Internship Report On Credit Operations of Trust Bank LTD

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Internship Report on credit operations of Trust Bank Ltd
Managerial Finance (Jahangirnagar University)
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lOMoARcPSD|16041961
An Internship Report on
Credit Operations System of

Trust Bank Limited

lOMoARcPSD|16041961
An Internship Report on
Credit Operations System of Trust Bank Limited
Prepared for
The Chairman
Department of Finance & Banking
BBA Fourth Year Exam Committee-2019
Prepared By
Fahria Mahzabin Ahmed
Exam ID: 162137
Registration No: 43196
BBA Program, Session: 2015-2016
Department of Finance& Banking

Faculty of Business Studies
Jahangirnagar University
Savar, Dhaka-1342
Date of Submission: 15th October, 2020
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October 15,2020
The Chairman
BBA Fourth Year Exam Committee-2019
Savar, Dhaka-1342
Through: Ms. Asma Ahmed, Internship Program Supervisor.
Subject: Submission of Internship Report
Dear Sir,
With due respect and great pleasure, I am submitting my internship report on “Credit
Operations System of Trust Bank Limited” as a partial requirement of the BBA program. It
was an enormous prospect for me to agglomerate huge information and appropriately grasp the
subject matter. The whole report is prepared based on my academic knowledge of the BBA
program and practical experience during the internship session. I tried my level best to prepare an
effective & creditable report.
I will enthusiastically look forward to you to consider and evaluate my efforts. There might be
some mistakes reason of various limitations. For this reason, I beg your kind concern in this
regard. I expect that my report will gratify you.
Sincerely Yours
Fahria Mahzabin Ahmed

Exam ID – 162137
BBA Program, Session: 2015-2016
Savar, Dhaka-1342
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Acknowledgment
At first, I desire to express my deepest sense of gratitude to almighty Allah that
I could complete my internship at Trust Bank Ltd (Khawja Gharib Newaz Branch, Uttara, Dhaka)
from January 2020 to March 2020. My internship report would not have been possible without the
contribution of a few people.
With profound regard, I gratefully acknowledge my honorable supervisor, Asma Ahmed, Assistant
Professor in the Department of Finance & Banking, Jahangirnagar University. I deeply appreciate
her co-operation, advice, and guidance in preparing this report.
I would like to convey my gratitude to all my teachers for all their guidance throughout my BBA
program.
I was so glad for getting the opportunity to work at Trust Bank Limited as an intern. I thank all the
employees for being friendly and being so much helpful. This was completely a new phase in my
life. This taught me about the working environment, different types of work, different types of
people, ways to handle the situation. And it was possible because of the employees’ proper
attention and co-operation. I am very thankful to Tilak Barua Julfi (First Assistant Vice President),
Moumita Khan (Junior Officer), Khondaker Zubair Ahmed (Junior Officer), Shanaz Sharmin
(Senior Officer), Khaled Mosharaff (Officer), who helped me with all the necessary ideas. I would
also like to express my special thanks to M.Shafiqul Islam (Executive Vice President, Manager of
KGNA Branch, TBL) who helped all through the report activities.
I am also grateful to the Human Resource Department of Trust Bank Limited for allowing me to
make my internship program in this organization. Their consideration favored me to perform the
internship and prepare this report. Otherwise, it would not have been possible for me to
complete the internship.
I would also like to thank Nishat Tasnim from the department of Finance & Banking,
Jahangirnagar University who helped by providing me with some of the important financial data.
However, I hope the practical experience that this internship gave, will help me to build my career
in a successful and precise way in this arena.
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Table of Contents
1.0 Introduction ..................................................................................................... 1
1.1 Background of the Study............................................................................................ 1
1.2 Objectives of the Study............................................................................................... 1
1.2.1 Primary Objective .................................................................................................... 1
1.2.2 Secondary Objectives................................................................................................ 1
1.3 Scope of the Study ...................................................................................................... 2
1.4 Methodology ............................................................................................................... 2
1.4.1 Primary Sources ....................................................................................................... 2
1.4.2 Secondary Sources .................................................................................................... 2
1.5 Data Analysis .............................................................................................................. 2
1.6 Limitations of the Study ............................................................................................. 3
1.7 Acronyms .................................................................................................................... 3
2.0 An Overview of Trust Bank Ltd. & Job Experience ...................................... 5
2.1 Organization Overview .............................................................................................. 5
2.2 Vision .......................................................................................................................... 5
2.3 Mission ........................................................................................................................ 5
2.4 Different Departments................................................................................................ 6
2.5 Products and Services ................................................................................................ 6
2.6 Working Experience at Trust Bank Limited ............................................................. 7
2.7 Job as an Intern .......................................................................................................... 7
2.7.1 General Banking Division ................................................................................... 7
2.7.2 Retail Banking Division....................................................................................... 8
3.0 Theoretical Framework ................................................................................. 9
3.1 Risk Management ....................................................................................................... 9
3.2 Risk Management Process ......................................................................................... 9
3.3 Credit Risk................................................................................................................ 10
3.4 Types of Credit Risk ................................................................................................. 11
3.5 Credit Analysis ......................................................................................................... 11
3.6 Credit Risk Management ......................................................................................... 12
3.7 Loan Monitoring, Control of Securities and Compliance ....................................... 13
3.7.1 Loan Monitoring ............................................................................................... 13
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3.7.2 Control of Securities and Compliance .............................................................. 14

