Transfer Policy and Overview of HRM Practice of Trust Bank

The main objective of the report is to Analysis of Promotion and Transfer Policy and an Overview of HRM Practice of Trust Bank Limited. Other purposes are to review the performance of Trust Bank in terms of Credit Operations and Recovery Patterns which are considered to occupy lion’s share in a Bank’s revenue generation. Finally identify problems in credit operations and recommend suggestions for the successful Transfer Policy Operations of the Trust Bank Limited.

OBJECTIVES OF THE REPORT:

The study has been carried out with the following objectives.

1. To review the performance of Trust Bank Ltd in terms of Credit Operations & Recovery Patterns which are considered to occupy lion’s share in a Bank’s revenue generation.
2. To identify problems in credit operations of The Trust Bank Ltd.
3. To analyze the lending procedures maintained by the TBL.
4. To recommend suggestions for the successful Lending Operations of the Trust Bank Ltd.

METHODOLOGY USED:

This report has been used by the primary and secondary data. Among primary and secondary source most of the data has been collected from the secondary sources.

Primary Sources:

• Officers and Executives.
• Borrowers.

Secondary Sources

1. Company confidential files.
2. Annual Reports.
3. Published specifications of different products in web sites.

Method of Data Collection:

Face to face conversation with the respondents.

Sample Design:

• Sampling Method: Convenience sampling has been followed for selecting samples.
• Sample Size: 50 respondents.

OVERVIEW OF THE BANK:

Trust Bank Limited (TBL) is one of the leading private commercial Bank having a spread network of 39 branches across Bangladesh and plans to open few more branches to cover the important commercial areas in Dhaka, Chittagong, Sylhet, Khulna, Noakhali, Gazipur 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 Limited has been operating in Bangladesh since 1999 and has achieved public confidence as a sound and stable Bank.

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 Seven hundred million. Public shares have already been issued on July, 2007. 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.

CORPORATE INFORMATION AT A GLANCE

Banking License received on                                                    : 15^th July.1999

Certificate of incorporation received on                               : 17^th June1999

Certificate of Commencement of business received on     :  17^th June1999

First branch licenses on                                                            : 9^th August1999

Formal inauguration on                                                            : 29^th November 1999

Sponsor Shareholders                                                               : Army Welfare Trust

Number of Branch                                                                      : 39

Principal Activity                                                                        : Commercial Banking

Total Capital                                                                                : TK. 2421.32 million, 07

NATURE OF BUSINESS:

Trust Bank Ltd offers full range of banking services that includes—

• Deposit banking
• Loans & advances
• Export
• Import
• Financing inland
• International remittance facilities

The Bank offers a full scale commercial banking including

• Foreign Exchange transactions
• Personal
• Credit
• Consumer & Corporate Banking

The bank has plans to invest extensively in the country’s industrial and agricultural sectors in the coming days. The bank has participated in syndicated loan agreement with other banks. Such participation would continue in the future for greater interest of the overall economy. The bank is keen to constantly improve its services to the clients and launching new & innovative products to provide better services towards fulfillment of growing demands of its customers.

VISION AND MISSION STATEMENT:

Vision:

The Trust Bank Limited aims to provide financial services to meet customer expectations so that customers feel that they are always there when they need Banking service, and can refer them to their friends with confidence. They want to be a preferred bank of choice with a distinctive identity.

• To build a sustainable and respectable financial institution.
• To be a leading Commercial Bank, with a social focus, assisting in the economic development of the country.
• A Bank with difference. Profit used for the Socio-economic development of the members of the Bangladesh Army and thereby the nation as a whole.

Mission:

The mission of the Trust Bank is to make banking easy for their customers by implementing one-stop service concept and provide innovative and attractive products & services through their technology and qualified human resources. They always look out to benefit the local community through supporting entrepreneurship, social responsibility and economic development of the country. The mission of the Trust Bank is as follows.

• Achieving sound and profitable growth in Assets & Liabilities, with focus to maintain non-performing assets at acceptable levels.
• To build long-lasting, credible and mutually dependable relationships with customers.
• Efficiently managing interest and operating costs.
• To excel in rendering superior customer service.
• To be the preferred employer among Banks in Bangladesh.

SWOT ANALYSIS OF TRUST BANK LIMITED:

Every organization is composed of some internal strengths and weaknesses and also has some external opportunities and threats in its whole life cycle. The following will briefly introduce Trust Bank’s internal strengths and weaknesses, and external opportunities and threats as I have explored in the Last seven years (approx.).

