Loan Disbursement & Recovery of Principal Branch, Trust Bank Ltd
Chapter: 1 Introduction Introduction 1.1 Introduction Most of a bank’s funds are used either to make loan or to purchase debt securities. For either use of funds, the bank is acting as a creditor and is subject to credit (default) risk, or the possibility that credit provided by the bank will not repaid. The types of loans provided and recover by the Bank. An important part of credit risk management it is to measure that the rate of return of disburse loan and classified loan for the further investment. This requires a credit assessment of loan applicants. The bank employ credit analyst who review the financial information of a corporation applying for loans and evaluate their creditworthiness. The evaluation should indicate the possibility of that a firm meet its loan payment so that the bank can decide whether to grant the loan. This paper is entitled loan disbursement and recover of Trust Bank Ltd, Principal Branch originated from the fulfillment of the internship program. For the internship program, each student is attached with an organization. My internship was at The Trust Bank Ltd, Principal Branch, Dhaka cantt. During my internship, I had to prepare a report under the supervision of Abdullahel Kafi, senior Lecturer, department of business administration, Northern University Bangladesh. 1.2 Objectives of the study: The main objectives of this study is to familiarize with the concepts of disbursement of loan and guidelines, techniques used by the Trust Bank, Principal Branch to identify , measure and manage the recover of the loan and classify the loan to handle various loan accounts as well as loan portfolio. 1.3 Scope of the study:
My decision and analyses are done based on the practices applied at Trust Bank Limited, principal branch. The study was wide spread and has greater scope to focus on different aspect of loan classification on banking sector but my study probably will not reflect the practices in the overall banking sector. 1.4 Rationale of the study: The loan is the main product of banks. Banks earns its revenue from giving loan and meats its expenses. So bank has to become much more sincere in giving = and recovery of loan. So thinking have selected my title of the study “Loan disbursement and recovery of trust bank PB” 1.5 Methodology of the study: The report is an explanatory research by nature. This report is prepared based on secondary information. The required data is collected from the published and unpublished documents of the Principal Branch, Trust Bank Ltd. Tabular analysis is made for the data using MS Word and MS Excel. Graphical presentation of the data are also made for better understanding. 1.6 Limitations of the study The present study was not out of limitations. In preparing the Report, I have experienced some acute problems that have, to some extent, affected the presentation of the report. The acute problems werea) Lack of information or data: In spite of being listed Bank though it’s IPO it has no publicly available annual report. The only report I have had to depend on is the auditor’s reports that are devoid of explanation and trend analysis. Moreover, the bank has no organized product publicity documents or leaflets etc. b) Time constraint: It is something like impossible to cover the entire general banking and performance penmen exploiting a here month time period while an employee or ab officer is awarded with one or two year probationary period to do his or her particular job. c) Inadequate Access to Information : The main constraint of the study is inadequate access to information d) Inexperience : I carried our such a study for the first time, so inexperience is one of the main constraints of the study, e) Personal knowledge: Limitation of the personal knowledge is another one. Since knowledge knows know bound, so this report is incapable to present all things with more depth.
f) Comparison status: I have had no opportunity to compare the general banking system of TBL with that of other contemporary and common size banks. It was mainly because of the shortage of time and internship nature. In spite of all the drawbacks faced, everything has been managed well a the end. I believe the report is a quality report on “Loan disbursement & recovery of Principle Branch, Trust Bank Ltd. Chapter: 2 Introduction of the organization. 2.1 Introduction of The Bank Trust Bank Limited is one of the leading private commercial bank having a spread network of 31 branches across Bangladesh and plans to open few more branches to cover the important commercial areas in Dhaka, Chittagong, Sylhet and other areas in 2008. 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 Trust Bank has been operating in Bangladesh since 1999 and has achieved public confidence as a sound and stable bank. In 2001, the bank introduced automated branch banking system to increase efficiency and improve customer service. In the year 2005, the bank moved one step further and introduced ATM services for its customers. Since bank’s business volume increased over the years and the demands of the customers enlarged in manifold, our technology has been upgraded to manage the growth of the bank and meet the demands of our customers. In January 2007, Trust Bank successfully launched Online Banking Services which facilitate Any Branch Banking, ATM Banking, Phone Banking, SMS Banking, & Internet Banking to all customers. Customers can now deposit or withdraw money from any Branch of Trust Bank nationwide without needing to open multiple accounts in multiple Branches. Via Online Services and Visa Electron (Debit Card), ATMs now allow customers to retrieve 24x7 hours Account information such as account balance checkup through mini-statements and cash withdrawals. Trust Bank is about to introduce Visa Credit Cards to serve it’s existing and potential valued customers. Credits cards can now be used at shops & restaurants all around Bangladesh and even internationally.
Trust Bank is a customer oriented financial institution. It remains dedicated to meet up with the ever growing expectations of the customer because at Trust Bank, customer is always at the center.
2.2 Vision of TBL • Want To be a preferred bank of choice with a distinctive identity. • To provide financial services to meet customer expectations so that customers feel we are always there when they need us, and can refer us to their friends with confidence. 2.3 Mission of TBL • To make banking easy for customers by implementing one-stop service concept and provide innovative and attractive products & services through technology and qualified human resources. • To look out to benefit the local community through supporting entrepreneurship, social responsibility and economic development of the country. 2.4 Management of TBL Chairman Gen Abdul Mubeen, ndc, psc Chief of Army Staff, Bangladesh Army, Army Headquarters, Dhaka Cantonment, Dhaka.
Vice Chairman Maj Gen Md Matiur Rahman,NDU,PSC Adjutant General(AG), Bangladesh Army, Army Headquarters, Dhaka Cantonment, Dhaka.
Managing Director Mr. Iqbal U. Ahmed Directors
Brig Gen S M Mahbubul Karim Brig Gen Muhammad Aminul Dhaka Cantonment, Dhaka. ndc,psc Dhaka Cantonment, Dhaka.
Hasan,
Brig Gen Md Rafiqul Islam, ndc, psc. Brig Gen Md Zillur Rahman, MCPS, MSC Dhaka Cantonment, Dhaka. Dhaka Cantonment, Dhaka. Brig Gen Md Shawkat Hossain, psc. Brig Gen Mohd Mahbubul Hasan, ndc,psc. Dhaka Cantonment, Dhaka.
Dhaka Cantonment, Dhaka.
An Overview of the Trust Bank Ltd 2.5 TBL at a glance: Date of Incorporation Functioning Date Principal Activity Total Capital Deposits Loans & Advances Investment Assets Statutory Reserve Retained Earnings Earnings Per Share(EPS) Net Income Per Share No. of Branch Location of Head Office
July 17, 1999 November 29, 1999 Commercial Banking TK. 1510.21million (as on 30.06.2009) TK. 18985.95million TK. 13188.09million TK. 3260.37million TK. 21197.59million TK. 214.67million TK. 239.58million TK. 52.54 TK. 52.54 40 Peoples Insurance Bhaban, 36, Dilkusha,Dhaka-1000
2.6 Organizational Structure of Trust Bank Limited: Managing Director (MD)
Deputy Managing Director (DMD)
Executive Vice-President (EVP)
Senior Vice- President (SVP)
Vice-President (VP)
Senior Assistant Vice President (SAVP)
Assistant Vice-President (AVP)
Senior Executive Officer (SEO)
Executive Officer (EO)
Principal Officer (PO)
Senior Officer (SO)
Training Officer (TO)
Junior Officer (JO)
2.7 Service of Trust Bank 2.7.1 Foreign Correspondents: Foreign correspondent relationship facilitates foreign trade operations of the bank, mainly in respect of export, import and foreign remittances. The number of Foreign Correspondents and Agents of the bank in the year 2005stood at 2004, which covers important business and trade centers of the world to ensure better and hassle free services to its import, export and remittances oriented clienteles. 2.7.2 Web Site: The introduction of Internet has changed the traditional concept of world trade and commerce. As the time is progressing its necessity is being felt more in the prevailing competitive environment since no organization can afford to remain in isolation with rest of the world for its survival. TBL’s own IT team has developed a web site to provide up to date information on the bank at fingertips to the trade and business communities of the world. It can be accessed to under the domain: www.trustbankbd.com. 2.7.3. Online Branch Banking The bank has set up a Wide Area Network (WAN) across the country to provide online branch banking facility to its valued clients. Under this scheme, clients of any branch shall be able to do banking transaction at other branches of the bank. Under this system a client will be able to do following type of transactions: Cash withdrawal from his/her account at any branch of the bank. Cash deposit in his/her account at any branch of the bank irrespective of the location. Cash deposit in other’s account at any branch of the bank irrespective of the location. Transfer of money from his/her account with any branch of the bank. 2.7.4 SWIFT Trust Bank Limited is one of the first few Bangladeshi banks, which have become member of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) in 1999. SWIFT is a member-owned co-operative, which provides a fast and accurate communication network
for financial transactions such as Letters of Credit, Fund Transfer etc. By becoming a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world. 2.7..5 Information Technology in Banking Operation Trust Bank Limited adopted automation in banking operation from the first day of its operation. The main objective of this automation is to provide efficient and prompt services to the bank's clients. At present, all the branches of the bank are computerized. At present the bank is using server-based multi-user software under FIORA operating system to provide best security of automation. 2.7.6 Profitability and Shareholder Satisfaction The bank had been one of the most profitable in the banking sector. The bank's return on assets (ROA) is 1.35 percent in the year 2008. Even though the capital market of the country has been suffering over the last few years, the good performance of at present Trust Bank is satisfactory. 2.7.7 Ethics and social Responsibilities Trust Bank Limited strongly believes in banking ethics and social responsibilities. Although it is a profit making organization, it tries not to harm the society in any of its activities. It is fully devoted to fulfilling the satisfaction of the customer as well as it employees. It performs its social responsibilities through involving in different type of social development activities to develop the socio-economy of the country.
