized officers at the
branch.
ii Control of cheque and other debits posted to overdrawn accounts ; The next step in the
control system after the sanction of the over draft limit is the monitoring of cheque and other
debit items drawn on the account against the limit. The following information on each cheque
received at the branch is input daily via the terminal to the central computer: Account Number,
Amount of Cheque, & Cheque Number.
iii) Periodic review of overdraft accounts ; The third stage in branch control is the periodic
review of over draft accounts by the branch manager and the officers responsible for credit
operations at the branch. The checks and control reports used at the branch are as follows:
REPORT FREQUENCY
a. Up date Customer & Account Data Daily
b. Authorized Withdrawals Daily
c. Secured Over drafts Weekly
d. Clean Over draft Weekly
e. Excess over limit/ Excess Over drawing Power Weekly
f. Unused facilities Weekly
g. Temporary facilities Weekly
iv) Preparation of requests for authorizing EOLs, temporary over draft (TOD) or other
non- recurring transactions: EOLs and TODs require authorization. Posting of debit
transactions to accounts, which are over the limit, requires the authorization of the branch
manager in the first instance. This also be the final authority if the branch manager has the
authority and EOL or TOD is within the branch manager’s authority level. If it is not, then a
request for approval of the EOL/TOD must be prepared and submitted to HO who will consider
the request and, if they agree with it, progress it to final approval.
v) Periodic monitoring of security values; The monitoring procedures for tracking the value
of the Bank’s security require elaboration. The periodicity of review depends on the nature of
security. The guidelines to be observed by all branch managers are as follows:
Head Office control of overdraft:
The controls operated by Head Office are as follows:
- Weekly review of reports sent by the branches;
- Random examination of reports, if required, twice a month whenever requested by the
authority;
- Review of weekly reports sent to the Head Office on all EOLs and TODs which have not
been authorized correctly;
- Regular branch/ project visits by officers from Loan Administration and Monitoring Division
to review, on the spot, large and / or irregular advances.
- Each of the officers in Loan Administration and Monitoring Division is responsible for
reviewing the advance portfolios of the branches.
Concerned division of Head office operates a program of regular branch visits. The visits are at
random so that the branch does not know in advance when the visit will take place. The officer
can ask the branch manager for any information on specific accounts..
3.14.2 Control of loans:
Branch control of loans: Branch control of loans has three main elements as follows:
(i) Setting up of the loan accounts; The setting up of the loan accounts proceeds in the same
way as the overdraft account. A loan account form as described in the case of overdraft
account is filled in at the branch level for each new loan after the signed Credit line proposal is
received from the Head office. In addition, the following information is required for loans:
Installment amount, Installment frequency, First installment due on, and First repayment-
Maturity date.
(ii) Review of loan accounts; After the loan has been set up, it is reviewed monthly by the
branch. The purpose of the review is to ensure that the monthly interest charges are being paid
up and that repayment of principal are being made on time. Interest is charged on the unpaid
installment and also on the payable but unpaid loan and interest amount during the overdue period
and is included in next month’s interest charge.
(iii) Periodic assessment of security values : Periodic review of security is essential for
proper valuation of the security. It is needed as the value of the security is changing day by
day.
Head office control of loan: The controls exercised by Head Office are as follows:
- Monthly review of the Loan Statement by officers in concerned division;
- A program of regular branch/project visits by officers from concerned division.
Each of the officers in concerned division of Head office is responsible for reviewing the loan
portfolios of branches. By comparing the statements with previous month’s statement they
check the progress/ deterioration in repayment of loans and report to the competent authority.
In cases where there are apparent defaults on capital repayments or interest payments, the
monitoring officer of HO should contact the branch to find out the reasons for the apparent
defaults.
2.14.3 Control of other Credit facilities: This section deals with the controls over the
following other types of credit facilities which form an important part of the Bank’s advances
port folio:
Bills purchased: The term “bills purchased” is used to describe short-term loans granted
against documentary or clean bills. Thus the branch “buys” the bill, its “price” being the amount
of the loan granted against the bill. The term “bills discounted” is used to describe short-term
loan granted against the security of bills where interest amount on loan is deducted from the
face value of the bills at the time of discounting the bill. Thus net amount is credited to the
borrower’s account. The loan is liquidated through the proceeds of the bill. Interest is charged
on the loan at a rate linked to either LIBOR or base rate.
A bill purchased / discounted facility is subject to an approved limit, which is reviewed annually
through the Bank’s sanctioning system. The Bank will purchase / discount bills from the drawer
up to the limit approved by the credit line proposal. The bills can be denominated in any of the
major trading currencies.
The controls over the bills purchased / discounted exercised by the branch manager are as
follows:
- report on the creditworthiness of the drawer;
- report on the creditworthiness of the drawees;
- consideration as to the type and quality of the goods, if any, covered under the bills;
- level of margin allowed on bills: the higher the margin, the lower the Bank’s assessment of
the risk of the lending to the customer against the security of the bill;
- comparison of the value of bills outstanding within the approved limit;
- investigation of bills that are outstanding for an unreasonable period or have matured but
have not been paid; &
- verification of the Bank’s legal title to the goods.
The branch manager must follow up on all overdue bills by writing to the borrower each month,
listing all bills, which have not been paid on their due date.
Letters of credit: The documentary Letter of Credit (LC) is an important method of setting
debts in international trade and is a main source of short term import finance for many of the
Bank’s customers. This section concentrates on the various controls over the opening and
settlement of LCs that are operated by the Bank at branch and Head office levels.
Documents supporting the debit to PAD account should be kept in the Bank’s custody.
Adequate follow up should be made with the customer to retire the bill as soon as he can. The
branch should also ascertain the expected date of arrival of goods. This date should be
diarised. If the customer fails to retire the bill before the arrival and delivery of goods,
arrangement may be made to clear and store the goods safely. Arrangement for insuring the
goods should also be made. Such cases should be immediately reported to Head Office for
necessary instructions. Documents must not be parted with until the customer pays in full for
the bill.
Control at Head Office : At monthly intervals, the branch manager provides the following
reports to Head Office: Outstanding LC liabilities, Outstanding Acceptance liabilities and
Outstanding PAD liabilities.
In each case the position is summarized customer-wise and then individual LCs and
acceptances are listed. The concerned officers of Head Office should examine the monthly
reports from the branches and carry out the following checks:
- agree the branch reports with the monthly Statement of Affairs.
- examine the long standing items and due dates shown in the reports
Letters of guarantees: It is customary for the bank to execute guarantees / counter
guarantees on behalf of customers favoring third parties in the normal course of business.
Proposals for issue of guarantees should be submitted, with complete details, for sanction at
the appropriate levels.
Control at Head office
At monthly intervals the branch manager should provide the Statement of Letters of
Guarantees issued and Outstanding to Head Office. Control procedures for LC as given earlier
are followed by Head office for guarantees.
Cash Credit: The procedures for controlling cash credits are two parts:
Control at Branch : The control procedure for cash credit at the branch level is similar to
control procedure for overdraft accounts. An account is set up and its details are checked
through the relatives’ reports. Daily control is essential while posting in cheques; similar to
overdraft accounts. Debit balance is matched with the drawing power available in the account.
The branch should do proper control of security and its periodical checks.
Control at Head office: At monthly intervals the branch manager should provide the
Statement of Cash Credit facilities which will include, among others, the following:
- Name of the client,
- Limit sanctioned with sanction and expiry date,
- Details of security held with present value,
- Account performance (including debit balance, credit balance, average balance etc.