Strengths:

• Sponsored by Bangladesh Army, the largest and most organized group in Bangladesh.
• Well-capitalized Bank with potential to increase capital base.
• Homogenous Board of Directors.
• Computerized customer services.
• Customers’ faith as a stable dependable Bank.
• Satisfactory asset quality.
• Good internal capital generation.
• Satisfactory operating efficiency.
• Diversified product lines.
• Low human resource turnover.
• Experienced Management team.
• Trust Bank draws its strength from the adaptability and dynamism it possesses. It has quickly adapted to world class standard in terms of banking services.
• Trust Bank is in a financially sound position backed by the enormous resource base of Army Welfare Trust. As a result customers feel comfortable in dealing with the Bank.
• All levels of the management are solely directed to maintain a culture for the betterment of the quality of service and development of a corporate brand image in the market through organization wide team approach and open communication system.

Opportunities:

• Public confidence as a financially stable Bank backed by the Bangladesh Army.
• Control and monitoring of the borrowers can be handled in a more consolidated manner. Less opportunity of bad debts.
• Secured market minimizing risk factors.
• Support from sister organizations.
• More commercial branches.
• Investment in SME.
• Basel-II compliance for capital.
• Creation of brand image.
• Dual currency credit card.
• ON line products & services.

Weaknesses:

• Limited market share.
• Dependency on Term Deposit.
• Moderate MIS.
• High cost of fund.
• Moderate corporate.

Challenges:

• Increasing cost of fund.
• Market pressure for.
• Increasing the SLR.
• Implementation of Basel-II.
• Increased Market competition.
• Product Risk.

FINANCIAL HIGHLIGHTS OF TRUST BANK LIMITED:

DEPOSIT PRODUCTS AND SCHEMES

In addition to usual commercial lending the bank has the following loan and deposit products:

RETAIL PRODUCT DETAILS

Loan Products:

a.  Household Durables Loan:

Trust bank provide household durables loan to meet finance requirement to build home and industrial buildings. The rate of interest is 16% and the duration of the loan is 3 years. The loan limit is up to Tk.5.00 Lac.

Eligibility to get Household durables loan Employees Of:

• Government/Semi Government/Autonomous Bodies.
• Sector Corporation.
• Non-Government Organizations.
• Multi-national Companies.
• Banks/ Financial Institutions.
• Educational Institutions.

b.  Doctors’ Loan:

Eligibility: General Practitioner, FCPS & MBBS Doctors/Dentists or Specialist Doctors having FCPS or a Post-graduate degree and specialization in a particular area of treatment such as Medicine Specialist, Eye Specialist, ENT Specialist, Cardiac Surgeon/Specialist etc. having 5 years experience as specialist.

c. Educational Loan:

A substantial amount of finance is required to give child the best education or to get a higher degree either at home or abroad.

Eligibility:

• Employees of confirmed Service holders, Businessman, Professionals.
• Adequate cash flow to repay the loan.

d. Travel Loan:

When you plan to travel local or global exotic location, financing is the key issue. Don’t be worried; TBL Travel loan is ready to provide instant financial support.

Eligibility:

• Employees of confirmed Service holders, Businessman, Professionals.
• Adequate cash flow to repay the loan.

e. Hospitalization Loan:

Crises come at anytime and well being comes at a prices. When the urgency comes for medical treatment of your family, there can never be any compromise. At any urgency, please remember us to provide financial support through our “Hospitalization Loan” scheme.

Eligibility:

• Employees of confirmed Service holders, Businessman, Professionals
• Supportive cash flow to repay the loan

f. Any Purpose Loan:

We have so many needs, some are attainable with our means & standing and some are unattainable. The unattainable needs can be met by TBL “Any Purpose Loan”. The loan limit is Tk.5.00 Lac for 3 years and the rate of interest is 17%.

Eligibility:

• Confirmed employees of the Govt. Organizations/Semi Govt. Organizations /Autonomous Bodies/ Multinational Companies/ Banks/ Insurance Company/Financial Institutions/ Educational Institutions/Corporate Bodies.
•  Supportive cash flow to repay the loan.

g. Apon Nibash Loan (House Finance):

TBL offers Apon Nibash Loan (House Finance) to you with easy repayment schedule matching your affordability. You have unlimited options of choosing your home with limited means and standing. Here, TBL Apon Nibash helps you to match your long cherished dream. The loan limit is Tk.50.00 Lac and the rate of interest is14.50%-15.00% for up to 15 years term. Down Payment/Equity of the loan is 40% for construction of house and 30% for purchasing of new apartment/house.