Chapter: 3 About the Principal Branch 3. About the branch • 3.1 History After the date of incorporation Trust bank limited had started its activity November 29, 1999. The Principal branch is the center of all banking activity after the head office. At the beginning of the bank principal branch was in beside the Army Head Quarter. The banking was done in a
small quarter. In May 30 , 2001 it shifted in a new three storied building name Trust Bhaban at 98 Shaheed Sarani, Dhaka cantonment. It is a well decorated building with well furnished space. Major Gen. Hasan Moshud chowdhury opened the branh activity in the new building. The first manager of this branch was Razual Islam khan EVP with another 78 employee. There is office for Managing Director , Deputy Managing Director in the Principal Branch. •
3.2 Employee
•
Employee of the branch is 106. 3.3 Number of clients There are more then 60000 clients in the principal branch.
•
3.4 Number of accounts Principal Branch operate mainly two type of account 1. Deposit Account 2. Loan Account There are 32999 number of deposit account and 7952 number of loan account in the Principal Branch.
Yearly Number Of Account Of Principal Branch 50000 40000 30000 20000 10000 0 Total Number of Account
2009
2008
2007
2006
40951
47649
47417
37535
Figure 1 Yearly Number of Account of Principal Branch
3.5 Category of accounts of Principal branch : Trust Bank Limited as well as Principal Branch offers various kinds of deposit products and loan schemes. The branch also has highly qualified professional staff members who have the capability to manage and meet all the requirements of the bank. Every account is assigned to an account manager who personally takes care of it and is available for discussion and inquiries, whether one writes, telephones or calls.
3.5.1 Deposit Products or Account
Trust Smart Savers Scheme (TSS) Trust Money Double Scheme (TMDS) Monthly Benefit Deposit (MBDS) Lakhopoti Savings Scheme (LSS) Trust Money Making Scheme (TMMS) Trust Education Scheme (TES) Fixed Deposit Receipt (FDR) Interest First Fixed Deposit Scheme (IFFDS Current Account Savings account Short Term Deposit
3.5.2 Loan Schemes:
TBL Doctors Loan TBL Education Loan TBL Car Loan TBL Any purpose Loan TBL Marriage Loan TBL Hospitalization Loan TBL House holds Durables Loan TBL Advance Against Salary TBL Travel Loan TBL CNG Conversion Loan. TBL Apon Nibas Loan
Deposit of the branch
1400 1200 1000 800
2009 2008 2007 2006
600 400 200 0 2009
2008
2007
2006
(amount in crore) Figure 2 Deposit of the branch
In the year 2006 deposit of the branch was 815.465 crore , in the year 2007 it went to 1033.32 crore but in the year 2008 it fall to 1023.99 crore because of instable political instability of our country. In he current year the deposit amount raised to 1231.31 crore taka.
Investment of the branch
350 300 250 200
2009
150
2008 2007 2006
100 50 0
2009
2008
2007
2006
(amount in crore)
Figure 3 Yearly Investment of Principal Branch
From the year 2006 investment of Principal Branch is going up. It is a very good sing for the branch but in the year 2008 investment growth of the branch did not match with the previous two years. In the running year it is also going up. More investment of bank create more interest income for the bank which is the main business of a bank.
Correlation between investment and deposit
1400 1231.31 1200 1023.99
1033.32
1000 815.465 800
DEPOSIT
600
INVESTENT AND LOAN
400 319.64
271.74
276.79
207.5
200 0 2009
2008
2007
2006
(amount in crore)
Figure 4 Correlation between investment and deposit
The branch made 207.50 crore Taka as investment against 815.465 crore Taka which is 25.44% of deposit collection. In the year 2007 the branch made 276.79 crore Taka against 1033.32 which is 26.79% of totel deposit of the year. in 2008 the branch collected 1023.99 crore taka and invest 271.74 crore taka but in the running year the branch collected 1231.31 crore taka and up to (08/06/2009) the reporting date it invest 319.64 crore which is 25.96% of the total deposit. 3.6 Credit assessment: Credit application should be summaries the result of the RMs risk assessment and include, as a minimum the following details: •
Amount and type of loan proposed
•
Purpose of loan
•
Loan structure (tenor, covenants, repayment schedule, interest)
•
Security arrangement
In addition the following risk areas should be addressed: A. Borrower Analysis:
The Majority shareholders, management team and group or affiliate companies should be assessed. 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 weakness of the borrower relative to its competition should be identified. B. 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. C. Historical Financial Analysis: An analysis of a minimum of 3 years historical financial statements of the borrower should be presented. D. Projected Financial Performance: Where term facilities are being proposed, a projection of the borrower’s future financial performance should be provided, indicating an analysis of the sufficiency of cash flow the service debt repayments. E. Account Conduct: For existing borrowers, the historic performance in meeting repayment obligations (trade payments, cheques, interest and principal payments, etc) should be assessed 3.7 Project appraisal
Most bank loans to individuals arise from a direct request from a customer who approaches a member of the bank’s staff and asks to fill out a loan application. Business can requests, on the other hand, often arise from contacts the bank’s loan officers and sales representatives make as they solicit new accounts from firms operating in the banks market area. Sometimes loan officers will call on the same company for months before the customer finally agrees to give the bank a try by filling out a loan application.
Once a customer decides to request a loan, an interview with a loan officer usually follows right away, giving the customer the opportunity to explain his or her credit needs.
That interview is particularly important because it provides an opportunity for the bank’s loan officer to assess the customer’s character and sincerity of purpose.
If a business or mortgage loan is applied for, a site visit is usually made by an officer of the bank to assess the customer’s location and the condition of the property and to ask clarifying questions. The loan officer may contact other creditors who have previously loaned money to this customer to see what their experience has been.
If all is favorable to this point, the customer is asked to submit several crucial documents the bank needs in order to fully evaluate the loan request, including complete financial statements and, in the case of a corporation, board of directors’ resolutions authorizing the negotiation of a loan with the bank. Once all documents are on file, the credit analysis division of the bank conducts a thorough financial analysis of them aimed at determining whether the customer has sufficient cash flows and backup assets to repay the loan. The credit analysis division then prepares a brief summary and recommendation, which goes to the loan committee for approval. If the loan committee approves the customer’s request, the loan officer or the credit committee will usually check on the property or other assets to be pledged as collateral in order to ensure that the bank has immediate access to the collateral or can acquire title to the property involved if the loan agreement is defaulted. This is often referred to as perfecting the bank’s claim to collateral. Once the loan officer and the bank’s loan committee are satisfied that both the loan and the proposed collateral are sound, the note and other documents that make up a loan agreement are prepared and are signed by all parties to the agreement 3.7.1 Selection of borrowers, credit investigation including CIB The division of the bank responsible for analyzing and recommendations on the fate of most loan applications is the credit department. Experience has shown that this department must satisfactorily answer three major questions regarding each loan application: 1. Is the borrower creditworthy? How do you know?