The concerned division of Head office will analysis/ review the above statements and report to
the competent authority with findings.
3.15 Handling of Delinquent Loan/Advance:
Despite the extreme care exercised in the sanctioning and control procedures, it is still possible
that some advances may become doubtful because of adverse changes in economic
conditions seriously affecting the borrower’s business or his personal financial position. All
lending decisions involve an element of risk to the Bank, because future economic conditions
cannot be predicted exactly. Therefore, an important area in advances control is-
- Identification of delinquent advances, and
- Monitoring of the delinquent accounts.
3.15.1 Identification of Delinquent Advances: The identification starts with the branch
manager. As part of the control mechanism, the branch manager is monitoring advances
regularly during the week; he or his assistant may check on large accounts daily and review the
smaller accounts at weekly intervals. The branch manager will be looking at the health of the
account and will use the following criteria:
In the case of overdrafts: i) turnover, ii) conduct of the account against the limit sanctioned by
the Bank at the last credit line review.
In the case of loans: adherence to the repayment schedule agreed with the borrower, either
when the loan was sanctioned, or at the last rescheduling.
In the case of bills purchased and letters of credit: Payment of the bill by the drawee at the
destination on the maturity date or in the event of non-payment by the drawee, by recovery
from the drawer of the bill (borrowed).
In the case of contingent facilities: Letters of credit should be checked to ensure the reliability
of the seller of the goods and the legality of the transaction and
In the case of letters of guarantee: the details of the contact and the period over which the
guarantee is valid should be checked: performance bonds and bid bonds also involve
additional checks to ensure that the contractor has carried out similar work previously.
In addition the branch manager should also keep a watch on declining sales, reducing profits
and profitability, deterioration in the financial ratios, if any. He should remain vigilant of
external factors such as non-availability of a particular raw material, delays in payment by
Government Agencies, declining market for a particular product, financial weakness of a
guarantor etc. These factors have a direct bearing on the health of a borrowing account.
3.15.2 Monitoring of the delinquent accounts: After a delinquent advance has been
identified by the branch manager and confirmed by Head Office, it must then be monitored
through monthly and quarterly reporting to Head Office. The first stage in the monitoring
system is to meet the borrower and give him the opportunity to regularize his account. Normally
he will be given a time limit to regularize his affairs and to provide plans for solving his financial
problems. Branch office, in consultation with the borrower and with the permission of the Head
office, will make a recovery plan. This recovery plan and/ or restructuring of the facilities may
be either accepted or rejected.
If the recovery plan is rejected or if the recovery plan previously accepted by the Bank does not
work, then the borrower may be given some more time to solve his financial problems if they
appear to be temporary and if extra time is all that the borrower needs to develop a practical
solution. However, if the problems appear intractable, then either of the two things may
happen:
3.16 Loan Classification- Provisioning:
The detailed information concerning classification, provisioning and interest Suspense Account
will be required to be submitted to Bangladesh Bank within 30 days from the date of reference.
Basis for Classification:
All loans and advances will be divided in four categories: (a) Continuous Loan; (b) Demand
Loan; (c) Fixed Term Loan; and (d) Short-term Agricultural and Micro-Credit.
a) Continuous Loan: The Loan, which has no particular repayment schedule, but contains
date of expiry, credit limit etc. will be termed as Continuous Loan e.g., CC, OD etc.
Basis of Classification Irregular: Next day after the date of expiry, if not adjusted/renewed at
expiry date. Substandard: Un recovered for more than 3 months but less than 6 months.
Doubtful: Un recovered for more than 6 months but less than 12 months. Bad/Loss: Un
recovered for more than 12 months.
b) Demand Loan: The loan, which is considered repayable only after it is claimed by the
banks, will be termed as Demand Loan. If contingent or any other liability is converted to
Compulsory Loan and Forced Loan then it will be termed as Demand Loan e.g. Forced LIM,
PAD, FBP, IBP etc.
Basis of Classification: Substandard: Un recovered for more than 3 months but less than 6
months. Doubtful: Un recovered for more than 6 months but less than 12 months. Bad/Loss:
Un recovered for more than 12 months.
c) Fixed Term Loan: The loan, which is repayable within a particular period of time as per
repayment schedule, will be termed as fixed term loan.
Basis of Classification: If any installment is left un recovered within the scheduled date, the
amount falling due on account of un recovered installment will be classified as "Overdue
Installment".
Fixed Term Loan which is repayable within a maximum period of 5 years:
Substandard: Overdue installment equals or exceeds the amount repayable within 6 months.
Doubtful: Overdue installment equals or exceeds the amount repayable within 12 months.
Bad/Loss: Overdue installment equals or exceeds the amount repayable within 18 months.
Fixed Term Loan which is repayable after 5 years :
Substandard: Overdue installment equals or exceeds the amount repayable within 12 months.
Doubtful: Overdue installment equals or exceeds the amount repayable within 18 months.
Bad/Loss: Overdue installment equals or exceeds the amount repayable within 24 months.
If any fixed term loan is repayable in monthly installment then the amount of recoverable
installment will be equal to the sum of 6 installments (monthly). Similarly, in case of quarterly
repayable installment total amount repayable within 6 months will be equal to the amount of the
total of 2 quarterly installments.
d ) Short-term Agricultural and Micro-credit: Short-term Credit will include credit extended
to Agricultural sector and it is repayable within a period not exceeding 12 months. The short
Term Micro-Credit will be that which will not exceed an amount of Tk 10,000.00 and will be
repayable within a period not exceeding 12 months.
Irregular: If not recovered within the scheduled date as per contract of the credit.
Substandard: After exceeding 12 months as irregular credit.
Doubtful: After exceeding 36 months as irregular
Bad/Loss: Overdue installment equals or exceeds the amount repayable within 60 months.
If any improvement achieved in the accounts classified it will again be declassified. However,
the credit once classified by inspection team of Bangladesh Bank, that will be treated as final
classification and before any subsequent inspection is conducted by Bangladesh Bank or
without prior approval of Bangladesh Bank the credit will not attain any merit of declassification.
3.17 Reservation of Provision:
Provision for reserve will be kept at the following scale:
Sub-Standard : 20%
Doubtful : 50%
Bad/Loss : 100%
I % for regular loans
After adjustment of Interest Suspense and value of Eligible Securities from outstanding balance
of classified credit-the reservation of provisions will be kept on the calculated balance. General
provision will be kept at the rate of 1% on unclassified loans.
Qualitative Judgment: If the recovery of the credit becomes uncertain resulting from change
of circumstances under which credit was extended or the borrower sustains loss of capital or
the value of security decreases or any adverse situation arises then the credit will be classified
on the basis of Qualitative Judgement. Besides, if the credit is extended without any logical
basis or the credit is frequently rescheduled or the rules of rescheduling are violated or the
trends of exceeding credit limit observed frequently or a suit is filed for recovery of the credit is
extended without the approval of the competent authority, then the loan will be classified on the
basis of Qualitative judgement. Under this judgement the loans will be classified as under:
Substandard: Due to reasons stated above or for any other reason if in spite of possible loss
of any credit, there is any probability of changing the present situation through taking proper
steps.
Doubtful: Even after taking proper steps, if the full recovery is not ensured.
Bad/Loss: If the probability of recovery becomes totally nil.
If any improvement achieved in the accounts classified it will again be declassified. However,
the credit once classified by inspection team of Bangladesh Bank, that will be treated as final
classification and before any subsequent inspection is conducted by Bangladesh Bank or
without prior approval of Bangladesh Bank the credit will not attain any merit of declassification.