3.8 Non-Performing Loan .............................................................................................. 14
3.9 Loan Classification ................................................................................................... 14
3.9.1 Loan Classification Procedure .......................................................................... 15
3.9.2 Provision ............................................................................................................ 15
3.10 Guideline for Loan and Advances Sanction ............................................................ 16
4.0 Credit Overview of Trust Bank Ltd. ............................................................18
4.1 Retail Products or Loans of TBL ............................................................................. 18
4.1.1 Loan Products ................................................................................................... 18
4.2 Credit Card............................................................................................................... 18
4.3 Sectorial Credit Disbursement ................................................................................. 19
5.0 Credit Approval Process of Trust Bank Ltd. ................................................20
5.1 Borrower Selection Process on TBL ........................................................................ 20
5.2 Credit Analysis Process of Trust Bank Limited ...................................................... 20
5.2.1 Evaluation of CIB Report ................................................................................. 20
5.2.2 Analysis of Project Feasibility ........................................................................... 21
5.2.3 Lending Risk Analysis ....................................................................................... 21
5.3 The Lending Process ................................................................................................ 21
5.3.1 Application from the Credit Applicant ............................................................ 22
5.3.2 Obtaining the CIB Report ................................................................................. 22
5.3.3 Collection of Documents.................................................................................... 22
5.3.4 Scrutinizing Documents .................................................................................... 22
5.3.5 Analysis of Collected Information .................................................................... 22
5.3.6 Legal Opinion .................................................................................................... 22
5.3.7 Credit Proposal.................................................................................................. 23
5.3.8 Collection of Charged Documents .................................................................... 23
5.3.9 Collection of Charged Documents .................................................................... 23
5.4 Credit Approval Process .......................................................................................... 23
5.4.1 Pre-Approval Stage at Branch .......................................................................... 23
5.4.2 Approval Process at Head Office ...................................................................... 23
5.5 Conveying Credit Rejection ..................................................................................... 24
5.6 Loan Applications and Appraisal under Syndication ............................................. 24
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5.7 Disbursement of Loans including changes in terms and conditions ....................... 24

5.8 Conveying Credit limit and terms& Conditions ..................................................... 24
5.9 Creation of charges on Securities and its Implications ........................................... 25
5.9.1 Securities ............................................................................................................ 25
5.9.2 Charging of Securities ....................................................................................... 25
6.0 Evaluation of Credit Performance of TBL ...................................................29
6.1 Quantitative Analysis ............................................................................................... 29
6.1.1 Current Ratio .................................................................................................... 29
6.1.2 Capital Adequacy Ratio .................................................................................... 30
6.1.3 Net Interest Margin ........................................................................................... 30
6.1.4 Return on Asset ................................................................................................. 31
6.1.5 Return on Equity ............................................................................................... 32
6.2 Trend Analysis .......................................................................................................... 33
6.2.1 Net Interest Income over the five years ............................................................ 33
6.2.2 Trend Analysis of Total Deposits and Loans &Advances ................................ 34
6.2.3 The trend of Non-Performing Loan.................................................................. 35
6.2.4 Trend Analysis of Provision for Loans& Advances ......................................... 36
6.2.5 Trend Analysis for Percentage of NPL’s to Loans and Advances ................... 37
6.2.6 Trend Analysis for Capital Adequacy Ratio .......................................................... 37
7.0 Findings of the study ...................................................................................39
8.0 Conclusion...................................................................................................40
9.0 Appended Part