2. Can the loan agreement are adequately protected and the customer has a high probability of being able to service the loan without excessive strain? 3. Can the bank perfect its claim against the assets or earnings of the customer so that, in the event of default, bank funds can be recovered rapidly at low cost and with low risk? Let’s look in turn at each of these three key issues in the “yes” or “no” decision a bank must make on every loan request. Is the Borrower Creditworthy? The question that must be dealt with before any other is whether or not the customer can service the loan-that is, pay out the credit when due, with a comfortable margin for error. This usually involves a detailed study of six aspects of the loan application- character, capacity, cash, collateral, conditions, and control. All must be satisfactory for the loan to be a good one from the lender’s point of view. a. Character The loan officer must be convinced that the customer has a well-defined purpose for requesting bank credit and a serious intention to repay. If the officer is not sure exactly why the customer is requesting a loan, this purpose must be clarified to the bank’s satisfaction. Responsibility, truthfulness, serious purpose, and serious intention to repay all monies owed make up what a loan officer calls character. b. Capacity The loan officer must be sure that the customer requesting credit has the authority to request a loan and the legal standing to sign a binding loan agreement. This customer characteristic is known as the capacity to borrow money. For example, in most states a minor (e.g., under age 18 or 21) cannot legally be held responsible for a credit agreement; thus, the bank would have great difficulty collectors on such a loan. c. Cash This key feature of any loan application centers on the question: Does the borrower have the ability to generate enough cash, in the form of cash flow, to repay the loan? In general, borrowing customers have only three sources to draw upon to repay their loans: or (a) cash flows generated from sales or income, (b) the sale or liquidation of assets, or (c) funds raised by issuing debt or equity securities. Any of these sources may provide sufficient cash to repay a bank loan.
d. Collateral In assessing the collateral aspect of a loan request, the loan officer must ask, does the borrower possess adequate net worth or own enough quality assets to provide adequate support for the loan? The loan officer is particularly sensitive to such features as the age, condition, and degree of specialization of the borrower’s assets. e. Conditions The loan officer and credit analyst must be aware of recent trends in the borrower’s line of work or industry and how changing economic conditions might affect the loan. f. Control The last factor in assessing a borrower’s creditworthy status is control which centers on such questions as whether changes in law and regulation could adversely affect the borrower and whether the loan request meets the bank’s and the regulatory authorities’ standards for loan quality. Can the Loan Agreement Be Properly Structured and Documented? The six Cs of credit aid the loan officer and bank credit analyst in answering the broad question: Is the borrower creditworthy? Once that question is answered, however, a second issue must be faced: Can the proposed loan agreement be structured and documented to satisfy the needs of both borrower and bank? A properly structured loan agreement must also protect the bank and those it representsprincipally its depositors and stockholders- by imposing certain restrictions (covenants) on the borrower’s activities then these activities could threaten the recovery of bank funds. The process of recovering the bank’s funds- when and where the bank can take action to get its funds returned-also must be carefully spelled out in a loan agreement. Needs for Collateral Most Borrowers at one time or another will be asked to pledge some of their assets or to personally guarantee the repayment of their loans. Getting a pledge of certain borrower assets as collateral behind a loan really serves two purposes for a lender. If the borrower cannot pay, the pledge of collateral gives the lender the right to seize and sell those assets designated as loan
collateral, using the proceeds of the sale to cover what the borrower did not pay back. Secondly, collateralization of a loan gives the lender a psychological advantage over the borrower. The goal of a bank taking collateral is to precisely define which borrower assets are subject to seizure and sale and to document for all other creditors to see that the bank has a legal claim to those assets in the event of nonperformance on a loan. 3.8. Information about the Loan Customers The bank relies principally on outside information to assess the character, financial position, and collateral of a loan customer. Such an analysis begins with a review of information supplied by the borrower in the loan application. The bank may contact other lenders to determine their experiences with this customer. Were all scheduled payments in previous loan agreements made on time? Were deposit balances kept at high enough levels? How much was borrowed previously and how well were those earlier loans handled? Is there any evidence of slow or delinquent payments? Has the customer ever declared bankruptcy? 3.8.1 Sources of Information about the Loan customers • Physical Investigations •
Customer financial statements
•
Experience of other lenders with this customer
•
Customer Annual Report
•
Local or regional credit bureaus
•
Local Newspapers
•
Local chamber of commerce
In pricing a business loan or a project proposal, Bank management must consider the cost of raising loan able funds and the operating costs of running the Bank. This means that Banks must know what their costs are in order to consistently make profitable, correctly priced loans of any type for project. There is no substitute for a well-designed management information system when it comes to pricing loans. Trust Bank Limited is generally used the simplest loan-pricing model which assumes that the rate of interest charged on any loan includes four components: (1) the cost to the Bank of raising
adequate funds to lend, (2) the Bank’s non funds operating costs (including wages and salaries of loan personnel and the cost of materials and physical facilities used in granting and administering a loan), (3) necessary compensation paid to the Bank for the degree of default risk inherent in a loan request, (4) Bank’s desired profit margin.
Loan Interest Rate
=
Marginal cost of raising loanable funds
+
Operating costs
+
Estimated margin to Desired compensate the Bank profit + margin For default risk
3.9. Chart of Interest rate of The Trust Bank for Lending Revised on 23 May, 2009 Particulars
Rate of Interest
House Building Loan (Res)
12%
House Building Loan (Com.)
13%
Car Loan
12%
Marriage Loan
12%
Staff Loan (Car)
6%
Consumer Durable Loan
12%
Over Draft
13%
SOD
13%
Micro Credit (TLR)
12%
Term Loan (Industrial)
12.50%
Term Loan (Commercial)
12.50%
PAD
10.50%
LTR Cash Credit
10.50% 12%
Cash Collateral (FDR/SP/WEDB)
12.50%
Other Loan
13%
Bills Discounted & Purchased: IBP
10.50%
FBP FDBP
10.50% 10.50%
These sector-wise interest rates have been introduced by the Head Office of Trust Bank Limited. They use cost-plus pricing method in case of pricing the loans. The fourteen branches of Trust Bank Limited have maintained these rates strictly except in case of some quality and creditworthy lenders. After judging the lenders’ credit-worthiness, Trust Bank Limited gives some beneficiary to this kind of lenders. They can enjoy a decreasing interest rate, which maintained by Trust Bank Limited’s branches internally. Other wise, the scheduled rates are maintained by all the TBL branches. In case of Micro Credit, as the loan amount is not so large that’s why the scheduled rate is maintained by the Bank. Actually, the Lending rate is based on the prescription, which is given by Bangladesh Bank. Recently TBL has revised their lending interest rate on 23 March, 2004. The revised lending interest rates have been effective from April 01,2004 for all existing and fresh sanction of credit facilities.
Chapter:4 Loan Disbursement and Recovery OF PRINCIPAL BRANCH Loan Disbursement and Recovery 4.1Definition of loan A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.
4.2 Classification of loan All loans and advances will be grouped into four categories for the purpose of classification, namely – •
Continuous Loan
•
Demand Loan
•
Fixed Term Loan
•
Short – Term Agriculture & Micro Credit
4.2.1 Continuous Loan: The loan accounts in which transactions may be within certain limit and have an expiry date for full adjustment will be treated as continuous loans. Examples are – CC, OD etc. 4.2.2 Demand Loan: The loans that become repayable on demand by the bank will be treated as demand loans. If any contingent or any other liabilities are turned to forced loans ( i.e Without any prior approval as regular loan) those too will be treated as demand loans. Such as : Forced LIM, PAD, FBP and IBP etc. 4.2.3 Fixed Term Loan: The loans which are repayable within a specific time period under a specific repayment schedule will be treated as fixed term loans. 4.2.4 Short – Term Agriculture & Micro Credit: Short – term Agriculture credit will include the short – term credits as listed under the Annual Credit Program issued by the Agriculture Credit and Special Programs Department (ACSPAD) of Bangladesh Bank. Credits in the agriculture sectors repayable within twelve (12) months will also be included herein. Short _ term Micro – Credit will include any micro – credits not exceeding Tk. 25,000.00/= (twenty five thousand taka) and repayable within twelve (120 months, be those termed in any names such as Non – agriculture Credit, Self – reliant Credit. Waver’s Credit or Bank’s individual project credit. 4.3 LOAN PRODUCT OF TBL AND TERMS AND CONDITION FOR SANCTION
4.3.1Trust Car Loan Scheme: Loans upto Tk, 3,00,000.00 available for purchase of Car and to be repaid by 48 equal monthly installments @ Tk.8136.00 each. (Shall be the mode of repayment) Eligibility: The loan is extended to –
•
The Commissioned Officers of Bangladesh Army who have un-expired service of at least four years (Major & above or equivalent rank & status with minimum length 12 years of services).