Eligibility:

(Salaried People):

• Confirmed employees of Govt. /Autonomous body.
• Confirmed employees of Financial Institutions.
• Confirmed employees of different Public Limited Company/Private Limited Company having Corporate Structure.
• Teachers of any School/College/University.
• Supportive cash flow to repay the loan.

(Professionals):

• Doctor/Medical Professionals.
• Engineers.
• Accountants.
• IT Professionals.
• Management Consultants.

(Self-Employed):

• Businessmen (in business at least for five years).

h. CNG Conversion Loan:

Driving a car is no longer a burden as our TBL Conversion Loan makes it easily affordable.

Eligibility:

• Employees of confirmed Service holders, Businessman, Professionals (Owner of the vehicle or user of the vehicle) & Corporate Clients (for more than one Car).
• Any other persons who have adequate cash flow to repay the loan installment.

i. Marriage Loan:

Tying the marital knot is an event of a life time and memories should last forever. TBL “Marriage Loan” will help you to arrange celebrate the marriage in style. Bank Provides loan up to Tk.3,00,000.00 to meet the money for marriage purpose. Easy monthly installment for a maximum period of 36 months. The rate of interest is 17% and the down payment/equity is 20%. Age limit is 25-60 years for guardian and 25-40 years for the potential bride/ bridegroom.

Eligibility:

• Employees of confirmed Service holders, Businessman, Professionals.
• This Loan is applicable for first marriage.
• This Loan may be availed by the guardian and/or applicant as the case may be.
• Supportive cash flow to repay the loan.

j. Advance Against Salary:

Life is continuously facing unforeseen events. For which sudden financial support is essential. We are at your side to meet up your urgency at any moment through our “Advance Against Salary”.

Eligibility:

• Salaried person in Govt. Organizations/Semi Govt. Organizations /Autonomous Bodies/ Multinational Companies/ Banks/ Insurance Com./Financial Institutions/ Educational Institutions.
• Confirmed Employees having 3 Years service ahead.

Deposit products:

a. Fixed Deposit Receipt (FDR):

• Time duration is 1 month, 3 month, 6 month & 1 Year and above.
• We offer most attractive rate on FDR.
• Advance against lien on such Receipt may be allowed up to 80% of the deposited amount.

b. Trust Smart Savers Scheme (TSS):

Trust Bank has introduced Trust Smart Savers Scheme (TSS) for you to secure your future by depositing monthly installment.

• Monthly-deposited amount under this scheme will be Tk. 500 (Tk. five hundred) and multiply thereof up to Tk. 5,000 (Tk. Five Thousand).
• Time duration is 3, 5, 7 or 10 years.
• We offer most attractive rate on Trust Smart Savers Scheme (TSS).
• Advance against lien on the balance of the Account may be allowed up to 80%.

c. Trust Money Double Scheme (TMDS):

Trust Money Double Scheme (TMDS) is very attractive scheme for you that make your money double after 6 (six) years.

• 6 years.
• The deposit shall be double after 6 (six) years.
• We offer most attractive rate on Trust Money Double Scheme (TMDS).
• Advance against lien on such Receipt may be allowed up to 80% of the deposited amount.

d. Trust Money Making Scheme (TMMS):

Trust Money Making Scheme (TMMS) is an attractive scheme for you that makes you moneymaker.

At a glance Trust Money Making Scheme (TMMS)

Contribution:

An FDR for the value combining client’s own deposit (15%) and bank’s contribution (85%) will be issued for three years at 10% interest rate that will be automatically renewed for further another term (Three Years).

 e. Trust Educare Scheme:

Future will depend on good educational background. Our Trust Educare Scheme (TES) will be with you to brighter your future.

• Deposit amount under Trust Educare Scheme will be Tk. 10,000 (Tk Ten Thousand) or multiple thereof.
• You can withdraw lump sum on maturity of 5 years / 3 years or Monthly Educare allowance after maturity will be continued for 3 years term.
• We offer most attractive rate on Trust Educare Scheme.
• Advance against lien on such Receipt may be allowed up to 80% of the deposited amount.

f. Monthly Benefit Deposit Scheme (MBDS):

You can secure your present by investing in Monthly Benefit Deposit Scheme (MBDS). It will not only help you to meet your monthly budget but also you can reinvest this monthly allowance to other deposit scheme (s).