9.1 Reference
9.2 Appendix
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List of Figures
Figure 2.4: Different Departments of TBL .............................................................................. 6
Figure 3.2: Risk Management Process ..................................................................................... 9
Figure 3.6: Credit Lending Procedure ................................................................................... 13
Figure 4.3: Sectorial Credit Disbursement ............................................................................ 19
Figure 6.1.1 : Current Ratio of TBL (2014-2018) .................................................................. 29
Figure 6.1.2: Capital Adequacy Ratio of TBL (2014-2018)................................................... 30
Figure 6.1.3: Net Profit Margin of TBL (2014-2018) ............................................................ 31
Figure 6.1.4: Return on Asset (2014-2018) ............................................................................ 32
Figure 6.1.5: Return on Equity (2014-2018) .......................................................................... 33
Figure 6.2.1: Trend Analysis of Net Interest Income ............................................................ 34
Figure 6.2.2: Trend Analysis of Deposits and Loans &Advances (TK in million) ............... 35
Figure 6.2.3: Trend Analysis of Non-Performing Loan (TK in Million) .............................. 36
Figure 6.2.4: Trend Analysis of Provision for Loans ............................................................ 36
Figure 6.2.5: Trend Analysis for Percentage of Non-Performing Loan to Loans& Advances
................................................................................................................................................. 37
Figure 6.2.6: Trend Analysis for Capital Adequacy Ratio................................................... 38
List of Tables
Table 3.9.1: Loan Classiication Status ................................................................................... 15
Table 3.9.2: Provision Requirement of different Loan Classification .................................. 16
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Executive Summary
The banking sector has been dominating the economic development of a country by mobilizing the
saving from the general people and channeling those saving for investment and thus economic
development and growth. To satisfy the demand as well as to improve the commercial banking service
in our country, Trust Bank Limited, a scheduled bank, was incorporated to initiate its operation to
play a vital role in the socio-economic development of the country.
The report is originated as a result of my internship program which I have done as a requirement of
the BBA program. This report is completed based on my three months internship at Trust Bank
Limited. This is an orientation report that contains the real-life day-to-day working experience of
different tasks in the Credit Department of Trust Bank Limited, Khawja Gharib Newaz Avenue
Branch, Uttara, Dhaka.
The core function of a bank is performed by the credit department of the bank. In this case, the
relationship of bank customers is that of the credit and debtor. If a bank’s credit management is not
good then the bank will never achieve its proper goals. The report is based on my critical observation
while working in the credit department of Trust Bank Limited. The objective of this study is to
analyze the credit policy, the client’s perception towards the performance of Trust Bank, financial
performance regarding credit, etc. While preparing this report I have focused on Loans and Advance
and tried to reveal the insights of the consumer loans and advance services of the bank.
Simultaneously efforts have been made to provide an in-depth analysis of the procedural of Consumer
Loans and advance and performance of different loans and advance products of Trust Bank Limited.
To prepare this report both primary and secondary sources of data have been used. In this report first,
I have described the organizational overview of Trust Bank Limited to increase knowledge about
the bank. So, I have also included a brief overview of Trust bank, Khawja Gharib Newaz Avenue
Branch, Uttara, Dhaka. Then I have included an overall idea about Credit Department and credit risk
management practices in Trust Bank Limited. I have analyzed the performance of the Credit Risk
Management of Trust Bank to give a practical example. In the last phase after examining the overall
process and analyzing data, I gave a list of my findings that Trust Bank Limited is currently facing
which might be helpful to identify the challenges, thus reduce disadvantages and improve the services
very prudential for bank performance.
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1.0 Introduction
1.1 Background of the Study

The banking system plays a very important role in the economic life of the nation. The
health of the economy is closely related to the soundness of its banking system. In a
developing country like Bangladesh, the banking system as a whole plays a vital role in the
progress of economic development. A bank is just like a heart in the economic structure
and the capital provided by it is like blood in it. As long as blood is in circulation the organs
will remain sound and healthy. If the blood is not supplied to any organ then that part would
become useless. So, if the finance is not provided to the agriculture sector or industrial
sector, it will be destroyed Loan facility provided by banks works as an incentive to the
producer to increase the production. Banking is now an essential part of our economic
system. Modern trade and commerce would almost be impossible without the availability
of suitable banking services.
First of all, banking promotes savings. All manner of people, from the ordinary laborers
and workers to the rich landowners and businessmen, can keep their money safely in banks
and saving centers.
Secondly, banking promotes investments. Banks easily invest the money they get in the
industry, agriculture, and trade. They either invest it directly or advance loans to other
investors.
Thirdly, it is most through banks that foreign trade is carried on. Whether we export or
import, it is through banks that money is transferred from one country to another. For
example, bills of exchange and letters of credit are the regular ways banks use to transfer
money. Several recent studies, however, indicate that the banking sector plays a more
important role than it was believed earlier.
1.2 Objectives of the Study