•
The Senior Executives of Multinational Companies & “Ä” category national companies may also be eligible subject to fulfillment of conditions as may be needed by the Bank. Rules & Conditions: •
Indent or quotation/pro-forma invoice for supply of the car shall have to be submitted with the loan application.
•
Minimum take home salary should not be below one third of the total emoluments after deduction of monthly installment or repayment. Employer certificate should be obtained from the Commanding Officer. The borrower shall undertake to do proper maintenance of the vehicle servicing and repairing, if any, at his own cost. Loan shall be disbursed after the completion of the documentation formalities. Personal Guarantee of the borrower and of a third party acceptable to the bank. Registration of the car in the joint name of the borrower and the bank. Comprehensive Insurance policy covering the risk as applicable by the bank (in case of car loan). The borrower should submit a copy of the policy. Copy of Tax token, Blue book, Driving License, Route permit etc. to kept under Bank’s custody. An undertaking by the borrower to pay the monthly installment regularly in time. Salary certificate from the employer of the borrower/commanding officer of Army Personnel stating net payable amount of loan after all deductions and in case of the death of the loanee, they will arrange adjustment of the loan from his pension, gratuity, salary and other accrued. Irrevocable authority on Tk. 150.00 stamps to be signed by the borrower and confirmation from employer as per bank’s requirement.
• • • • • • • • •
•
Mode of Repayment: •
Monthly installment stands at Tk.8, 136.00 for Tk. 3.00 lac by 48 easy monthly equal installments. • Installment amount should be payable by the 7th of the following month to which the installment relates. • The last installment will be in lump sum to adjust the account in full. Charges and Commission: Sl. No. 01. 02.
Charges & Commission
Loan Application Form Risk Fund
Amount (Tk.)
Tk.20.00 Tk.150.00
03. 04.
Premature Termination Fee Service Charge
Tk.500.00 Tk.200.00
Trust House Building Loan Scheme House Building loan upto Tk. 12.50 lac available for expansion of residential buildings. Easy monthly installment of Tk. 20,000.00 for a maximum period of 07 years including 01 year moratorium period. The carded rate of interest for this scheme is 15% simple p.a. Eligibility: All categories Officers of Bangladesh Army who have availed loan from House Building Finance Corporation (HBFC) will be eligible for the loan for extended/additional construction works only including finishing, fitting and sanitary works of the concerned house. Terms & Conditions: 1. Limit: Maximum Tk. 12.50 lac. 2. Debt Equity Ratio: For VIP areas 80:20. For Non-VIP areas 70:30. (Where estimate of works exceeds the ceiling as allowable, the intending borrower shall bear the expenses from his own source and in that case equity portion shall rise exceeding the specified 20% to 30% respectively.) 3. Purpose: To build maximum floor area of 2600 sft in VIP areas or 3900 sft. in Non-VIP areas on 5 katha land excluding the areas financed by HBFC. 4. Loan Period: 06 + 01 years moratorium. 5. Location of the house: Within Municipal Corporation Area (Preferably Dhaka City) 6. Copy of approved plan to be submitted. 7. Detailed floor wise estimate of the under constructed house. 8. Statement of source of repayment.
4.3.3Trust Marriage Loan Scheme Bank provides loan upto Tk. 1,00,000.00 for marriage to personnel of Bangladesh Army. Easy monthly installment for a maximum period of 48 months/ 04 years. Eligibility: •
Army Officers in the age group of 26 to 40 years ranking from 2nd lieutenant to above.
•
The ORs who have un-expired service of 5 years will be entitled to loan under this scheme for marriage of their daughters. But entitlement shall not be more than Tk.25, 000.00.
•
Loan is allowable for first marriage.
SECURITY: •
Personal Guarantee of the borrower and a 3rd party acceptable to the Bank.
•
Letter of Authority signed by Commanding Officer/Controlling Officer to be furnished by the borrower as per Bank’s prescribed format to deduct installment from salary incase of default or to appropriate his/her salary/provident fund/Service/Terminal benefits for adjustment of his/her salary liability incase of death, termination.
•
An undertaking from the borrower to be furnished to pay monthly installments regularly.
•
Salary Certificate from the Commanding Officer/Controlling Officer stating net payable income after all deductions.
•
A Standing instruction to be furnished by the borrower to the effect that each month bank will debit borrower’s account to realize monthly installment.
Rate of Interest: 14% p.a. for the loan tenure of 48 months/4years term or as revised from time to time with half yearly rest. (Incase of default of any installment the borrowers shall be (subject to) charged penal interest @ 2% in addition to the rate of interest stipulated.)
Mode of Repayment: •
Monthly installment stands at Tk.2712.00 per lac by 48 easy monthly equal installments.
•
Installment amount should be payable by the 7th of the following month to which the installment relates.
•
The last installment will be in lump sum to adjust the account in full.
Charges and Commission: Sl. No. 01. 02. 03. 04.
Charges & Commission
Amount (Tk.)
Loan Application Form
Tk.20.00 Tk.150.00
Risk Fund
Tk.500.00
Premature Termination Fee
Tk.150.00
Service Charge
4.3.4 Trust Loan for Repair & Reconstruction Of Dwelling Houses (Micro Credit) Small loans of Tk. 20,000.00 for shainik (snk), 25000 for lance corporal and Corporal, Tk. 30,000.00 for Sergeant and Tk. 40,000.00 for Warren Officer and Tk 50000 for Senior Warrant Officer are given for improving standard and quality of living. a.
Target
group:
Soldiers,
Non-commissioned
Officer,
Junior
Commissioned Officer of Bangladesh Army. b.
Re-payment Period: Tenure ranges from 24 and 36 months.
c.
Rate of Interest: 13% (simple)
d.
Eligibility: An application for the rank of Corporal will be considered if he completes at least 14 years of service in the Bangladesh Army, if he has 3 years of un-expired service and if he does not have outstanding loan from the Trust Bank Limited or from any other Bank. It is not applicable for the rank of Sergeant and Warren Officer.
e.
Security & Procedure: Lien on salary/pensions and any other service benefits of the concerned loaner/OR. To this effect a certificate of guarantee and confirmation shall be produced duly signed by the respective Unit Commanding Officer or Officer Commanding/controlling officer assuring regular repayment of installment and in case of failure or default to repay the loan within the agreed time, the liability of the bank will be adjusted out of the service benefits of the loaner. (No additional certificate
will be needed. This certificate is provided on the overleaf of loan Application Form which shall be signed by the respective Unit Commanding Officer or Officer Commanding/controlling officer). Loan amount will be disbursed in cash and acknowledgement to be obtained on the perforated portion of the Loan Application Form and the same to be attested by the Unit Commanding Officer or Officer Commanding/controlling officer.
Charges and Commission: Sl. No. 01. 02. 03.
Charges & Commission Loan Application Form Risk Fund Service Charge
04.
Premature Termination Fee No down payment required.
Amount (Tk.) Tk. 20.00 Nil Tk. 100.00 Tk. 100.00
4.3.5 Trust Consumer Durable Scheme
Loans upto Tk, 60,000.00 available for purchase of household durable. Tenure ranges from 12 months to 24 months. Eligible items to be purchased under this scheme:
Domestic Appliances:
Air Conditioners o
Refrigerators
o
Deep Freezer
o
Microwave Oven, Ordinary Oven, Cooker
o
Water Cooler
o
Water Purifier
o
Power Pump
o
Power Generator
Entertainment Equipments: Television Video Camera Dish Antenna Office Equipments: •
Computer with IPS/UPS/Printer and other accessories
•
Electronic Type Writer
•
Photocopier
•
Other electronic items.
Others: Motor Cycle Bi-cycle 4.3.6 Borrower’s Own Contribution (down payment): To avail loan under this Scheme the borrower is required to contribute contributing 10% margin of the total loan amount.