3.18 Treatment of Interest Suspense:
Generally when a credit is classified as Substandard, Doubtful or Bad according to prevailing
classification rules, the entire interest that has been accrued/charged in the account since last
"Reference Date" (the date on which previous classification exercise was done) is suspended.
Subsequently, all interest charged in the account is also suspended till the account remains
classified. However, the classification rule provides that any actual recovery made, after such
classification is applied first to interest in suspense and then to the interest overdue or currently
due Therefore, interest suspense is booked into income to the extent the actual recovery takes
place.
3.19 Identification of Possible Recourses for Recovery of Delinquent Debts:
When an account turns delinquent in spite of all-out efforts, it becomes necessary on the part
of the Bank to initiate appropriate actions to recover the debt. Possible recourses, depending
on situation, can be as follows:
- Issuing Notices/ Legal Notices
- Goods under Pledge
- Goods under Hypothecation
- Mortgages
- Unsecured Advances
3.20 Litigation and Costs:
While recommending institution of legal proceedings in any case, branches are generally
required by Head Office to indicate the chances of recovery of the amount involved, the
estimated cost of the litigation (court fees, Legal Advisor's fees, miscellaneous expenses) and
the appropriate time that would be required for getting a decree. On the basis of information
supplied, Head Office decides whether it would be worthwhile to take legal action or to write off
the amount.
If it is decided ultimately to file a suit, it has to be done against all parties, the principal or his
heirs, successors or assignees, and the guarantor or his heirs etc., if any, as the case may be.
After a decree is obtained, it has to be executed through court process by attachment and sale
of the judgment debtor's property. If in the meantime, the borrower is declared an insolvent, the
provisions of relevant Act in this case shall apply.
3.21 Loan Loss Provision:
When an account turns delinquent and stands classified as "Substandard", "Doubtful" or "Bad"
depending on the degree of delinquency, Loan Loss Provision, at prescribed rates, applicable
for each of the category of classification, should be made.
Usually, the Loan Loss Provision is centrally handled at Head Office, on quarterly basis, based
on detailed loan classification exercises undertaken and provision requirement assessed by
branches, as per Central Bank's rules in force. The rates for provision requirement on each of
the category of classified loans is the minimum prescribed by Central Bank and Banks are free
to make increased provisions.
3.22 Write Off:
When all the avenues of recovery of a debt stands exhausted, or had to be abandoned for
genuine reasons, the question of writing off a debt arises. Branches to approach Head Office
for such writing off, reasonably establishing that no other avenue is left to recover the dues.
Chapter-4: Credit Management Guidelines by Bangladesh
Bank
Risk is inherent in all aspects of a commercial operation, however for Banks and financial
institutions, credit risk is an essential factor that needs to be managed. Credit risk is the
possibility that a borrower or counter party will fail to meet its obligations in accordance with
agreed terms. Credit risk, therefore, arises from the bank’s dealings with or lending to
corporate, individuals, and other banks or financial institutions.
Credit risk management needs to be a robust process that enables banks to proactively
manage loan portfolios in order to minimize losses and earn an acceptable level of return for
shareholders. It is essential that banks have robust credit risk management policies and
procedures that are sensitive and responsive. The guidelines have been organized into the
following sections:
4.1 POLICY GUIDELINES:
This section details fundamental credit risk management policies that are recommended for
adoption by all banks in Bangladesh. The guidelines contained herein outline general principles
that are designed to govern the implementation of more detailed lending procedures and risk
grading systems within individual banks.
4.1.1 Lending Guidelines: All banks should have established Credit Policies (“Lending
Guidelines”) that clearly outline the senior management’s view of business development
priorities and the terms and conditions that should be adhered to in order for loans to be
approved. The Lending Guidelines should be updated at least annually to reflect changes in
the economic outlook and the evolution of the bank’s loan portfolio.
Any departure or deviation from the Lending Guidelines should be explicitly identified in credit
applications and a justification for approval provided. Approval of loans that do not comply with
Lending Guidelines should be restricted to the bank’s Head of Credit or Managing
Director/CEO & Board of Directors. The Lending Guidelines should include the following:
a) Industry and Business Segment Focus : The Lending Guidelines should clearly
identify the business/industry sectors that should constitute the majority of the bank’s
loan portfolio. For each sector, a clear indication of the bank’s appetite for growth
should be indicated (as an example, Textiles: Grow, Cement: Maintain, Construction:
Shrink). This will provide necessary direction to the bank’s marketing staff.
b) Types of Loan Facilities: The type of loans that are permitted should be clearly indicated,
such as Working Capital, Trade Finance, Term Loan, etc.
c) Single Borrower/Group Limits/Syndication: Details of the bank’s Single Borrower/Group
limits should be included as per Bangladesh Bank guidelines. Banks may wish to establish
more conservative criteria in this regard.
d) Lending Caps: Banks should establish a specific industry sector exposure cap to avoid
over concentration in any one industry sector.
e) Discouraged Business Types: Banks should outline industries or lending activities that are
discouraged. As a minimum, the following should be discouraged:
- Military Equipment/Weapons Finance
- Highly Leveraged Transactions
- Finance of Speculative Investments
- Logging, Mineral Extraction/Mining, or other activity that is Ethically or Environmentally
Sensitive
- Lending to companies listed on CIB black list or known defaulters
- Counter parties in countries subject to UN sanctions
- Share Lending
- Taking an Equity Stake in Borrowers
- Lending to Holding Companies
- Bridge Loans relying on equity/debt issuance as a source of repayment.
f) Loan Facility Parameters: Facility parameters (e.g., maximum size, maximum tenor, and
covenant and security requirements) should be clearly stated. As a minimum, the following
parameters are adopted:
- Banks should not grant facilities where the bank’s security position is inferior to that of any
other financial institution.
- Assets pledged as security should be properly insured.
- Valuations of property taken as security should be performed prior to loans being granted.
g) Cross Border Risk: Risk associated with cross border lending. Borrowers of a particular
country may be unable or unwilling to fulfill principle and/or interest obligations. Distinguished
from ordinary credit risk because the difficulty arises from a political event, such as suspension
of external payments
- Synonymous with political & sovereign risk
- Third world debt crisis
4.1.2 Credit Assessment :
Credit Assessment:: A thorough credit and risk assessment should be conducted prior to the
granting of loans, and at least annually thereafter for all facilities. The results of this
assessment should be presented in a Credit Application that originates from the relationship
manager/account officer (“RM”), and is approved by Credit Risk Management (CRM). The RM
should be the owner of the customer relationship, and must be held responsible to ensure the
accuracy of the entire credit application submitted for approval. RMs must be familiar with the
bank’s Lending Guidelines and should conduct due diligence on new borrowers, principals, and
guarantors.
It is essential that RMs know their customers and conduct due diligence on new borrowers,
principals, and guarantors to ensure such parties are in fact who they represent themselves to
be. All banks should have established Know Your Customer (KYC) and Money Laundering
guidelines which should be adhered to at all times.
Credit Applications should summaries the results of the RMs risk assessment and include, as a
minimum, the following details:
- Amount and type of loan(s) proposed.
- Purpose of loans.
- Loan Structure (Tenor, Covenants, Repayment Schedule, Interest)
- Security Arrangements
In addition, the following risk areas should be addressed:
Borrower Analysis: The majority shareholders, management team and group or affiliate
companies should be assessed. Any issues regarding lack of management depth, complicated
ownership structures or inter-group transactions should be addressed, and risks mitigated.