• Deposit amount will be Tk. 100,000 (Tk. One Lac) and multiples thereof, but maximum Tk. 2,500,000 (Tk. Twenty Five Lac) per account.
• The deposit shall be for a period of 5 (Five) years.
• We offer most attractive rate on Monthly Benefit Deposit Scheme (MBDS).
• Advance against lien on such Receipt may be allowed up to 80% of the deposited amount.

g. Lakhopati Savings Scheme (LSS):

At the maturity the depositor will get Tk. 100,000.00 (TK. One Lac)  by depositing monthly installments.

• Monthly installment amount is Tk. 490.00, Tk. 1, 280.00 or Tk. 2,390.00.
• Time duration 10, 5 or 3 years respectively.
• We offer most attractive rate on Lakhopati Savings Scheme (LSS).
• Advance against lien on the balance of the Account may be allowed up to 80%.

h. Interest First Fixed Deposit Scheme (IFFDS):

Interest First Fixed Deposit Scheme (IFFDS) has given you the opportunity to receive our interest in advance at the time of deposit. You can be benefited by reinvesting this interest in our deposit scheme (s).

• Minimum-deposit is Tk. 100,000 (Tk. one lac) under the scheme.
• 3/6/12 months.
• Interest is payable in advance i.e., at the time of placing the deposit. You can re-invest the interest amount with another scheme of the Bank.
• We offer most attractive rate on Interest First Fixed Deposit Scheme (IFFDS).
• Advance against lien on such Receipt may be allowed up to 80% of the deposited amount.

CREDIT RISK MANAGEMENT PRACTICS IN TRUST BANK

TBL has been established with the objective of providing efficient and innovative banking services to the people of all sections of our society. Towards attainment of its goals and objectives, the bank pursues diversified credit policies and strategic planning in credit management. To name a few, the bank has extended micro credit, consumers durable scheme loans, house building loans etc. to cater to the needs of the individuals, which in turn has helped thousands of families. The bank also extends loan in the form of trade finance, industrial finance, and project finance, export & import finance etc. The bank’s credit polices aimed at balanced growth and harmonious development of all the sectors of the country’s economy with top most priority to ensure quality of lending by averting growth of non-performing assets.

CREDIT RISK MANAGEMENT OF TBL

This is one of the major risks that can be described as potential loss arising from the failure of a counter party to perform as per contractual agreement with the TBL. A separate corporate division has been formed at Head Office, which is entrusted with the duties of maintaining effective relationship with the customer, marketing of credit products, exploring new business opportunities etc. The TBL has segregated the functions of credit approval, administration, monitoring and recovery by forming three separate units within Credit Division. In determining the credit limit, the instructions of Bangladesh Bank are strictly followed. Internal audit conducted on periodic interval to ensure compliance of Bank’s and Regulatory policies. Classifications of Loans are made as per Bangladesh Bank’s guidelines.

CREDIT POLICY OF TBL

The credit policy pursed by Bangladesh Bank is to be aimed at ensuring development of scare Bank resources in the best possible manner for increasing Production, employment and Real income within its objectives. Both selective and qualitative credit were adapted to the socio-economic priorities, distributive and justice need for containing money supply within a safe limit.

TBL takes the policies, which help the development of several sectors of the country under general credit division. For achieving the proposed goals of the principles of development of a number of sectors such as Agricultural, Economical, Industrial and Trade the bank follow the guidelines of Bangladesh Bank; this is the credit policy of Trust Bank.  This policy is changeable. If Bangladesh Bank resists providing credit in any sector Trust Bank does not provide any credit in those sectors.

Salient features of TBL’s Credit Policy

• Funded facility 15% of paid up capital.

• Assets are built based on customer’s deposit, which should not exceed 80% of customers based deposit.
• Rate of interest is variable based on customers’ integrity and risks associated.
• Type of security varies on the basis of risks associated in credit.
• Diversification from all angel viz. type of credit, geographical location, size of credit, sectors and sub-sectors etc.
• Credit operations are carried out in branch through branch credit committee as per authority delegated to head of branch and through Head Office Credit Committee in respect of credit sanction authority delegated to the CEO.
• Aggregate long-term credit facilities shall not exceed 20% of total credit portfolio.
• Single customer’s exposure should not exceed 50% of the Bank’s Capital Funds.
• LRA is done in most cases.
• Assessment of volume or amount of credit properly.
• Utmost care is taken in providing loans to directors.