Rate of Interest: 14% p.a. for the loan tenure of 12-months/01 year and 14.50% for 24-months/02 year’s term or as revised from time to time with half yearly rest. Incase of default of any installment the borrowers shall be (subject to) charged penal interest @ 2% in addition to the rate of interest stipulated). Security:
•
Hypothecation of the items to be purchased.
•
Personal Guarantee in Bank’s prescribed form from spouse or any other third party acceptable to the Bank.
•
Employer Certificate ensuring deduction of monthly installment from the borrower’s Salary thereof to the bank.
•
A Standing instruction to be furnished by the borrower to the effect that each month banker will debit borrower’s account to realize monthly installment.
Terms & Conditions: •
The borrowers to be Commissioned or Junior Commissioned Officers of Bangladesh Army who have substantial period of unexpired services.
•
Employer’s Certificate should be obtained only from the Commanding Officer of the borrower’s unit.
•
In case of providing credit facility to a soldier, the guarantor should not be below the rank of Junior Commissioned Officer.
•
The respective unit of the borrower will provide a guarantee certificate that the borrower will pay the monthly installments in due date.
•
In case of loan against Motorcyclea) Copies of Registration, Blue Book, and Tax token, Fitness Certificate, Comprehensive Insurance Policy etc. for vehicles to be kept up to date at the cost of customerb) The Registration & Blue Book of the vehicle shall be made in joint name of the Bank and borrower until full adjustment of the loan.
Charges and Commission: Sl. No. 01. 02. 03. 04. 05.
Charges & Commission Loan Application Form Risk Fund Premature Termination Fee Service Charge Down payment
Amount (Tk.) Tk.20.00 upto 50000 = Tk. 50.00 > 50000 = Tk. 100.00 Tk.500.00 Tk.100.00 10% of the loan amount
4.4Components of the Lending operations maintained by Principal Branch 4.4.1Written Loan Policy One of the most important ways a bank can make sure its loans meet regulatory standards and are profitable is to establish a written loan policy. Such a policy gives loan officers and the bank’s management specific guidelines in making individual loan decisions and in shaping the bank’s overall loan portfolio. The actual make up of a bank’s Loan portfolio should reflect what its loan policy says. Otherwise, the loan policy is not functioning effectively and should be either revised or more strongly enforced by senior management. Organ gram of credit risk management is shown in the appendix. 1. A goal statement for the bank’s loan portfolio (i.e., statement of the characteristics of a good loan portfolio for the bank in terms of types, maturities, sizes, and quality of loans) 2. Specification of the lending authority given to each loan officer and loan committee (measuring the maximum amount and types of loan that each person and committee can approve and what signatures are required). 3. Lines of responsibility in making assignments and reporting information within the loan department.
4. Operating procedures for soliciting, reviewing, evaluating, and making decisions on customer loan applications. 5. The required documentation that is to accompany each loan application and what must be kept in the banks credit files (required financial statements, security agreements etc.). 6. Lines of authority within the bank, detailing who is responsible for maintaining and reviewing the banks credit files. 7.
Guidelines for taking, evaluating, and perfecting loan collateral.
8. A presentation of policies and procedures for setting loan interest rates and fees and the terms for repayment of loans. 9.
A statement of quality standards applicable to all loans.
10. A statement of the preferred upper limit for total loans outstanding (i.e. the maximum ratio of total loans to total assets allowed). 11. A description of the bank’s principal trade area, from which most loans should come. 12. A discussion of the preferred procedures for detecting, analyzing, and working out problem loan situation. 4.4.2Mechanism of Credit Distribution of the TBL The primary factor determining the quality of the bank’s credit portfolio is the ability of each borrower to honor, on a timely basis. All credit comities made to the bank. The authorizing credit personnel prior to credit approval must accurately determine this. If the report of the project appraisal is very satisfactory to approve the loan proposal, than the following steps furnish the approval procedure: • • • • • • • •
Make a proposal by the client to the bank Give all the necessary documents Bank will send the parties statement to the Bangladesh Bank, their CIB (Credit Information Bureau) will inquiry that whether this party is defaulter or a new one. Bank will take the collateral from the party and analysis that how much it will cover the total loans. Bank will send this proposal to the head office. In the head office the Board of Directors and Managing Director will approve the loan. Head office will send the approval to the branch office. Branch office will give the sanction letter to the party. Bank will take the security and make it in their favor.
4.4.3 Disbursement: After completing all the necessary steps for sanctioning loans bank will create a loan account by the name of the party and deposit the money to that account. Bank will give cheque books to the party and advise them to draw the money and use it as soon as possible, because whenever the money will transfer to the account interest will count from that time. 4.4.4 Loan-Pricing Method Used By the TBL: In pricing a business loan, Bank management must consider the cost of raising loanable funds and the operating costs of running the Bank. This means that Banks must know what their costs are in order to consistently make profitable, correctly priced loans of any type. There is no substitute for a well-designed management information system when it comes to pricing loans.
The Trust Bank Limited is generally used the simplest loan-pricing model which assumes that the rate of interest charged on any loan includes four components: (1) the cost to the Bank of raising adequate funds to lend, (2) the Bank’s non funds operating costs (including wages and salaries of loan personnel and the cost of materials and physical facilities used in granting and administering a loan), (3) necessary compensation paid to the Bank for the degree of default risk inherent in a loan request, (4) Bank’s desired profit margin. Loan Interest Rate
=
Marginal cost of raising loanable funds
+
Operating costs
+
Estimated margin to Desired compensate the Bank profit + margin For default risk
4.5 Disbursement and Recovery Pattern of Principal branch Last 3 (three) years Here we try to fiend out the periodical, sector wise loan disbursement of principal branch of Trust Bank Ltd. Disbursement pattern of Principal Branch
Total Loan Disbursed over the years 2006-2008
350 300 250 200 150 100 50 0
330.94 276.79 207.5 Loan and Advance
2006
2007
2008
(amount in crore)
Figure- 5 Total Loan Disbursed over the years 2006-2008 Source: The Desk Of Bank Here we see that total disbursement of loan of Principal Branch is increasing year to year. It shows a smooth growth in disbursement. In the year 2006 the total loan disburse amount was 207.5 crore and in 2007 the amount is 276.79 crore and in the last year 2008 the amount is 330.94 crore . It’s a good sign for the branch as well as the bank. Because when a bank can disburse more loan then it will able to earn more interest income which is it’s main business to make profit.
Category wise total loan disbursed over the last year
Category wise distribution of Principle Branch of loans over the year-2008
1200000000.00 1100000000.00 1000000000.00 900000000.00 800000000.00 700000000.00 600000000.00 500000000.00 400000000.00 300000000.00 200000000.00 100000000.00
Doctors' Loan - Defense Off.
Car Loan - Defense Off.
Any Purpose Loan (Others)
Education Loan
Any Purpose Loan (Others)
Household Durable Loan
Car Loan (Recond)
Small Loan
Term Loan (Industrial)
Micro Credit (Reconst & Repairing of
Consumer Durable Scheme (CDS)
House Building Loan (Mortgage)
CNG Conversion Loan - Defense Off
HBL- Refinancing Facility of BB
Loans Agt. Trust Receipt (LTR)
S O D (Secured Overdraft)
Cash Credit (Hypo)
0.00
Figure 6 : Category wise loan disbursement source : From the desk of bank In the graph it shows that the branch is interested in investing in SOD loan. Because it is very secured and easy to recover. The second largest in investment of the branch is HBL against Commutation Benefit and the third largest investment of the branch is HBL (mortgage).
4.6 Recovery (a) The recovery performance of the branch was good during the period 2007-2008. The credit administration and monitoring of this bank is effective. This bank is monitored and guided by the high officials of Bangladesh Army. People has a common thinking who taking loan from this bank that this a army bank so if I failed to pay the loan then it will be a very big problem for me. That’s why most of the cases clients are try to repay the loan in time. But this thinking did not appropriate for all the clients. That’s why the management has to be more attentive about the Recovery Policy. (b)Early Warning System Department (EWSD) TBL has a special department called EWSD who are responsible for all accounts classified in the branch’s portfolio. Actually they have work like CID officers. However EWSD’s responsibility will cover the areas of Monitoring and controlling the classified accounts through monthly reporting and quarterly review. Actively follow the borrowers for recovery. Negotiate and reschedule the debts.
If then client don’t utilize the new offer than it is the EWSD’s
responsibility to file suit against the client. EWSD will also prepare a Consolidate Report of all bad loans written-off on a quarterly.