Industry Analysis: The key risk factors of the borrower’s industry should be assessed. Any
issues regarding the borrower’s position in the industry, overall industry concerns or
competitive forces should be addressed and the strengths and weaknesses of the borrower
relative to its competition should be identified.
Supplier/Buyer Analysis: Any customer or supplier concentration should be addressed, as
these could have a significant impact on the future viability of the borrower.
Historical Financial Analysis: An analysis of a minimum of 3 years historical financial
statements of the borrower should be presented. Where reliance is placed on a corporate
guarantor, guarantor financial statements should also be analyzed. The analysis should
address the quality and sustainability of earnings, cash flow and the strength of the borrower’s
balance sheet. Specifically, cash flow, leverage and profitability must be analyzed.
Projected Financial Performance: Where term facilities (tenor > 1 year) are being proposed,
a projection of the borrower’s future financial performance should be provided, indicating an
analysis of the sufficiency of cash flow to service debt repayments. Loans should not be
granted if projected cash flow is insufficient to repay debts.
Account Conduct: For existing borrowers, the historic performance in meeting repayment
obligations (trade payments, cheques, interest and principal payments, etc) should be
assessed.
Adherence to Lending Guidelines: Credit Applications should clearly state whether or not
the proposed application is in compliance with the bank’s Lending Guidelines. The Bank’s
Head of Credit or Managing Director/CEO should approve Credit Applications that do not
adhere to the bank’s Lending Guidelines.
Mitigating Factors : Mitigating factors for risks identified in the credit assessment should be
identified. Possible risks include, but are not limited to: margin sustainability and/or volatility,
high debt load (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or
expansion; new business line/product expansion; management changes or succession issues;
customer or supplier concentrations; and lack of transparency or industry issues.
Loan Structure: The amounts and tenors of financing proposed should be justified based on
the projected repayment ability and loan purpose. Excessive tenor or amount relative to
business needs increases the risk of fund diversion and may adversely impact the borrower’s
repayment ability.
Security: A current valuation of collateral should be obtained and the quality and priority of
security being proposed should be assessed. Loans should not be granted based solely on
security. Adequacy and the extent of the insurance coverage should be assessed.
Name Lending: Credit proposals should not be unduly influenced by an over reliance on the
sponsoring principal’s reputation, reported independent means, or their perceived willingness
to inject funds into various business enterprises in case of need. These situations should be
discouraged and treated with great caution. Rather, credit proposals and the granting of loans
should be based on sound fundamentals, supported by a thorough financial and risk
4.1.3 Risk grading:
All Banks should adopt a credit risk grading system. The system should define the risk profile
of borrower’s to ensure that account management, structure and pricing are commensurate
with the risk involved. Risk grading is a key measurement of a Bank’s asset quality, and as
such, it is essential that grading is a robust process. All facilities should be assigned a risk
grade. Where deterioration in risk is noted, the Risk Grade assigned to a borrower and its
facilities should be immediately changed. Borrower Risk Grades should be clearly stated on
Credit Applications.
The following Risk Grade Matrix is provided as an example. The more conservative
risk grade (higher) should be applied if there is a difference between the personal
judgment and the Risk Grade Scorecard results.
The risk is grading by giving different weight to the followings:
1. THE RATIO OF A BORROWER’S TOTAL DEBT TO TANGIBLE NET WORTH: 20%
2. Liquidity : 20%
3. Profitability: 20%
4. Account Conduct : 10%
5. Business Outlook: 10%
6. Management: 5%
7. Personal Deposit: 5%
8. Age of Business : 5%
9. Size of Business 5%
RISK GRADE SCORECARD
4.1.4 Approval Authority:
The authority to sanction/approve loans must be clearly delegated to senior credit executives
by the Managing Director/CEO & Board based on the executive’s knowledge and experience.
Approval authority should be delegated to individual executives and not to committees to
ensure accountability in the approval process. The following guidelines should apply in the
approval/sanctioning of loans:
Credit approval authority must be delegated in writing from the MD/CEO & Board (as
appropriate), acknowledged by recipients, and records of all delegation retained in CRM.
Delegated approval authorities must be reviewed annually by MD/CEO/Board.
The credit approval function should be separate from the marketing/relationship
management (RM) function.
The role of Credit Committee may be restricted to only review of proposals i.e.
recommendations or review of bank’s loan portfolios.
Approvals must be evidenced in writing, or by electronic signature. Approval records must
be kept on file with the Credit Applications.
All credit risks must be authorized by executives within the authority limit delegated to them
by the MD/CEO. The “pooling” or combining of authority limits should not be permitted.
Credit approval should be centralized within the CRM function. Regional credit centers
may be established, however, all large loans must be approved by the Head of Credit and
Risk Management or Managing Director/CEO/Board or delegated Head Office credit
executive.
The aggregate exposure to any borrower or borrowing group must be used to determine
the approval authority required.
Any credit proposal that does not comply with Lending Guidelines, regardless of amount,
should be referred to Head Office for Approval
MD/Head of Credit Risk Management must approve and monitor any cross-border
exposure risk.
Any breaches of lending authority should be reported to MD/CEO, Head of Internal Control,
and Head of CRM.
It is essential that executives charged with approving loans have relevant training and
experience to carry out their responsibilities effectively.
4.2 Preferred Organizational Structure & Responsibilities:
The appropriate organizational structure must be in place to support the adoption of the
policies. The key feature is the segregation of the Marketing/Relationship Management
function from Approval/Risk Management/Administration functions. Credit approval should be
centralised within the CRM function. Regional credit centers may be established, however, all
applications must be approved by the Head of Credit and Risk Management or Managing
Director/CEO/Board or delegated Head Office credit executive.
Key Responsibilities:
The key responsibilities of the above functions are as follows:
- Credit Risk Management (CRM)
- Credit Administration
- Internal Audit/Control
4.3 Procedural guideline:
Approval Process:
The approval process must reinforce the segregation of Relationship Management/Marketing
from the approving authority. The responsibility for preparing the Credit Application should rest
with the RM within the corporate/commercial banking department. Credit Applications should
be recommended for approval by the RM team and forwarded to the approval team within CRM
and approved by individual executives. Banks may wish to establish various thresholds, above
which, the recommendation of the Head of Corporate/Commercial Banking is required prior to
onward recommendation to CRM for approval. In addition, banks may wish to establish
regional credit canters within the approval team to handle routine approvals. Executives in
head office CRM should approve all large loans.
The recommending or approving executives should take responsibility for and be held
accountable for their recommendations or approval. Delegation of approval limits should be
such that all proposals where the facilities are up to 15% of the bank’s capital should be
approved at the CRM level, facilities up to 25% of capital should be approved by CEO/MD, with
proposals in excess of 25% of capital to be approved by the EC/Board only after
recommendation of CRM, Corporate Banking and MD/CEO. The following diagram illustrates
the preferred approval process:
1. Application forwarded to Zonal Office for approved/decline
2. Advise the decision as per delegated authority (approved /decline) to recommending
branches. A monthly summary of ZCO approvals should be sent to HOC and HOCB to
report the previous months approvals sanctioned at the Zonal Offices. The HOC should
review 10% of BCO approvals to ensure adherence to Lending Guidelines and Bank
policies.
3. BCO/ZCO supports & forwarded to Head of Corporate Banking (HOCB) or delegate for
endorsement, and Head of Credit (HOC) for approval or onward recommendation.