TYPE OF CREDIT FACILITIES OF TBL

Modern banking operation touches almost every sphere of economic activity. The extension of bank credit is necessary for expansion of business operations. Bank credit is a catalyst bringing about economic about economic development. Without adequate finance there can be no growth or maintenance of a stable output. Bank lending is important to the economy, for it makes possible the financing of commercial and industrial activities of a nation. The credit facilities are generally allowed by the TBL may be in two broad categories. They are described as follows

Secured Credit Facilities

Funded Facilities 

Funded facilities can also be divided into the following categories:

 A. Loans:

 a) Time Loans:  

This type of loan has a fixed maturity date indicating date of repayment in full or installment. In special cases, the types of loan could be made to mature at any time up to one year.

 b) Term Loans:

The term of loan is determined on the basis of gestation period of a project generation of income by the use of the loan. Such loans are provided for Farm Machinery, Dairy, Poultry, etc. It is categorized in following three segments:

B. Over Drafts (OD):

In this case, the customer can over draw from his/her current account. There is a limit of overdraw, which is set by the bank. A customer can withdraw that much amount of money from their account. For this there is an interest charge on the overdrawn amount. This facility does not provide for every one, the bank will provide only those who will fulfil the requirement. It means that only real customer can get this kind of facility. It allowed under two categories:

 a) OD against pledge of good or stock:  Under this arrangement the credit facilities are granted to the borrower against the security of pledged of goods or products in the form of new materials of finished products subject to credit or margin restriction. The borrower signs a letter of pledge and surrenders the physical possession of the goods/products pledged under Bank’s effective control but retain the ownership with him. In case of default the bank can sell the products on serving proper notice to the borrower and adjust the outstanding out of sells proceeds.

b) OD against Hypothecation of Goods/Plant and Machineries:   Under this method, facilities are extended borrower on his signing a letter of hypothecation creating a charge against the goods/products, plant & machineries etc. hypothecated for the amount of agreed limit of the debt subject to credit/margin restriction. The control/possession of the hypothecated goods/product is retained by the borrower but binding himself to surrender possession of the goods to the bank as and when called upon to do so.

C. Secured Overdrafts (SOD):

a) SOD (General):   Advance allowed to individual/firm against financial obligation (i.e. lien of WEDB/FDR/PSP/BSP etc.) and against assignment of work order for execution of contract works fall under this head. This advance is generally allowed for definite period and specific purpose. It is not a continuous credit.

b) SOD (Imports):   Advances allowed for purchasing foreign currency for opening L/C for imports of goods fall under this type of leading. This is also an advance for a temporary period, which is known as pre-emptor finance and falls under the category ‘Commercial Lending’.

D. Other Advances:

a) PAD:   Payment made by the bank against lodgement of shipping documents of goods imported through L/C falls under this type head. It is an interim type of advance connected with import and is generally liquidated shortly against payments usually made by the party for retirements of documents for release of import goods from the customer authority. It falls under the category ‘Commercial Lending’.

b) LTR:   Advances allowed for retirement of shipping documents and release of goods imported through L/C without effective control over the goods delivered to the customer fall under this head. The goods are handed over to the importer under trust with arrangement that sales proceed should be deposited to liquidate the advances within a given period. This is also temporary advance connected with import that is known post-import finance under category ‘Commercial lending’.

c) IBP:   Payment made through purchase of Inlands Bill to meet urgent requirements of customer fall under this type of credit facility. This temporary advance is adjusted from the proceeds of bills purchased for collection. It falls under the category ‘Commercial Lending’.

d) FDBP:   Payment made to a party through purchase of foreign documentary bills fall under this head. This temporary advance is adjustable from the proceeds of negotiable shipping/export documents. It falls under category ‘Export Credit’.

e) LDBP:   Payment made to a party through purchase of local documentary bills fall under this head. This temporary liability is adjustable from proceeds of the bill.

f) Bank Guarantee:   The exporters pay of the imported goods on behalf of the importer through bank guarantee. If the exporter fails to make the fulfil payment at the moment the bank will take the liability and pay to the exporter. This type of guarantee is also needed to attend in any tender.

g) Micro Credit:   It refers to the lending allowed to small traders, cottage industries, small-scale industries and self-employed persons, such loans are generally production/development oriented rather than security oriented & this is the way of emphasis in these cases is on the purpose of the advance as well as skill regulation and capacity of the borrower. The security requirements are substituted by the end-use and frequent supervision of the credit.

Non Funded Facilities 

Non funded facilities are divided into the following categories: 

A. Letter of Guarantee   

A credit facility in contingent liabilities from extended by the banks to their clients for participation in development work, likes supplies goods and services.