The objectives of the report have been segmented into two parts
a) Primary Objective;
b) Secondary Objective
1.2.1 Primary Objective
The primary objective of this study is to familiarize me with the overall activities of the
Performance Evaluation of Credit Operation Systems maintained by Trust Bank Limited.
This report is to provide a general description of the initial and present status of Credit
Operations of Trust Bank Limited.
1.2.2 Secondary Objectives

The secondary objectives of the report are listed below


To analysis, the Lending procedures maintained by the TBL

To observe principal Lending activities of Trust Bank Ltd

To measure the actual position in classified Loan and provisions maintained by TBL
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
To understand the project evaluation technique of TBL. 

To understand the project evaluation technique of TBL. 

To identify problems in credit operations of Trust Bank Ltd

1.3 Scope of the Study

This internship report covers the overall credit handled by “Trust Bank Ltd.” Such as short-
term credit, long term credit, and consumer credit.
This report has been prepared through extensive discussion with bank employees and with
the customers. While preparing this report, I had a great opportunity to have an in-depth
knowledge of all the credit management activities practiced by the “Trust Bank Ltd.” It
also helped me to acquire a first-hand perspective of a leading private Bank in Bangladesh.
1.4 Methodology
The study is performed based on the information extracted from different sources. This
report is descriptive. The methodology followed is:
Data collection: Source of data for this report can be divided into two categories:
a) Primary Sources
b) Secondary Sources
1.4.1 Primary Sources
The primary data were collected through
 Face to Face conversation with the respective officers and staffs;
 My practical working experiences during the internship period;
 Interview of the officers and share of their personal working experiences;
 My observation.
1.4.2 Secondary Sources

The secondary sources of data are stated below
 Annual Report of TBL 2014-2018;
 Official website of TBL;
 Different guidelines of TBL Khawja Gharib Newaz Avenue Branch;
 Newspapers and relevant articles;
 The Internet was also used as a source of information for preparing the report.
1.5 Data Analysis

In the last part of my report that is in the performance evaluation part, I follow the
Year-to-Year Change Analysis and Ratio Analysis to analyze the performance of Trust
Bank Limited.
In this part, only secondary data used which is collected from the annual report and
prospectus of Trust Bank Limited.
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1.6 Limitations of the Study

From the beginning to the end, the study has been conducted to make it a complete and
truthful one. However, many problems appeared in the way of conducting the study.
During the study, it was not possible to visit the whole area covered by the bank
although the financial statements and other information regarding the study have been
considered.
The study considers the following limitations:
 Lack of experience because of it being my first internship period;
 Lack of in-depth knowledge and analytical ability for writing such a report;
 There was some lack of information on their website which created a
problem for me in preparing the report;
 All the branches of the sample bank were not physically visited;
 Non-availability of some latest and preceding data;
 One of the major limitations was the lack of required data and information
since the bank did not want to disclose some of their information because of
confidentiality.
I was placed in various departments within (3) months of time and working as a regular
employee. With all of this limitation, I tried my best to make this report as best as possible.
The readers are requested to consider these limitations while reading and justifying any
part of my study.
1.7 Acronyms
Following acronyms are frequently used in this report:
TBL – Trust Bank Limited
KGNA- Khawja Garib e Newaz Avenue Branch
AWT- Army Welfare Trust
CIB- Credit Information Bureau
SLA- Service Level Agreement
NPL- Non-Performing Loan
CLP-Credit Line Proposal
BCC- Branch Credit Committee
HOCC- Head Office Credit Committee
FSRP- Financial Sector Reform Project
LRA- Lending Risk Analysis
CRM- Credit Risk Management
CAR- Capital Adequacy Ratio
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CRRAR- Capital-to-Risk Weighted Assets Ratio