4. HOC advises the decision as per delegated authority to BCO
5. HOC & HOCB supports & forwarded to Managing Director
6. Managing Director advises the decision as per delegated authority to HOC & HOCB.
7. Managing Director presents the proposal to EC/Board
8. EC/Board advises the decision to HOC & HOCB
4.4 Credit Administration:
The Credit Administration function is critical in ensuring that proper documentation and
approvals are in place prior to the disbursement of loan facilities. For this reason, it is essential
that the functions of Credit Administration be strictly segregated from Relationship
Management/Marketing in order to avoid the possibility of controls being compromised or
issues not being highlighted at the appropriate level. Credit Administration procedures:
4.4.1Disbursement: Security documents are prepared in accordance with approval terms and
are legally enforceable. Standard loan facility documentation that has been reviewed by legal
counsel should be used in all cases. Exceptions should be referred to legal counsel for advice
based on authorisation from an appropriate executive in CRM.
Disbursements under loan facilities are only be made when all security documentation is in
place. CIB report should reflect/include the name of all the lenders with facility, limit &
outstanding. All formalities regarding large loans & loans to Directors should be guided by
Bangladesh Bank circulars & related section of Banking Companies Act. All Credit Approval
terms have been met.
4.4.2 Custodial Duties:
Loan disbursements and the preparation and storage of security documents should be
centralised in the regional credit centres.
Appropriate insurance coverage is maintained (and renewed on a timely basis) on assets
pledged as collateral.
Security documentation is held under strict control, preferably in locked fireproof storage.
4.4.3 Compliance Requirements:
All required Bangladesh Bank returns are submitted in the correct format in a timely
manner.
Bangladesh Bank circulars/regulations are maintained centrally, and advised to all relevant
departments to ensure compliance.
All third party service providers (valuers, lawyers, insurers, CPAs etc.) are approved and
performance reviewed on an annual basis. Banks are referred to Bangladesh Bank circular
outlining approved external audit firms that are acceptable.
4.5 Credit Monitoring:
To minimise credit losses, monitoring procedures and systems should be in place that provide
an early indication of the deteriorating financial health of a borrower. At a minimum, systems
should be in place to report the following exceptions to relevant executives in CRM and RM
team:
Past due principal or interest payments, past due trade bills, account excesses, and breach
of loan covenants
Loan terms and conditions are monitored, financial statements are received on a regular
basis, and any covenant breaches or exceptions are referred to CRM and the RM team for
timely follow-up.
Timely corrective action is taken to address findings of any internal, external or regulator
inspection/audit.
All borrower relationships/loan facilities are reviewed and approved through the submission
of a Credit Application at least annually.
Early Alert process:
An Early Alert Account is one that has risks or potential weaknesses of a material nature
requiring monitoring, supervision, or close attention by management. If these weaknesses are
left uncorrected, they may result in deterioration of the repayment prospects for the asset or in
the Bank’s credit position at some future date with a likely prospect of being downgraded to CG
5 or worse (Impaired status), within the next twelve months.
Early identification, prompt reporting and proactive management of Early Alert
Accounts are prime credit responsibilities of all Relationship Managers and must be
undertaken on a continuous basis. An Early Alert report should be completed by the
RM and sent to the approving authority in CRM for any account that is showing signs of
deterioration within seven days from the identification of weaknesses. The Risk Grade
should be updated as soon as possible and no delay should be taken in referring
problem accounts to the CRM department for assistance in recovery.
Despite a prudent credit approval process, loans may still become troubled. Therefore, it is
essential that early identification and prompt reporting of deteriorating credit signs be done
to ensure swift action to protect the Bank’s interest.
Moreover, regular contact with customers will enhance the likelihood of developing strategies
mutually acceptable to both the customer and the Bank. Representation from the Bank in such
discussions should include the local legal adviser when appropriate. An account may be
reclassified as a Regular Account from Early Alert Account status when the symptom, or
symptoms, causing the Early Alert classification have been regularised or no longer exist. The
concurrence of the CRM approval authority is required for conversion from Early Alert Account
status to Regular Account status.
4.6 Credit Recovery:
The Recovery Unit (RU) of CRM should directly manage accounts with sustained deterioration
(a Risk Rating of Sub Standard (6) or worse). Banks may wish to transfer EXIT accounts
graded 4-5 to the RU for efficient exit based on recommendation of CRM and Corporate
Banking. Whenever an account is handed over from Relationship Management to RU, a
Handover/Downgrade The RU’s primary functions are:
Determine Account Action Plan/Recovery Strategy
Pursue all options to maximize recovery, including placing customers into
receivership or liquidation as appropriate.
Ensure adequate and timely loan loss provisions are made based on actual and
expected losses.
Regular review of grade 6 or worse accounts.
The management of problem loans (NPLs) must be a dynamic process, and the associated
strategy together with the adequacy of provisions must be regularly reviewed. A process
should be established to share the lessons learned from the experience of credit losses in
order to update the lending guidelines.
4.6.1 NPL Account Management: All NPLs should be assigned to an Account Manager within
the RU, who is responsible for coordinating and administering the action plan/recovery of the
account, and should serve as the primary customer contact after the account is downgraded to
substandard. Whilst some assistance from Corporate Banking/Relationship Management may
be sought, it is essential that the autonomy of the RU be maintained to ensure appropriate
recovery strategies are implemented.
4.6.2 Account Transfer Procedures: Within 7 days of an account being downgraded to
substandard a Request for Action should be completed by the RM and forwarded to RU for
acknowledgment. The account should be assigned to an account manager within the RU, who
should review all documentation, meet the customer, and prepare a Classified Loan Review
Report within 15 days of the transfer. The CLR should be approved by the Head of Credit, and
copied to the Head of Corporate Banking and to the Branch/office where the loan was originally
sanctioned. This initial CLR should highlight any documentation issues, loan structuring
weaknesses, proposed workout strategy, and should seek approval for any loan loss provisions
that are necessary. Recovery Units should ensure that the following is carried out when an
account is classified as Sub Standard or worse:
- Facilities are withdrawn or repayment is demanded as appropriate. Any drawings or
advances should be restricted, and only approved after careful scrutiny and approval from
appropriate executives within CRM.
- CIB reporting is updated according to Bangladesh Bank guidelines and the borrower’s Risk
Grade is changed as appropriate.
- Loan loss provisions are taken based on Force Sale Value (FSV).
- Loans are only rescheduled in conjunction with the Large Loan Rescheduling guidelines of
Bangladesh Bank. Any rescheduling should be based on projected future cash flows, and
should be strictly monitored.
- Prompt legal action is taken if the borrower is uncooperative.
4.6.3 Non Performing Loan (NPL) Monitoring: On a quarterly basis, a Classified Loan
Review (CLR) should be prepared by the RU Account Manager to update the status of the
action/recovery plan, review and assess the adequacy of provisions, and modify the bank’s
strategy as appropriate. The Head of Credit should approve the CLR for NPLs up to 15% of
the banks capital, with MD/CEO approval needed for NPLs in excess of 15%. The CLR’s for
NPLs above 25% of capital should be approved by the MD/CEO, with a copy received by the
Board.
4.6.4 NPL Provisioning and Write Off: The guidelines established by Bangladesh Bank for
CIB reporting, provisioning and write off of bad and doubtful debts, and suspension of interest
should be followed in all cases. These requirements are the minimum, and Banks are
encouraged to adopt more stringent provisioning/write off policies. Regardless of the length of
time a loan is past due, provisions should be raised against the actual and expected losses at
the time they are estimated. The approval to take provisions, write offs, or release of
provisions/upgrade of an account should be restricted to the Head of Credit or MD/CEO based
on recommendation from the Recovery Unit.