4.7Credit recovery pattern of TBL Recovery of Continuous loan for the year (2006) 180 160 140 120 100 80 60 40 20 0
According to CL-1 outtanding loan in last Quarter Rcovery in this quarter against unclassified loan
1st 2nd 3rd 4th Qtr Qtr Qtr Qtr (amount in crore)
Figure 7 Credit recovery of pattern of 2006
4.7.1 Recovery of continuous loan for the year -2006 It seems that the recovery rate of continuous loan is increasing quarterly respectively in the year 2006 but it is very low in the percentage of outstanding loan. in the year 2006 the total out standing loan at the 1st quarter is 162.21 crore and the total recovered loan is 26.24 crore and the recovered percentage is 16.18 of the total outstanding.
Recover of Continuous loan for the year (2007)
140 120 100 80
According to CL-1 outtanding loan in last Quarter
60 40
Rcovery in this quarter against unclassified loan
20 0
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
(amount in crore)
Figure 8 Recover of Continuous loan for the year (2007)
4.7.2 Recover of continuous loan for the year 07 In this chart we see that the recovery rate is decreasing quarterly respectively in the year 2007. In the 2nd and 4th quarter total outstanding loan is more then the previous quarters. Its means that in the year 2007 the Principal Branch has given more loan then it recovered. In this year out standing lone was at first quarter 101.65 crore and total recovered loan was 41.71 crore and the recovered percentage is 41.03.
Recovery of Continuous loan for the year (2008)
180 160 140 120 100 80 60 40 20 0
According to CL-1 outtanding loan in last Quarter Rcovery in this quarter against unclassified loan
1st 2nd 3rd Qtr Qtr Qtr
4th Qtr
(amount in crore)
Figure 9 Recovery of Continuous loan for the year (2008)
4.7.3 Recovery of current loan for the year 2008 In the year 2008 Principal Branch loan recovered a very low amount of loan. It may causes of the impact of world economy recession. In this year the beginning outstanding of the loan was 143.4 crore and the branch collected only 21.07 crore taka which is only 14.69% of the out standing loan. Outstanding and recover of Demand Loan of 2006
12 10 8 6 4 2 0
According to CL-1 outtanding loan in last Quarter Rcovery in this quarter against unclassified loan
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
(amount in crore)
Figure 10 Outstanding and recover of demand Loan of 2006
4.7.4 Recover of Demand loan 2006 In the graph we see that recover of demand loan is very high. In the year 2006 the Branch has 3.37 outstanding and in the 3rd quarter it outstanding loan is 11.33. Its says that the branch disburse a lot of money previous the quarter and collect 14.45 crore taka at the end. So we can say that higher recovery then disbursement. It also means that the Branch disburse less amount of loans compared to previous year.
Outstanding and recover of Demand Loan of 2007
10 8 6 4
According to CL-1 outtanding loan in last Quarter
2
Rcovery in this quarter against unclassified loan
0
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
(amount in crore)
Figure 11 Outstanding and recover of Demand Loan of 2007
4.7.5 Recover of Demand loan 2007 In the year 2007 the Branch recovered 20 crore taka .in the first quarter the outstanding amount of this sector was only 6.18 crore .It means that the branch collected more loan then it disbursed in that sector.
Outstanding and recover of Demand Loan of 2008
10 8 6 4
According to CL-1 outtanding loan in last Quarter
2
Rcovery in this quarter against unclassified loan
0
1st 2nd 3rd Qtr Qtr Qtr
4th Qtr
(amount in crore)
Figure 12 Outstanding and recover of Demand Loan of 2008
4.7.6 Recover of Demand loan 2008 In the graph we see that the outstanding amount is increasing but recover rate is also increasing very slowly with the increasing of outstanding loan. Increasing out standing outstanding with increasing recovery is the result of new loan sanction his is very good for the branch because it generate mare interest income for the branch. Outstanding and recover of short Term Loan of 2006
50 40 30 20 10 0
According to CL-1 outtanding loan in last Quarter Rcovery in this quarter against unclassified loan
1st 2nd 3rd 4th Qtr Qtr Qtr Qtr (amount in crore)
Figure 13 Outstanding and recover of short Term Loan of 2006
4.7.7 Outstanding and Recovery of short Term Loan of 2006 In the year 2006 we see that the rate of outstanding loan is increasingly quarter by quarter but the recover rate is very slow because of being short term loan. Outstanding and recover of Short Term Loan of 2007
70 60 50 40 30 20 10 0
According to CL-1 outtanding loan in last Quarter Rcovery in this quarter against unclassified loan
1st 2nd 3rd Qtr Qtr Qtr
4th Qtr
(amount in crore)
Figure 14 Outstanding and recover of short Term Loan of 2007
4.7.8 Outstanding and Recovery of short Term Loan of 2007 In 2007 short term loan outstanding increased slowly but the recover rate fall down. It’s 1st quarter recover rate was 11% and the amount was 7.24 crore in the last quarter the rate of recover decreased to 4.31% and the amount was 3.0crore. Outstanding and recover of Short Term Loan of 2008
80 70 60 50 40 30 20 10 0
According to CL-1 outtanding loan in last Quarter Rcovery in this quarter against unclassified loan
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr (amount in crore)
Figure 15 Outstanding and recover of Short Term Loan of 2008
4.7.9 Outstanding and Recovery of short Term Loan of 2008 In the year 2008 we see that the outstanding and recover is 5.86% to 8.84 which. Total position of classified loan and recovered loan against out standing loan of principal Branch Outstanding and recover of Long Term Loan of 2006
35 30 25 20 15 10 5 0
According to CL-1 outtanding loan in last Quarter Rcovery in this quarter against unclassified loan
1st Qtr 2nd 3rd Qtr4th Qtr Qtr (amount in crore)
Figure 16 Outstanding and recover of long Term Loan of 2006
4.7.10 Outstanding and Recovery of Long term loan- 2006 In the year 2006 the total out standing loan was in this sector 32.27 crore and total recoverd loan was 6.16 crore. Though it is long term loan the recovered rate in slow then other loan and advance. Outstanding and recover of Long Term Loan of 2007
50 40 30
According to CL-1 outtanding loan in last Quarter
20
Rcovery in this quarter against unclassified loan
10 0
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr (amount in crore)
Figure 17 Outstanding and recover of Long Term Loan of 2007
4.7.11 Outstanding and Recovery of Long term loan- 2007 In this chart short term loan shows a study rate in the outstanding and recovery in the 1st quarter the recover rate was 11% but in the last quarter the recover rate was only 3.89%
Outstanding and recover of Long Term Loan of 2008
100 80 60 40
According to CL-1 outtanding loan in last Quarter
20
Rcovery in this quarter against unclassified loan
0
1st Qtr 2nd 3rd Qtr4th Qtr Qtr (amount in crore)
Figure 18 Outstanding and recover of Long Term Loan of 2008
4.7.12 Outstanding and Recovery of Long term loan- 2008 In 2008 principal Branch outstanding is also increased 53.64 crore to 82.71 crore. As with the outstanding the recover amount also increased 2.09 to 4.67 crore.in the 1st quarter recovere rate is 3.89% of total outstanding and in the last quarter the rate is 5.64 % of the total outstanding.
Total recovered loan of last 3 years
100 80 60
Total am ount of loan recovered
40 20 0
2008
2007
2006
(amount in crore)
Figure 19 Total recovered loan of last 3 years
In the chart we see that in 2007 the bank recovered amount is the greatest in the last three years. In 2008 recover rate is large then 2006. we can say that last year the branch recover rate is modest in the last three years. An Over View of Last Three Year’s Loan Disburse and Recovery (amount in crore)
Year Disburse amount 2008 330.94 2007 276.79 2006 207.50 4.8 Classified loan of Principal Branch
Recover amount 68.96 91.18 58.18
Ratio 20.84% 32.95% 28.04%
4.8.1 CLASSIFICATION OF LOANS Loan classification means giving each and every loan case a status like unclassified, sub -standard, doubtful or bad/loss through verification of borrower’s repayment performance on a particular data (at present, the quarter ended dates ) Loan classification is defined in terms of risk associated with loans. Classification of loans means and include only such assets of the balance sheet of a bank which do not yield interest income and which have remained Past due for some quarters. This is done for safeguarding the depositor’s money, protecting of capital, and to ensure proper recycling of funds so as to attain sustainable economic growth and to build strong confidence in the financial system. Beside loan classification and provisioning, effective lenders recourse with its proper enforcement as well as proper monitoring and controlling system are the must for strengthening the credit discipline 4.8.2 Classification Process For the purpose of determining the “Classified” status of an account, following guidelines are to be observed 1. The process of classification of an account will start with strict application of the risk rating assessment that is i.