NIM- Net Interest Margin
ROA- Return on Asset
ROE- Return on Equity
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2.0 An Overview of Trust Bank Ltd. & Job

Experience
2.1 Organization Overview
Trust Bank Limited is a scheduled bank incorporated on 17 June 1999 under the Companies
Act 1994 as a public limited company by shares for carrying out all kinds of banking
activities. They received their Certificate of Commencement of Business on the same date.
Trust Bank Limited listed with Dhaka Stock Exchange on 25th September 2007 and
Chittagong Stock Exchange on 24th September 2007.
The bank sponsored by Army Welfare Trust (AWT), is the first of its kind in the country.
With the 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.
They gained success from the very beginning of their operation and were capable enough
to hold the success year after year. They gained success very early because they have
a very strong backup to provide them financial support and they are the Army
Welfare Trust. This bank is very much popular within the army community
because all the financial activities of the army are done by this bank. In recent days
the Trust Bank Ltd also gaining popularity in the general people and also for the business
people. In addition to ensuring quality customer services related to general banking
the bank also deals in Foreign Exchange transactions. In the mean-time, the bank has
extended credit facilities to almost all the sectors of the country’s economy. The bank
has plans to invest extensively in the country’s industrial and agricultural sectors in the
coming days.
It has also planned to promote the agro-based industries of the country. The bank has
already participated in a syndicated loan agreement with other banks to promote the textile
sectors of the country. Such participation would continue in the future for the greater
interest of the overall economy. Keeping in mind the client’s financial and banking needs
the bank is engaged in constantly improving its services to the clients and launching new
and innovative products to provide better services towards the fulfillment of the growing
demands of its customers.
The authorized capital of the bank is TK 10000 million and Paid-up Capital is 5569.66
million. The Army Welfare Trust (AWT) is the major shareholder bearing 51%.
2.2 Vision
The vision of Trust Bank Limited is building a long term sustainable financial institution
through financial inclusion and deliver optimum value to all stakeholders with the highest
level of compliance.
2.3 Mission
The missions of Trust Bank Limited are stated below
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 Long Term Sustainable Growth- diversified business with robust risk

management.
 Financial Inclusion- bring unbanked population into the banking network through
low cost and technology-based service delivery.
 Accountable to all stakeholders- customers, shareholders, employees &
regulators.
 Highest level of compliance and transparency at all levels of operation.
2.4 Different Departments

Trust Bank divided its whole banking system into 3 departments
a) General Banking
b) Credit Department
c) Foreign Exchange
Figure 2.4: Different Departments of TBL

(Source: TBL Official website)
2.5 Products and Services

The bank serves its huge clientele with a variety of services apart from the traditional
ones. Its continual improvement and introduction of new products and services has given
it an edge over the competitors
A list of products and services offered by Trust Bank Limited is stated below

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Retail
Banking
•Loan
General Products Islamic SME Corporate Mobile
Banking •Card Banking Banking Banking Banking
Services


2.6 Working Experience at Trust Bank Limited

Trust Bank Limited is a scheduled commercial bank established under the Bank
Companies Act, 1991, which obtained a license from Bangladesh Bank on July 15,
1999, and incorporated as a Public Limited Company under the Companies Act, 1994 in
Bangladesh on June 17, 1999.
Trust Bank Limited is one of the leading commercial banks
having a spread network of 113 branches across Bangladesh and plans to open a few more
branches to cover the important commercial areas. Being able to work in this organization
I find myself lucky. I got the opportunity to work with different departments in Khawja
Gharib Newaz Avenue Branch of Trust Bank Ltd. During the three months of my
internship, I was placed in the Khawja Gharib Newaz Avenue Branch under Mr. Shafiqul
Islam Manager, EVP, Trust Bank Ltd. I heavily enjoyed the working environment of this
office. The work experience gave me a good idea of the overall banking
system of Bangladesh and taught me professionalism at the workplace.
2.7 Job as an Intern

During my internship period at Trust Bank Ltd, I worked in different departments on a
rotation basis. At first, I was in the General banking section, then in the Retail Banking
Unit. So, it was a great experience for me to work in different departments.
2.7.1 General Banking Division

In the General banking department, I did different jobs as per the official’s requirement.
Though I was not assigned for specific responsibilities, I did customer management related
jobs. My job descriptions are mentioned below:
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 Helping Clients to fill up account opening and pay order forms;