The RU Account Manager should determine the Force Sale Value (FSV) for accounts grade 6
or worse. Force Sale Value is generally the amount that is expected to be realized through the
liquidation of collateral held as security or through the available operating cash flows of the
business, net of any realization costs. Any shortfall of the Force Sale Value compared to total
loan outstanding should be fully provided for once an account is downgraded to grade 7.
Where the customer in not cooperative, no value should be assigned to the operating cash flow
in determining Force Sale Value.
4.7 Single Borrower Exposure Limit:
In order to enable the banks to improve their credit risk management further, Bangladesh Bank
is issuing this Master Circular by consolidating all the instructions issued so far and
incorporating some amendments to the previous circulars.
01. As a result of increase in capital of almost all the banks, now it has been decided to reduce
the single borrower exposure limit from 50% to 35%. Thus-
(a) the total outstanding financing facilities by a bank to any single person or enterprise or
organization of a group shall not at any point of time exceed 35% of the bank's total capital
subject to the condition that the maximum outstanding against fund based financing facilities
(funded facilities) do not exceed 15% of the total capital. In this case total capital shall mean
the capital held by banks as per section-13 of the Bank Company Act,1991.
(b) Non-funded credit facilities, e.g. letter of credit, guarantee etc. can be provided to a single
large borrower. But under no circumstances, the total amount of the funded and non-funded
credit facilities shall exceed 35% of a bank's total capital. However, in case of export sector
single borrower exposure limit shall remain unchanged at 50% of the bank's total capital. But
funded facilities in case of export credit shall also not exceed 15% of the total capital. In
addition, the banks shall follow the following prudential norms, where applicable:
02. (a) Loan sanctioned to any individual or enterprise or any organization of a group
amounting to 10% or more of a bank's total capital shall be considered as large loan.
(b) The banks will be able to sanction large loans as per the following limits set against their
respective classified loans:.
(c) In order to determine the above maximum rates of large loans, all non-funded credit
facilities e.g. letter of credit, guarantee, etc., included in the loan shall be considered as 50%
credit equivalent. However, the entire amount of non-funded credit facilities shall be included in
determining the total credit facilities provided to an individual or enterprise or an organization of
a group.
03. (a) A public Limited company, which has 50% or more public shareholdings, shall not be
considered as an enterprise/organization of any group.
(b) In the cases of credit facilities provided against government guarantees, the
aforementioned restrictions shall not be applicable.
(c) In the cases of loans backed by cash and encashable securities (e.g.FDR), the actual
lending facilities shall be determined by deducting the amount of such securities from the
outstanding balance of the loans.
04. (a) Banks should collect the large loan information on their borrowers from Credit
Information Bureau(CIB) of Bangladesh Bank before sanctioning, renewing or rescheduling
large loans in order to ensure that credit facilities are not being provided to defaulters.
(b) Banks must perform Lending Risk Analysis (LRA) before sanctioning or renewing large
loans. If the rating of an LRA turns out to be "marginal"; a bank shall not sanction the large
loan, but it can consider renewal of an existing large loan taking into account other favorable
conditions and factors. However, if the result of an LRA is unsatisfactory, neither sanction nor
renewal of large loans can be considered.
(c) While sanctioning or renewing of large loan, a bank should judge its borrower's overall debt
repayment capacity taking into consideration the borrower's liabilities with other banks and
financial institutions.
(d) A bank shall examine its borrower's Cash Flow Statement, Audited Balance Sheet, Income
Statement and other financial statements to make sure that its borrower has the ability to repay
the loan.
(e) Sanctioning, renewing or rescheduling of large loans should be approved by the Board of
Directors in case of local banks. Such decisions should be taken by the Chief Executives in
case of foreign banks. However, while approving proposals of large loans, among other things,
compliance with the above guidelines must be ensured.
05. For the loans that have already been disbursed with the approval of Bangladesh Bank, and
that have exceeded the limit as stipulated in Section 01 (mentioned above), banks shall take
necessary steps to bring down the loan amounts within the specified limit. In order to
accomplish this condition, banks may, if necessary, arrange partaking with other banks.
However, for continuous loans, the limit has to be brought down as per Section 02 within June
30, 2005. For term loans, the deadline is June, 2006.
06. Banks shall submit the quarterly statement of large loan in the specified format (Form L) to
Department of Off-site Supervision of Bangladesh Bank within 10 days after the end of
respective quarter.
07. This circular is issued by Bangladesh Bank in exercise of its power conferred to it by
section 45 of the Bank Company Act, 1991. This circular shall be effective immediately. The
chief executives of all the banks are advised to place this circular in their next Board meetings.
Chapter-5: Comparison with Bangladesh Bank.
5.1 Portfolio Comparison:
TBLpolicy:
to different sectors, to different geographical area, to different line of product or business
different type of credit
credit into a particular sector or area, product or business should also be observed carefully
analyzed carefully in determining the loan portfolio of a bank
BB Guidelines:
The Lending Guidelines should clearly identify the business/industry sectors that should
constitute the majority of the bank’s loan portfolio. For each sector, a clear indication of the
bank’s appetite for growth should be indicated (as an example, Textiles: Grow, Cement:
Maintain, Construction: Shrink
TBLhas followed the Bangladesh Bank guideline. Bangladesh Bank gives special attention to
disburse loan in different sectors, specially thrust sectors approved by the government. The
recent thrust sector is textile sectors and agro-based industry. TBL has disbursed majority of
advances in the textile sectors but there is little exposure in the agro-based sectors.
Bangladesh bank has recently decided to reduce the single borrower exposure limit from 50%
to 35%. TBL is followed the Bangladesh Banks rules.
TBL has also the rules to disburse loans in the discouraging sectors. Facility parameters (e.g.,
maximum size, maximum tenor, and covenant and security requirements) should be clearly
stated.
5. 2 Single Borrower/ Group Limits:
Single borrower exposure limit is now 35%. The maximum outstanding against fund based
financing facilities (funded facilities) do not exceed 15% of the total capital. In case of export
sector single borrower exposure limit shall remain unchanged at 50% of the bank's total capital.
But funded facilities in case of export credit shall also not exceed 15% of the total capital
At present, TBL is trying to reduce the single borrower exposer limit.
5.3 Credit Assessment:
Credit department in TBL try to asses their customers and conduct due diligence on new
borrowers, principals, and guarantors to ensure such parties are in fact who they represent
themselves to be. TBL have established “Know Your Customer (KYC)” and Money
Laundering guidelines which should be adhered to at all times.
To assess the credit worthiness, TBL ‘s Applications summaries the results of the risk
assessment and include:
- Amount and type of loan(s) proposed.
- Purpose of loans.
- Loan Structure (Tenor, Covenants, Repayment Schedule, Interest)
- Security Arrangements
In addition, TBL assesses the following areas during credit assessment:
i) Borrower analysis, ii) Buyer/ Supplier analysis, iii) Industry analysis, iv) Financial analysis, v)
Projected financial requirement etc.
In case of BB: The following should be analyzed during credit assessment
- Borrower Analysis
- Industry Analysis
- cash flow, leverage and profitability must be analyzed
- Future Financial Performance
- Mitigating Factors
- Security should be proper
- Loan Restructure
5.4 Risk grading:
Risk grading is a key measurement of a Bank’s asset quality, and as such, it is essential that
grading is a robust process. All facilities be assigned a risk grade. Where deterioration in risk
is noted, the Risk Grade assigned to a borrower and its facilities will be immediately changed.
The Risk grading process in TBL is not quite up to date.