Sub-standard
ii.
Doubtful
iii.
Bad or Loss
2. However unpaid interest or Principal or Expired Limit for a period of 180 days or more or recurring past dues will remain the most significant rules for classification.
4.8.2. A CLASSIFICATION AS SUBSTANDARD: A loan is classified as substandard if any one of the following conditions is met: (a) If an advance or any portion of an advance or interest thereon remains overdue for 180 days or more but less than 270 days then the advance is classified as substandard. (b) For an advance of a continuing nature, even if the loan is not overdue as much as 180 days, but the limit stands overdrawn by move than 50% for a period of 45 continuous days preceding the reference date for the classification, then it is classified as substandard. (c) If a loan has been renewed or rescheduled at least three times but is not overdue, and any of the required payments for the required period have not made when they fall due, then the loan is classified as substandard.
4.8.2. B CLASSIFICATION AS DOUBTFUL: A loan is classified as doubtful if any one of the following conditions is met: (a) The advance or any portion of the advance or interest thereon remains overdue for 270 days or more but less than 360 days. (b) A loan classified as substandard per clause 6 (b) above has remained substandard for 180 days or more. (c) A loan classified as substandard per clause 5 (c) above has remained substandard for 180 days or more. (d) Legal action has been initiated. (e) Qualitative criteria based on judgment.
4.8.2. C CLASSIFICATION AS BAD. A loan is classified as bad if any one of the following conditions is met:
a) The advance or any portion of an advance or interest thereon remains overdue for360 days or more. (b) A loan classified as doubtful per clause 6 (b) above has remained doubtful for 180 days or more. (d)A loan classified as doubtful per clause 6 (c) above has remained doubtful for 180 days or more. (e) If legal action has been initiated and no court decision has been obtained within 360 days of initiation of action then the loan is classified as bad. Qualitative criteria based on judgment.
4.8.3 TBL’s Recovery Probability Categories for all Classified Loans Category . Loans determined to have high probability of recovery within 6 months; recovery efforts to continue on an on-going basis. . Loans determined to have moderate probability of recovery within 1 year; review recovery efforts on a 3 months basis. . Loans determined to have low and remote probability of Recovery; review case on a 6 months basis. . Loans determined to have virtually no chance of recovery Charge-off the books. However in these situations proper Approval from the appropriate approving authorities should be Obtained and also shall b guided by Bangladesh Bank Instructions and subject to complete analysis of Banking practice. Legal and tax implication and Status of each individual credit. Notes for assessment of category Estimate the cost of continued collection efforts against any money, which can be reasonably expected to be recovered. Include in the cost (i) employee man-hour, (ii) legal expenses, (iii) charge of any external collection agency if used.
Position of outstanding loan & Classified Loan of 2006
300 250 200 150 100 50 0
According to CL-1 outtanding loan in last Quarter According to CL-1 Classified loan at quarter end
1st 2nd 3rd 4th Qtr Qtr Qtr Qtr (am ount in crore)
Figure 20 Position of outstanding loan & Classified Loan of 2006
Year 2006 In the graph we see that in the first quarter the classified loan is 9.97 crore which is 4.48% of total outstanding loan. And in the last quarter of the year . In the year ended total classified loan of the Branch is 13.18 crore which is 5.22% of its outstanding of the last quarter.
Position of outstanding loan & Classified Loan of 2007
300 250 200 150
According to CL-1 outtanding loan in last Quarter
100
According to CL-1 Classified loan at quarter end
50 0
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
(amount in crore)
Figure 21 Position of outstanding loan & classified Loan of 2007
Year 2007 It seems that the outstanding amount of the year is increasing quarter by quarter. But the classified loan is decreased quarter to quarter. In the first quarter classified loan was 13.97 crore . But in the last quarter the total classified loan was 8.01 crore which are 3.015% of the last quarter. This is indicating that the recovery team is performing a very good job.
Position of outstanding loan, Classified Loan of 2008
350 300 250 200 150 100 50 0
According to CL-1 outtanding loan in last Quarter According to CL-1 Classified loan at quarter end
1st Qtr 2nd 3rd Qtr 4th Qtr Qtr (amount in crore)
Figure 22 Position of outstanding loan, Classified Loan of 2008
Year 2008 In 2008 the classified loan for the year is 10.46 according to last quarter which is 3.15% of years outstanding. Yearly status of classified loan
(amount in crore) Year Out Standing Loan Total Classified Loan Percentage
2006 207.52 13.18 6.35%
2007 276.40 8.01
2008 330.94 10.46
2.90%
3.16%
Table -1 Yearly status of classified loan.
In the chart this is very clear that 2007 was a very good time for the principle branch. In 2006 the branch’s classified loan was comparatively large then other two years. It indicates that bank has strong recovery and monitory policy to reduce the percentage of classified loan but some how for the unstable economic reason its vary year to year.
Category wise status of classified loan (amount in crore) Year 2008 2007 2006
Sub-standard 7.60 5.73 9.25
Doubtful 2.63 2.04 3.44
Bad & loss 0.225 0.24 0.49
Total 10.46 8.01 13.18
Table -2 category wise status of classified loan
Category wise status of classified loan
10 9 8 7 6 5 4 3 2 1 0
Sub standard Doubtful Bad & loss
2008
2007
2006
(amount in crore)
Figure 23 Category wise status of classified loan
In the graph we see that in 2006, 9.25 crore taka out of 13.18 core was substandard classified loan against total classified loan, in 2007 & 2008, 5.73 & 7.60 crore was substandard loan against total classified loan of 8.01 & 10.46 crore taka respectively .Only 2.04 & 2.63 crore taka is doubtful loan against total outstanding classified loan of 2007 & 2008. In 2006, 2007 & 2008 bad & loss loan was 0.49, 0.24 and 0.225 crore is against the total classified loan. It means that their is no chance of recover the amount of bad & loss loan without provisioning but their is a very small chance to recover substandard & doubtful loan
Chapter: 5 Internship position and duties 5.1 Area of job while I was an intern in the Principal branch of Trust bank Ltd. 1. Account Opening Division. 2. Customer Durable Scrim Section (CDS) 3. Secured Over Draft (SOD) 4. Micro Credit Loan Section(MCL), RRDH
5.2 DUTIES AND LARNINGS Account opening division: 1. Making a customer CRM (Customer Relationship Management) 2. Guiding customer while filling account opening form. 3. Opening various account. 4. Signature scanning and verifying . 5. Making TP and KYC of customer 6. Cheque book issuing and authorizing 7. Opening TSSS and LSSS account 8. Checking customer account.
Consumer Durable Scrim Section 1. Fill up Marriage loan form. 2. Making CRM of customer loan account. 3. Giving posting of installment of marriage loan account 4. Fill up ATM card form, Tele banking form. 5. Served ATM card to its owner following the rule of serving.
Secured Over Draft (Sod) In the SOD section I learned how to make 1. SOD loan account. 2. Make a account in to SOD loan account 3. To fill up the loan form for SOD. 4. SOD limit set up and authorization.
Micro Credit Loan(MCL) In this loan section only one lone is given that is RRDH loan In this section I following were my duty and learning of mine. How to 1. Make CRM of loan taker.
2. Open a RRDH account. 3. to authorize RRDH account 4. set up customer limit and limit authorization 5. prepare a loan sanction letter 6. how to calculate RRDH interest and closing of this account. 7. prepare necessary document for RRDH account. 8. give posting of installments in customer loan account. With this responsibility I also sat in Tele banking department. In this section I also learned how to manage customer over Tele Phone. More over I learned a large part of Flora Bank Software while I was doing my interne in Trust Bank, Principal branch.
Chapter: 6 SWOT ANALYSIS OF PRINCIPAL BRANCH SWOT ANALYSIS 6.1 SWOT ANALYSIS OF PRINCIPAL BRANCH OF TRUST BANK SWOT Analysis is an important tool for evaluating the companies Strengths, Weaknesses, Opportunities and Threats. It helps the organization to identify how to evaluate its performance and can scan the macro environment, which is turn would help the organization to navigate in the Turbulence Ocean of competition. Following is given the SWOT analysis of Principle Branch, The Trust Bank:
6.1.1 STRENGTHS
1. Top Management: The top management of the bank, the key strength for The Trust Bank has contributed heavily towards the growth and development of the principal branch. The top management officials are army’s highest position holder, so they have a good idea about the current situation.