B. Letter of Credit  

A credit facility in contingent liabilities from provided to the clients by the banks for import/procurement of goods and services.

These credits are allowed against the following securities:

• Shares of various Companies approved by Head Office from time to time and listed in the Stock Exchange.
• Fixed Deposit Receipts (FDR) issued by the Bank.
• Fixed Deposit Receipts (FDR) issued by other banks.
• Wage Earner Development Bond issued by the Bank.
• Wage Earner Development Bond issued by other banks.
• Lien on balance in Savings A/C, Current A/C. and other Savings Schemes of the particular clients.
• Government Promissory Notes.
• Different kinds of Sanchaya Patra.
• Surrender value of Life Insurance Policies.
• Assignment of bills against work orders/supply orders and receivables.
• Stock of goods in trade (Permissible goods only) pledged or hypothecated.
• Hypothecation of power driven vehicles or watercraft.
• Hypothecation of capital Machineries and equipments.
• Immovable Property.
• Imported merchandise – pledged or hypothecated.
• Trust Receipts.
• Import Bills (PADs).
• Bills Purchased.
• Scheduled Bank/Insurance Guarantees.
• Export Bills.

Lending Operations

Mechanism of Lending Operations Maintained by TBL

 WRITTEN 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.

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.

STEPS IN THE LENDING PROCESS:

• 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.

CREDIT SCRUTINY: 

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 performed 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.

CREDITWORTHINESS OF THE BORROWER: 

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 (6) Cs 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’s requisites.

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.

STRUCTURE OF THE LOAN AGREEMENT: 

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 is 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 represents- principally 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.

Securities  

To make the loan secured, charging sufficient security on the credit facilities is very important. The banker cannot afford to take the risk of non-recovery of the money lent. TBL charges the following two types of security, –

• Primary security These are the security taken by the ownership of the items for which bank provides the facility.

• Collateral security  Collateral securities refer to the securities deposited by the third party to secure the advance for the borrower in narrow sense. In wider sense, it denotes any type of security on which the bank has a personal right of action on the debtor in respect of the advance.

Modes of Charging Security 

There are different modes of charging securities are exercised by the bank: 

Pledge  

Pledge is the bailment of the goods as security for payment of a debt or performance of a promise. A pledge may be in respect of goods including stocks and share as well as documents of title to goods such as railway receipt, bills of lading, dock warrants etc. duly endorsed in bank’s favor.

• Hypothecation

In case of hypothecation, the possession and the ownership of the goods both rest the borrower. The borrower to the banker creates an equitable charge on the security. The borrower does this by executing a document known as Agreement of Hypothecation in favor of the lending bank.

• Lien

Lien is the right of the banker to retain the goods of the borrower until the loan is repaid. The bankers’ lien is general lien. A banker can retain all securities in his possession till all claims against the concern person are satisfied.

• Mortgage

According to section (58) of the Transfer of Property Act, 1882 mortgage is the ‘’transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced 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”. In this case the mortgagor does not transfer the ownership of the specific immovable property to the mortgagee, only transfers some of his rights as an owner. The banker exercises the equitable mortgage.

Documentation of Loan Agreement

Documentation can be described as the process or technique of obtaining the relevant documents. In spite of the fact that banker lends credit to a borrower after inquiring about the character, capacity and capital of the borrower, he must obtain proper documents executed from the borrower to protect him against willful defaults. Moreover, when money is lent against some security of some assets, the document must be executed in order to give the banker a legal and binding charge against those assets. Documents contain the precise terms of granting loans and they serve as important evidence in the law courts if the circumstances so desire. That’s why all approval procedure and proper documentation shall be completed prior to the disbursement of the facilities

Charge Documents 

Following charge documents are compulsory while giving loans:

Letter of Guarantee 

This is a document given by the proprietor, directors or the third party in favor of the principal debtor.  The beneficiary of this document is the bank. Surety is bound to pay the guaranteed amount if such situation arises.

Counter Guarantee 

The principal debtor agreeing that if the guarantor pays any amount, the principal debtor is bound to pay this amount gives this guarantee.

Letter of Authority 

BY this letter, the principal debtor gives the authority to the bank to debit the current account or investment account of the principal debtor for the following cases:

1. Wages of the godwon keeper and godwon guard.
2. Rent of the godwon.
3. Insurance premium and
4. Any other expenses regarding these functions.

Letter of Recall the Loan 

This letter is given to the bank by the borrower, giving the bank the right of recalling the loan amount at any time if the borrower fails to repay any one of the installments. And the borrower cannot protest such recalling.