In BB, Risk grading is done by considering different weight to the following parameters:
- the ratio of a borrower’s total debt to tangible net worth: 20%
- Liquidity : 20%
- Profitability: 20%
- Account Conduct : 10%
- Business Outlook: 10%
- Management: 5%
- Personal Deposit: 5%
- Age of Business : 5%
- Size of Business 5%
TBL’ credit assessment risk grading does not follow the Bangladesh Bank Rules.
5.5 Approval Authorities:
In TBL approval authority is centralized to Head Office where the authority to sanction/approve
loans must be clearly delegated to senior credit executives by the Managing Director/CEO &
Board based on the executive’s knowledge and experience. In Branch level, Only credit
proposals, documentation, disbursement, monitoring are conducted. Branch has no power to
approve a credit facility.
Approval Authority at TBL:
5.6 Credit Process:
Branch step:
After branch processing, Proposal send to Head Office for Approval
5.7 Segregation of Duties:
Credit Approval ,Credit Risk Management (CRM), Credit Administration, Credit Monitoring,
Internal Audit/Control all is concentrated in the Head Office. Branch only conducts the Head
Office Guideline. The segregation of the Marketing/Relationship Management function from
Approval/Risk Management/Administration functions is in TBL. Credit approval should be
centralized within the CRM function. Branch credit centers are established, however, all
applications must be approved by the Head of Credit and Risk Management or Managing
Director/CEO/Board or delegated Head Office credit executive.
Credit Report
CIB Report Visiting Clients
Credit Line Application fo
Dutch-Bangla Bank LimitedLocal Office, 1, Dilkusha C/ A, Dhaka-1000
Ref. # DBBL/ 101/ 05/ 6.03/ / 2005
Executive Vice President
Credit Division
Dutch-Bangla Bank Limited
Head Office
Sena Kalyan Bhaban, 195 Motijheel C/A
Dhaka - 1000.
Subject: CIB Inquiry
Dear Sir,
Enclosed please find herewith Bangladesh Bank CIB Inquiry Form 1-A, 2-A and 3-A duly filled in,
account: MARZINA AKTER
Thanking you,
Faithfully yours,
Executive Vice President & Manager
Supporting Documents
Branch processing
Head Office Credit Committee
Executive Board of Director
Step to avail the credit facility
5.8 Preferred Organizational Structure:
The Credit Division separates from the corporate division in TBL. TBL follows the
organizational structure. The people at all the levels have the following key responsibility
- Credit Risk Management (CRM)
- Credit Administration
- Internal Audit/Control
- Credit Monitoring & Control
In BB guidelines, The facilities are up to 15% of the bank’s capital should be approved at the
CRM level, facilities up to 25% of capital should be approved by CEO/MD, with proposals in
excess of 25% of capital to be approved by the EC/Board only after recommendation of CRM,
5.10 Credit Administration:
The Credit Administration function TBL is strictly followed. The credit administration in BB is as
follows:
Disbursements under loan facilities are only be made when all security documentation is in
place. CIB report should reflect/include the name of all the lenders with facility, limit &
outstanding.
Custodial Duties: Loan disbursements and the preparation and storage of security documents
should be centralised in the branch. Appropriate insurance coverage is maintained (and
renewed on a timely basis) on assets pledged as collateral. Security documentation is held
under strict control, preferably in locked fireproof storage.
Compliance : All required Bangladesh Bank returns are submitted in the correct format in a
timely manner. TBL send the following reports Bangladesh Bank:
REPORT FREQUENCY
a. Up date Customer & Account Data Daily
b. Authorized Withdrawals Daily
c. Secured Over drafts Weekly
d. Clean Over draft Weekly
e. Excess over limit/ Excess Over drawing Power Weekly
f. Unused facilities Weekly
g. Temporary facilities Weekly
h. Statement of Interest-Overdraft Accounts Monthly
TBL follows the above rules
5.11 Credit Monitoring:
There is strong monitoring team in TBL. There are two monitoring teams at TBL; i) Head Office
Monitoring Team and ii) Branch Monitoring teams. The two teams combined works to reduce
the bad loan.
Control of Overdrawn Account :
Branch Control: Sanctioning the overdraft limit, debited cheque control, periodic revive of the
overdraft account, Periodic review.
-Head Office Control: Weekly review of reports sent by the branches;
1. Random examination of reports, if required, twice a month whenever requested by the
authority;
2. Review of weekly reports sent to the Head Office on all EOLs and TODs which have
not been authorized correctly;
3. Regular branch/ project visits by officers from Loan Administration and Monitoring
Division to review, on the spot, large and / or irregular advances.
4. Each of the officers in Loan Administration
Loan Control:
Branch Control: Setting up loan accounts, review of loan account, periodic assessment of
security value
Head office control
- Monthly review of the Loan Statement by officers in concerned division;
- A program of regular branch/project visits by officers from concerned division.
Control of other credit facilities:
L/C control, LG control, Bill Purchased, Cash credit are controlled by both at Head Office and
Branch.
5.12 Credit Recovery:
The recovery team at TBL does the followings:
Determine Account Action Plan/Recovery Strategy
Pursue all options to maximize recovery, including placing customers into
receivership or liquidation as appropriate.
Ensure adequate and timely loan loss provisions are made based on actual and
expected losses.
Regular review of grade 6 or worse accounts
In BB policy, the Head of Credit should approve the CLR for NPLs up to 15% of the banks
capital, with MD/CEO approval needed for NPLs in excess of 15%. The CLR’s for NPLs above
25% of capital should be approved by the MD/CEO, with a copy received by the Board.
5.13 Account Transfer Procedures:
TBL follows the facilities withdrawn, CIB reporting, Loan loss provision, loan rescheduling,
prompt legal action etc approved by TBL.
Provision for reserve will be kept at the following scale:
Sub-Standard : 20%
Doubtful : 50%
Bad/Loss : 100%
I % for regular loans
After adjustment of Interest Suspense and value of Eligible Securities from outstanding balance
of classified credit-the reservation of provisions will be kept on the calculated balance. General
provision will be kept at the rate of 1% on unclassified loans.
5.14 Non-performing Loan Account Management:
At BB, On a quarterly basis, a Classified Loan Review (CLR) prepared by the RU Account
Manager at TBL to update the status of the action/recovery plan, review and assess the
adequacy of provisions, and modify the bank’s strategy as appropriate. The Head of Credit
approves the CLR for NPLs up to 15% of the banks capital, with MD/CEO approval needed for
NPLs in excess of 15%. The CLR’s for NPLs above 25% of capital should be approved by the
MD/CEO, with a copy received by the Board
At TB it is done by
Identification: check large account daily and small account weekly.
Monitoring : The first stage in the monitoring system is to meet the borrower and give him the
opportunity to regularize his account. Normally he will be given a time limit to regularize his
affairs and to provide plans for solving his financial problems.
Chapter-6: Operational Performance of TBL
6.1 Amount of Loans and Advances:
All activities relating to credit of the bank are being carried out as strictly and cautiously as
before with proper risk management strategy starting from the selecting credit worthy quality
borrowers followed by a well-defined credit appraisal and approval process, again carried out
by the competent personnel at different level. TBL is in the forefront in implementing the
guidelines for managing five core risk in banking . Total Loan and advances at different period
are shown in the following
Financial Year 2000 2001 2002 2003 2004
Advance (mln.) 4588.09 8044.43 9191.64 11431.32 14976.06
Figure 3: Loan and Advances amount at different Financial Year
The financial year 2004 is most successful year in respect of loan disbursement. The growth
rate is 31% in this year.