 Provide customers product-related information;
 Provide assistance support according to the needs of the customers.
2.7.2 Retail Banking Division
During my internship period, I got an opportunity to work with the Retail Banking Unit of
Trust Bank Ltd. There I acquired knowledge about their marketing strategy and loan
disbursement process. According to their time to time requirements I was assigned for
different jobs
 Completing folders with all necessary documents for clients;
 Making Customer Sanction Advice for disbursing loan amount, after getting Head
Office approval;
 Preparing Head Office forwarding for loan approval;
 Fill up CIB (Credit Information Bureau) form for clients and sent them to
Bangladesh Bank to check whether the client has any other loan with any other
bank or not.
During the internship period, the employees of TBL were very supportive & always helped
me to learn., but I couldn't know about all the departments within 3 months.
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3.0 Theoretical Framework
3.1 Risk Management

Risk management refers to the practice of identifying potential risks in advance, analyzing
them, and taking precautionary steps to reduce/curb the risk.
In short, risk management refers to the practice of identifying potential risks in advance,
analyzing them, and taking precautionary steps to reduce/curb the risk. In the world of
finance, when an entity makes an investment decision, it exposes itself to several financial
risks. The quantum of such risks depends on the type of financial instrument. These
financial risks might be in the form of high inflation, volatility in capital markets, recession,
bankruptcy, etc.
For example, a fixed deposit is considered a less risky investment. On the other hand, equity
investment is considered a risky venture.
3.2 Risk Management Process

The six steps of the risk management process: identity, analyze and prioritize, plan and
schedule, track and report, control, and learn has been illustrated through the following
diagram. It is important to understand that the process of managing each risk goes through
all of these steps at least once and often cycles through numerous times. Also, each risk
has its timeline, so multiple risks might be in each step at any point in time.
Risk
Identification
Learn Analyze &

Priortize
Control Plan & Schedule
Track & Report
Figure 3.2: Risk Management Process

[Source: Financial Risk Management, Frank Fabozzi]
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A brief introduction of the risk management process is stated below;
1. Identifying Risk – Risk identification allows individuals to identify risks so that

the operations staff becomes aware of potential problems. Not only should risk
identification be undertaken as early as possible, but it also should be repeated
frequently.
2. Analyze and Prioritize – Risk analysis transforms the estimates or data about
specific risks that developed during risk identification into a consistent form that
can be used to make decisions around prioritization. Risk prioritization enables
operations to commit resources to manage the most important risks.
3. Plan and Schedule – Risk planning takes the information obtained from risk
analysis and uses it to formulate strategies, plans, change requests, and actions. Risk
scheduling ensures that these plans are approved and then incorporated into the
standard day-to-day processes and infrastructure.
4. Track and Report – Risk tracking monitors the status of specific risks and the
progress in their respective action plans. Risk tracking also includes monitoring the
probability, impact, exposure, and other measures of risk for changes that could
alter priority or risk plans and ultimately the availability of the service. Risk
reporting ensures that the operations staff, service manager, and other stakeholders
are aware of the status of top risks and the plans to manage them.
5. Control – Risk control is the process of executing risk action plans and their
associated status reporting. Risk control also includes initiating change control
requests when changes in risk status or risk plans could affect the availability of the
service or service level agreement (SLA).
6. Learn – Risk learning formalizes the lessons learned and uses tools to capture,
categorize, and index that knowledge in a reusable form that can be shared with others.
3.3 Credit Risk

Credit risk refers to the risk that a borrower will default on any type of debt by failing to
make payments which the entity is obligated to do. The risks are primarily that of the lender
and include lost principal and interest, disruption to cash flows, and increased collection
costs. The loss may be complete or partial and can arise in many circumstances. Credit risk
covers the inability of a borrower or counter-party to honor commitments under an
agreement and any such failures, which have an adverse impact on the financial
performance of the Bank. The Bank is exposed to credit risk through lending and capital
market activities.
To reduce the lender’s credit risk, the lender may perform a credit check on the prospective
borrower, may require the borrower to take out appropriate insurance, such as mortgage
insurance, or seek security or guarantees of third parties, besides other possible strategies.
In general, the higher the risk, the higher will be the interest rate that the debtor will be
asked to pay on the debt.
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3.4 Types of Credit Risk