Letter of Continuity 

By this letter, the borrower agrees that the promissory note given by the bank will be act as security for the repayment of the ultimate balance or sum remaining unpaid on account of the overdraft or advance.

Letter of Revival 

By this letter, the borrower agrees that he will be liable to bank for payment of the promissory note with interest in respect of all present and future indebtedness liabilities secured thereby which promissory note is to remain in force with all relative securities, agreements and obligations.

Joint Promissory Note 

This promissory note is given to the bank by the borrower if the borrowers are more than one person.

Single Promissory Note 

The borrower to the bank gives this promissory note if the borrower is a single person.

Letter of Undertaking 

This document is given to the banker by the borrower acknowledging the right to cancel the facility at any time with or without intimation to the borrower.

Loan Disbursement Letter 

By this letter, the borrower request to disburse the loan sanctioned in his favor by the bank. All the persons, in whose names the account is opened, should sign the letter.

Charge over Bonds or Certificate of Shares

It is a document given by the borrower to the banker declaring that the stocks, shares, debentures, securities and investments which are now deposited to the bank and which may from time to time be deposited by the borrower shall stand charged and hypothecated to bank as security for the payment to bank on demand of the balance of the loan amount and of any other indebtedness and liability to the bank of any kind whether mature or accruing and whether incurred alone or jointly with others and whether as principal or surety including all interest document, commission, expenses, charges and costs incurred by the bank in relation any such indebtedness or liability.

Letter of Lien against Fixed Deposit Receipt 

By this letter, the borrower gives the right to the bank to hold the Fixed Deposit Receipt (FDR) if the borrower fails to repay or adjust the loan on demand or discharge the liabilities to bank. In this letter, FDR number, issuing branch, name of the favoring person and amount are written.

Letter of Authority to Encash FDR 

By this letter, the borrower gives the right to bank to encash the FDR in case of need. Here the amount and address of the bank of issue and the signature of the holders are given.

Memorandum of Deposit of Title Deeds 

It is a deed that is necessary in case of mortgage by deposit of title deed or equitable mortgage. Here the mortgagor agrees that he has deposited necessary documents of the property to the bank.

Hypothecation of Goods to Secured a Demand Cash Credit or OD or Loan Account 

Here the amount of loan, interest, and the name of the borrowers are written. Here the bank and the borrowers agree on the following terms:

1. Security
2. Balance due to the bank
3. Borrowers not to the encumber or parts of the goods
4. Sale
5. Inspection
6. Insurance
7. Margin
8. Interest rate

Guarantee by Third Party 

Sometimes third party guarantee is needed for allowing loan. Here third party gives the guarantee that of the principal debtor fails to repay the loan, and then the guarantor will be bound to repay the loan to bank.

Hypothecation of Vehicle 

This document is necessary in case of transport loan. Here the borrower hypothecated the vehicle to the bank. In case of failure of repay the loan, bank will sell the vehicle to collect the money.

• 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 regarding the following information:

• 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?

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

LOAN PRICING METHOD USED BY TBL:

In pricing a business loan, 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. 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.

RATE OF INTEREST OF TBL FOR LENDING:

These sector-wise interest rates have been introduced by the Head Office of the Trust Bank Limited. They use cost-plus pricing method in case of pricing the loans. All branches of the Trust Bank Limited have maintained these rates strictly except in case of some quality and credit-worthy lenders. After judging the lenders’ credit-worthiness, the Trust Bank Limited gives some beneficiary to this kind of lenders. They can enjoy a decreasing interest rate, which maintained by the 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.

Credit Recovery Pattern

RECOVERY POLICY OF THE TBL:

a) Recovery Performance 

The recovery performance of the bank was good during the period 2005-2006. 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 is 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 bank’s portfolio. Actually they have work like CID officers. However EWSD’s responsibility will cover the areas of

1. Monitoring and controlling the classified accounts through monthly reporting and quarterly review.
2. Actively follow the borrowers for recovery.
3. Negotiate and reschedule the debts.
4. If the 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 Consolidated Report of all bad loans written-off on a quarterly.

TBL’S RECOVERY PROBABILITY CATEGORIES FOR ALL CLASSIFIED LOANS:

A. 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 situation proper approval from the appropriate approving authorities should be obtained and also shall be guided by Bangladesh Bank instructions and subject to complete analysis of- Banking practice, Legal and tax implication and Status of each individual credit.