6.2 Type-Wise Loans & Advances Portfolio :
DBBL loans and advances with types are shown below:
(Figures in Million Taka)
CREDIT TYPES 2004 2003 2002 2001Overdraft 1642.60 1429.56 968.88 826.49Cash Credit 3653.60 2781.89 2257.41 1825.84Export Cash Credit 390.13 341.08 61.53 42.70Loan-General 40.71 40.43 82.41 81.44Transport Loan 14.07 10.54 15.74 67.27House building Loan 54.28 22.66 20.19 25.24Loan Against Trust Receipt 3564.26 3278.55 2871.56 2445.06Term loan-Industrial 3036.94 2219.75 2229.67 1805.14Term Loan-other 717.59 101.33 45.41 102.89Payment against document-cash 178.04 263.01 334.54 406.02Payment against document –other 6.00 7.45 9.19 7.48Payment against document-EDF 59.95 23.06 99.86 136.57Consumer Credit Scheme 0.298 0.242 0.36 0.59Money Plant Scheme 0.54 1.55 2.02 2.74Staff Loan 28.75 15.88 3.98 1.94
*Source: Statement of DBBL Affairs
Figure 4: Type-Wise loan Disbursement
6.3 Maturity wise Loans and Advances:
Amount in Million
Receivable 2004 2003 2002 2001
On Demand 1380.73 2397.57 621.61 478.33
Within Three Month 3810.28 2000.18 3676.46 1533.38
More than three month but
less than one year
6414.77 4592.63 2794.29 4161.07
More than one year but
less than five year
2331.80 1320.41 1305.28 725.49
Above Five Year 1038.48 1120.54 994.00 1146.14
6.4 Sector-wise Concentration of loans & Advances:
Amount in Core
Sector 2004 2003
Agriculture, fisheries and forestry 184.2 12.3% 193.13 16.89%
Industry 751.16 50% 512.72 44.80%
Construction 56.24 3.74% 25.54 2.23%
Water Works & Sanitary services - - - -
Transport & Communication 14.59 0.97% 21.44 1.88%
Storage - - - -
Business 363.56 24.28% 262.20 22.94%
Miscellaneous 127.84 8.54% 128.10 11.20%
Total 1497.61 100% 1143.13 100%
Figure 5: Sector-wise Loans portfolio (2004)
6.5 Location-Wise Loans & Advances:
Amount in Million
Location 2004 2003
Urban Dhaka Division 12659.51 9529.56
Chittagong Division 1453.49 1294.99
Other Divisions - -
Rural Dhaka Division 830.81 592.65
Chittagong Division 32.22 14.11
Other Divisions - -
6.6 Classified, Unclassified, Doubtful & Bad Loans & Advances:
Amount in Million
2004 2003 2002
Unclassified 14952.82
-
99.85% 11389.74 99.63% 9335.28
99.40%
Sub-standard - 0 3.00 0.026% 7.44 0.079%
Doubtful - 0 7.11 0.062% 9.15 0.097%
Bad/Loss 23.2 0.15% 31.46 0.28% 39.81 0.42%
6.7 Measuring Returns of TBL.:
Interest Margin: Interest margin indicates the net interest income into earning assets. Bank's
main earning source is its interest income. The higher the interest income, the higher the
possibility for the bank to survive. Interest margin for the bank has increased for years, which is
a good sign for a bank. In the year 2004 it was about 2.24%.
Net Margin : Net margin is the net income for the bank after covering all the expenses. TBL
made an exclusive profit in 2004. From the progress of interest margin, it is quiet clear that they
made such a huge profit not from interest income rather from other sources of income.
Category Equation 2002 2003 2004
Interest margin Net interest income
Earning assets
1.63% 1.72% 2.24%
Net margin Net income
Revenues
12.36% 13.07% 13.11%
Asset utilization
ratio
Revenues
Assets
7.84% 8.05% 7.36%
Return on assets
(ROA)
Net income
Assets
1.12% 1.11% 1.06%
Return on equity
(ROE)
Net income
Equity
32.25% 29.63% 26.70%
Source: Annual Reports of the year 2002 ,2003 and 2004 of TBL
Return On Assets (ROA): Bank did not have good-looking return on assets in 2003 & 2004,
which is only 1.06% and 1.11%
Return On Equity (ROE): TBL had an exclusive return on equity on equity in 2001 and in 2003
& 2004 also showed a good return on equity.
Acronyms
TBL: Trust Bank Limited
BB: Bangladesh Bank
RM: Relationship Manager
CRM: Credit Risk Management
KYC: Know Your Customer
ZCO: Zonal Credit Officer
HOC; Head of Credit
RU: Recovery Unit
CLR: Classified Loan Review
NPL: Non-Performing Loan
Conclusion
From the above discussion, it can be shown that TBL has both positive and negative aspect in
loans & advances disbursement & monitoring policy. The TBL is playing pivotal role in
providing necessary finance to the different industrial sectors and other sectors. For social
activities, TBL creates a good image in the society, But the number of branch is less than any
other same generation banks. The TBL competent authority should expand the banking
markets by establishing new branch at different areas all over the world.
With a view to improving the quality and soundness of loan portfolio, credit risk management
methods are continuously updated in TBL. The Bank is applying a system of credit risk
assessment and lending procedures by striker separation of responsibilities between risk
assessments and lending decisions and monitoring functions. The Bank monitors its exposure
to particular sectors of economy on an ongoing basis. The Bank has undertaken the changes
in policy of credit risk management, credit risk administration and credit monitoring and
recovery in line with the guidelines of Bangladesh Bank and in some cases TBL followed
strictly. From the performance evaluation of TBL, it has shown that the credit disbursement,
loans & advances growth rate, loans portfolio, loans classified amount are quite in good
position in comparison to BB guidelines.
Recommendation
In credit management, it is conventional that proposals of credit facilities must be supported by
a complete analysis of the proposed credit. More importance should be given on refund of
loans out of funds generated by the borrower from their business activities (cash flow) instead
of realization of money by disposing of the securities held against the advance, which is very
much uncertain in present context of Bangladesh, where a number of creditors are willful
defaulters.
Credit officer measures the risk associated with the credit facility. He should not be liberal in
this respect; he should strictly follow the credit evaluation principle setup by the bank. The
analysis should contain information about the borrower, credit purpose, credit repayment
sources, details of collateral security with valuation and guarantee. It should also contain an
assessment of the competence and quality of the borrower's management ability, the general
economic and competitive environment of the borrowers industry and other pertinent factors,
which may affect the borrower's ability to repay the facility, should be given much importance. It
should improve in file management system to faster the dealings with the client's proposal.
Bank should introduce more customer friendly loan products. At present TBL does not offer
consumer credit, car financing, etc. It is a good challenge that Prime Bank is catering both
conventional and interest based banking. It should introduce more Islamic Branches as soon
as possible to compete the Islamic Banking Sector.
Prime Bank's capital is its good reputation; it should capitalize this in all spheres of its credit
operation.
Bibliography
1. Bangladesh Bank circular
2. Cole, Robert H, Consumer and Commercial Credit Management, Irwin Publisher, 5th
edition, 1976.
3. Hempel, George H. & Simonson, Donald G., Bank Financial Management, John Willy &
Sons Publisher, 1st Edition, 1991.
4. Activities of Bank and Financial Institution (1996-1997), Banking Sector, Ministry of
Finance, Govt. Republic of Bangladesh.
5. Annual Report for the year 2002 and 2004 of TBL.
6. TBL manual.
7. www. trustbankbd. Com
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