Credit risks are classified into the following types-
1. Credit default risk – The risk of loss arising from a debtor being unlikely to
pay its loan obligations in full or the debtor is more than 90 days past due on any
material credit obligation. Default risk may impact all credit-sensitive
transactions, including loans, securities, and derivatives.
2. Concentration risk – The risk associated with any single exposure or group
of exposures with the potential to produce large enough losses to threaten a
bank’s core operations. It may arise in the form of single-name concentration or
industry concentration.
3. Country risk – The risk of loss arising from a sovereign state freezing foreign
currency payments (transfer/conversion risk) or when it defaults on its obligations
(sovereign risk)
3.5 Credit Analysis

When a customer requests a loan, bank officers analyses all available information to
determine whether the loan meets the bank’s risk-return objectives. Credit analysis is
essentially a default risk analysis in which a loan officer attempts to evaluate a borrower’s
ability and willingness to repay. The banker has to identify three distinct areas of
commercial risk analysis related to the following questions
 Is the borrower Creditworthy?
 Can the loan agreement be properly structured and documented?
 Can the lender perfect its claims against the assets or earnings of the
customer that may be pledged as collateral?
Bankers look into key risk factors or qualitative analysis which has been classified
according to the five Cs of credit
1. Character:
Character refers to the borrower’s honesty and trustworthiness. A banker must
assess the borrower’s integrity and subsequent intent to repay. If there are any
serious doubts, the loan should be rejected.
2. Capital:
Capital refers to the borrower’s wealth position measured by financial soundness
and market standing. It helps cushion loses and reduces the likelihood of
bankruptcy.
3. Capacity:
Capacity involves both borrower’s legal standing and management’s expertise in
maintaining operations so the firm or individual can repay its debt obligations.
Under capacity, an individual must be able to generate income to repay the cash.
4. Condition:
A condition refers to the economic environment or industry-specific supply,
production, and distribution factors influencing a firm’s operations. Repayment
sources of cash often vary with the business cycle or consumer demand.
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5. Collateral:
Collateral is the lender’s secondary source of repayment or security in the case of
default. Having an asset that the bank can seize and liquidate when a borrower
defaults reduce loss, but does not justify lending proceeds when the credit
decision is originally made.
6. Cash:
The feature of any loan application centers on if the borrower has the ability to
generate enough cash in the form of cash flow to repay the loan.
3.6 Credit Risk Management

While financial institutions have faced difficulties over the years for a multitude of reasons,
the major cause of serious banking problems continues to be directly related to lack of
credit standards for borrowers and counterparties, poor portfolio risk management, or a
lack of attention to changes in the economy or other circumstances that can lead to a
deterioration in the credit standing of a bank’s counterparties.
Credit risk is most simply defined as the potential that a bank borrower or counterparty
will fail to meet its obligations in accordance with agreed terms. The goal of credit risk
management is to maximize a bank’s risk-adjusted rate of return by maintaining credit risk
exposure within acceptable parameters. Banks need to manage the credit risk inherent in
the entire portfolio as well as the risk in individual credits or transactions. Banks should
also consider the relationship between credit risk and other risks. The effective
management of credit risk is a critical component of a comprehensive approach to risk
management and essential to the long-term success of any banking organization.
The sound practices set out in the document specially address the following areas:
 Establishing an appropriate credit risk environment;
 Operating under a sound credit granting process;
 Maintaining an appropriate credit administration, measurement, and monitoring
process ensuring adequate controls over credit risk.
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A flowchart of credit lending procedure followed by the Banks and Financial Institutions
of Bangladesh is shown below
Evaluating the
Customer Loan Project
Borrower Selection
Application 1.By Branch
2. By 3rd Party
Head Office Head Office Sanction by

Scrutinization Approval Branch
Supervision and
Documentation Monitoring
Recovery of Loan
Figure 3.6: Credit Lending Procedure

[Source: Bangladesh Bank CRM Guideline]
The above-shown flowchart is more or less followed by all the banks and financial
institutions of Bangladesh while disbursing a loan after receiving loan seeking
application by the applicant.
3.7 Loan Monitoring, Control of Securities and