 B. 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.

C. Recovery takes a lot of time

Only because of existing rules and regulation recovery is a time consuming procedure. I think an example will make this thing clear. Let, Mr. Rahim took loan from TBL by giving a land as registered mortgage and become bad. Now bank cannot sell the land without the permission of court though the land was as registered mortgage to bank. So bank has to sue against Mr. Rahim and court send notice to Mr. Rahim. But Mr. Rahim can delay his coming by saying he is sick and asking for more time. Court gives new date to settle the matter. Then on new date a person came to the court saying that he is the brother of the client and the land is their father’s property. And most importantly, client didn’t notify him before give the land to the bank. So court asks him to prove his claim. Finally, if court gives injunction in favor of bank, they face problem to sell the land. Because client put mussel-men protect the land from bank. Moreover people are not interested buy land on occasion from court. Finally the interesting thing is most of the time the same client but the land in another name.

FINDINGS:

 Major findings of the study are:

• Risk is concentrated in loan products as the total loan outstanding is highly dominated by a few products.

• Trust Bank Limited overall performance in loan recovery is excellent. But a downtrend in its performance is observed from the last fiscal year.

• Very slim range of loan products offered by TBL is another problem in diversifying its loan risk.

• High dominance form Bangladesh army is another obstacle of higher performance.

• Weak mid-management is another dark side of TBLs recovery problem.

• In most of the cases loan disbursement is centrally controlled from the head office which creates problem in choosing and matching the right client for the bank.

• The management have hardly overcome the notion-“A bank of armed forces at cantonment” the banking concept is yet to be universalized.

• The products offered by the TBL are very limited in range comparing to the contemporary banks. The clients can hardly find the best alternative of particular products.

• The features of the retail products are not much competitive in compare with the other commercial banks.

RECOMMENDATIONS:

On the basis of the findings the following recommendations are made for the Trust Bank Ltd.

• At first the Trust Bank should find out the way to Reduce its bad loan amount further, to improve is loan quality.

• Trust Bank 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 is 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.

• They 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 the unwanted increase of the oil price the world economy as well as Bangladesh economy is facing a big challenging situation. So the bank is recommended to very careful to sanction further new loans and advances.

• It is recommended to introduce more ATM booth instead of manual banking system. It will save huge amount establishment and other costs.

To ensure efficient and timely credit flow it is important to ensure effective work and output from all the subsections of credit department. Right now, there are five approval officers, five operation staffs where there is only two MIS officer. MIS officers have to do a lot of tasks (profit model, prepare loan update, different queries, monthly, quarterly returns, Bangladesh bank and group report) along with giving input to the database. Hence, it becomes very hard to perform all the tasks within the deadline and therefore bottleneck operation creates. Bottleneck operation delays the whole credit process. So, it is recommended to recruit more people in MIS to remove bottleneck and ensure smooth credit flow.

A.  Initiation of Scoring System:

If TBL assign score on specific loan criteria it will become easier for the approval officers to assess the loans. Scoring system will help to reduce bad applications automatically and the burden on approval officer will be reduced. On the other hand strength of a loan will be stemmed out from scoring system. However, the assessment procedure should remain same.

B.  Use of Marketing Research:

The management of TBL should regularly administer marketing research activities in order to keep a regular track of satisfaction levels. Regular research should also be conducted to find out customer expectations about various service aspects. As customer expectations and satisfaction are not static figures regular research at sufficient intervals should be conducted.

C.  Employee Trainings:

Employee trainings and workshops should be administered in order to give them knowledge and professionalism of customer interactions. With more professional base employees can better satisfy the customers. They should be taught about how to deal with problem customers and how to deal problematic situations. Employees- specifically sales officers should be conscious and taught about the financial aspects of the loans so that it becomes convenient for the approval officers to assess loans.

D.  New Branches Should Be Introduced:

Customers showed a huge dissatisfaction with current locations as TBL provides services from only 39 branches throughout Bangladesh. New branches should be constructed in Dhaka city satisfying more geographic segments. As convenience of communication to the branch location is a very important factor for the customers TBL should consider building new branches and ATM’s within Dhaka city as well as other metropolitan cities of Bangladesh.

 In order to increase the profitability and reduce the credit risk, TBL 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.

CONCLUSION:

As the services improved workflow of the banks has been changed dynamically as well. Banks use more sophisticated ways to assess loans. Quick assessment process pressurizes the loan officers to use sophisticated ways of loan assessment. Though TBL 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 profitability and reduce the credit risk, TBL 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.