2. Branch Reputation:
The Trust Bank, principal branch has created a good reputation among other branch of the country. Their main customers are army persons. The popularity of this branch is increasing day by day also in the general public area.
3. Sponsors: The Trust Bank has founded by The Army Welfare Trust. The main sponsors for this bank is Sena Kalyan Sangstha. The chairperson of this bank is Chief of Army Staff and directors are also appointed by the sangstha, that’s why the sponsor does not have any problem for the fund.
4. Modern Facilities and Computer: From the very beginning The Trust Bank tries to furnish their work surroundings with modern equipment and facilities. For That reason the branch is well decorated with electronic equipment for speedy service to the customer, The Branch had installed money-counting machine in the teller counter. The branch is equipped with telex and fax facilities.
5. looks nice From the formative stage of The Trust Bank tried to furnish their branches by the impressive style. Their well-decorated branches gets attention of the potential customer, this is one kind of positioning strategy. The Principal Branch is also impressive and is comparable of foreign banks.
6.1.2 WEAKNESS 1. Limitation of Information System (PC Bank): PC bank is not comprehensive banking software. It is desirable that a more comprehensive banking system should replace PC bank system also for the branch.
2. Hierarchy Problem: Total bank as well Principle branch The hierarchy problem treated as a weakness for The Trust Bank, because the employee will not stay for a long. So there will be a chance of brain drain from this bank to other bank.
3. Communication There is another weakness of the branch is communication problem for being in the center of the cantonment area. general people can not move freely in the cantonment area.
6.1.3 OPPORTUNITY: 1. Diversification: The Trust Bank as well the PB can pursue diversification strategy in expanding its current line of business. They do not serve not only the army but also the general people.
2. Business Banking The investment potential of Bangladesh is foreign investors. So TBL ,PB has the opportunity to expand in business banking with new decoration..
6.1.4 THREATS 1. Contemporary Bank’s Branch: The contemporary banks of The Trust Bank as well as like: Dhaka Bank, Dutch Bangla Bank, National Bank, Mutual Trust Bank, Mercantile Bank’s branch are its major rivals. They are carrying out aggressive campaign to attract lucrative clients as well as big time depositors. The Trust Bank, PB should remain vigilant about the steps taken by these bank’s branch, as these will in turn affect The Trust Bank strategies.
2. Multinational Bank: The Rapid expansion of multinational bank poses a potential threat to new TBL PB’s. Due to the booming energy sector, more foreign banks are expected to operate their branch in Bangladesh. Moreover, the existing foreign banks such as HSBC, AMEX, CITI N.A, and Standard Chattered Grindlays are now pursing an aggressive branch expansion strategy. Since the foreign banks have tremendous financial strength, it will pose a threat to local bank to a certain extant in terms of grabbing the lucrative clients.
3. Default Culture: Default culture is very much familiar in our country. For a bank as well a branch, it is very harmful.
Chapter: 7 Findings, Conclusions & Recommendation 7.1 Findings By analyzing loan disbursement and recover of Trust Bank, Principal branch following Findings have been found. 1. The rate of disbursement of principal Branch is increasing slowly year to year. From 2006 to 2007 the disbursement rate increased to 33% and in 2008 the
disbursement rate increased 19.56% of the previous year. But this disbursement is a very small part of its deposit. 2. A large part of Principal branch’s loans and advances is SOD loan scream which is 37.90 % of its total investment. And the second largest loan and advance is HBLagainst commutation Benefit which is 13.87% of its total loans and advances. 3. The recover rate of continuous loan in 2006 was increased quarter by quarter. But in the year 2007 the rate was decreased quarter by quarter but outstanding was increased year by year. 4. Recover rate of demand loan is good. In the 2006 the Branch outstanding demand on the 2nd quarter was 3.37 crore but it recovered 11.33 crore. In the year 2007 branch also shows a up and down recovery rate on the other hand in the year 2008 it’s outstanding was increased then the recovered. 5. In the year 2006, 2007 and 2008 the branch recovered low amount of money from the short term loan. 6. In case of long term loan the Principal Branch shows a rising outstanding against going down in recover loan in 2007 and 2008. 7. In the year 2006 the percentage of classified loan was 6.35 of total outstanding, in 2007 it was 2.90% of total outstanding and in 2008 the classified loan was 3.16% of it’s total outstanding loan.
7.2 Conclusions As the services improved workflow of the banks has been changed dynamically as well. The principal Branch use more sophisticated ways to assess loan, disburse loan & recover. Quick assessment process pressurizes the loan officers to use sophisticated ways of loan assessment. Though TBL, Principal Branch use its own investigation along with third party investigation for loan assessment the whole procedure may be developed furthermore. Central bank may become more helpful by providing helps like hosting database (about customers) on the net. In order to increase the disbursement and recovery and reduce the loan loss, TBL Principal Branch should maintain a well-balanced
portfolio. For example, instead of focusing on just corporate banking and high profile business loan and leasing, it should also give equal importance to retail banking. The more diversified the portfolio is the lesser the amount of making classified loan. Though the Principal Branch has a very small amount of classified loan last year but it should take necessary steps through its management to control it in the future and reduced the classified loan rate.
7.3 Recommendation On the basis of the findings the following recommendations are suggested for the Principal Branch. Trust Bank Ltd. • At first the Branch should find out the way to Reduce it’s bad loan amount further, to improve its loan quality. Though in last two year the percentage of classified loan was good as per international law. • The branch should increase their loan investment because increase the loan investment will maximize the interest income of the Bank. So the investment, which will give the expected return, should be increased and for that they should strictly follow the factors considering before sanction of any loan. • If the loan and advance is large then the credit risk will be also high because a chance of not getting the money back is higher in loan investment then the investment in securities. Because securities, plant, equipment can provide a certain return with very minimum risk but default risk in loan investment is very high. So a bank, which has high amount of provision for loan losses, should not expand its loan portfolio without proper consideration of all the factor of loan sanctioning. • Principal branch can diversify the loan portfolio in to the securities and should give more emphasize in the foreign exchange and remittance services to maximize income.
• Due to recession in the world economy as well as Bangladesh bank is facing a big challenging situation. So the branch is recommended to be very careful to sanction further new loans and advances. • Currently TBL's CAMEL rating is 3, which means the overall Bank is only in a fair position. The main problem of the TBL is that it is not able to maintain a good Loan policy except Principal Branch. As a result, classified loans of the Principal Branch is low but for overall Bank it increase over the years. To improve its CAMEL Rating, TBL must have to improve in this area and has to decrease the amount of classified Loans by a well-designed recovery policy.
• It is recommended to introduce more ATM booth instead of manual banking system. It will save huge amount establishment and other costs.
• New investment schemes should be introduced to meet customer demands. In order to increase the profitability and reduce the Classified loan, TBL PB should maintain a well balanced portfolio. For example, instead of focusing on just corporate banking and high profile business loan and leasing, it should also give equal importance to retail banking. The more diversified the portfolio is the lesser the risk of losses.
REFERENCES Bangladesh Bank, Rules and Regulation of Sanctioning loan. Available from: Available form: www,bangladeshbank.org.bd, [Accessed- June 15, 2009] Hashem, A (1990 and reprint May 2002), What The Banker Does, Second Edition, Published by Abdul Kadir Khan, Newroz Kitabistan at 5, Bangla Bazar, Dhaka-1000, Bangladesh. Khalakuzzaman, M (2001 and reprint 2002), Banking Law and Bima second Edition, Published by Kazi Minhazul alam, Jamuna Publishers at 38, Bangla Bazar , Dhaka -1100, Bangladesh.
Maheshwari, S.N. and Mahewari, S.K. (2001 and reprint 2002), Banking Law and Bima and Practice, Eleventh Edition, Published by Kalyani Publishers at B-I/1292 Rajinder Nagar, Ludiana- 141008, New Delhi, India.
Trust Bank Limited (2007), Annual Report – 2006-07, Trust Bank Limited, Insurance Building, 36 Dilkusha C/A Dhaka-1000, Bangladesh.