Compliance
3.7.1 Loan Monitoring
The monitoring starts when a copy of the sanction or approval letter is received in this
connection. This extensive measure is taken to strictly comply with the terms and
conditions stipulated in the sanction advice.
Besides the monitoring and follow-up of the existing, loan accounts need to be expedited
with a view to finding out timely measures if required any.
Steps -1
 Monitoring starts at the time of receiving an application from our valued client.
 After receiving the application branch should check whether the purpose is
clearly mentioned or not on the application
 Then obtain all the relevant documents of the loan that would serve the client’s
purpose as per the process guideline.
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Steps -2
 Examine all documents to check their authenticity.
 Immediately contact with the initiator or branches if further information is
needed
 After getting all the information and charged documents are in order, an
approval process from the competent authority is needed
3.7.2 Control of Securities and Compliance
Control means checking up the result whether there is any deviation of actual outcome
from the standard result which has been set up earlier and taking necessary corrective
actions. For controlling the security and compliance of the same, the bank normally uses a
loan documentation checklist which is the actual parameter of checking the necessary
documents.
3.8 Non-Performing Loan

All Loans, Advances, Bills Discounted, etc. which are not paid or renewed at maturity date
are all to be treated as “Non-Performing Loan”. If partial payments are made to a loan
which is in “NPL”, the unpaid amount to be remaining in “NPL” until fully liquidated.
When the Bank is notified that a borrower who has a “Demand Loan” is deceased or when
the Bank demands payment from a “Demand Loan” borrower, the loan must be placed in
the “NPL” until paid. When an agreement is made between the borrower and the Bank,
specifying that reductions will be made on a “Demand Loan” or “Term Loan” at specified
times, and if reductions are not made accordingly, the loan may be considered as “NPL”
The Non-Performing Loan account will not be treated as classified account as substandard,
doubtful, or bad & loss until and unless the loan is classified as per CL circulars of
Bangladesh Bank.
“All classified loans are Non-Performing Loans (NPL) but All Non-Performing Loans
(NPL) are not classified Loans.”
3.9 Loan Classification

Loan classification is a process by which the risk or loss potential associated with the loan
accounts of a bank on a particular date is identified and quantified to measure accurately
the level of reserves to be maintained by the bank to provide for the probable loss on
account those risky loans. All types of loans of a bank fall into the following four sections
 Unclassified: Repayment is regular;
 Substandard: Repayment is irregular but has a reasonable prospect of
improvement;
 Doubtful Debt: Unlikely to be repaid but special collection efforts may result in
partial recovery;
 Bad/Loss Debt: The loan which has very little chance of recovery.
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3.9.1 Loan Classification Procedure

The loan classification procedure for all types of loan is governed by the guidelines
contained in BRPD Circular no 16 dated 06.12.98 issued by Bangladesh Bank and
subsequently revised partially through BRPD Circular no 9 and 10 dated 14.05.2001.
According to this circular If any borrower fails to repay his amount or installment within
the following time period then it will fall under the following classification status
Types of Loan
Classification Agricultural/short- Continuous Demand Loan Continuous Continuous
term loans Loan Loan up to Loan above
5 years 5 years
Unclassified 12 months or below Less than 3 Less than 3 Less than 6 Less than
months months months 12 months
Substandard More than 12 More than 6 More than 6 12 months 18 months
months and less months and less months and less or more or more
than 36 months than 12 months than 12 months
Doubtful Debt More than 36 6 months or 6 months or 12 months 18 months
months and less more but less more but less or more or more
than 60 months than 12 months than 12 months
Bad Debt More than 60 12 months or 12 months or 18 months 24 months
months more more or more or more
Table 3.9.1: Loan Classification Status
(Source: BRPD circular no. 16 dated 06.12.1998 and no.9 & 10 dated)
3.9.2 Provision
If any borrower fails to pay his loan, the account is classified as Standard, Doubtful,
Bad/Loss depending on the period of non-payment. At that time banks required to make
provisions and then a proportion of net profit transfers to the provision.
As per BRPD circular no16, 1998 of Bangladesh Bank, the provisioning requirement for
classified loans are given below
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Types of Classification Provision Requirement

Agricultural/Short-Term Loans
Unclassified, Substandard, Doubtful 5%
Bad/Loss 100%
All other Loans
Unclassified 1%
Substandard 20%
Doubtful 50%
Bad/Loss 100%
Table 3.9.2: Provision Requirement of different Loan Classification

(Source: BRPD circular no.16 dated 06.12.1998)
3.10 Guideline for Loan and Advances Sanction

The followings are the main guidelines for sanctioning of loans and advances:
i. Proposals for loans and other facilities in the name of clients are generally initiated
from the branches of the bank. Proposals are also initiated from the Corporate
Marketing Division of Head Office
ii. All loan proposals must be sent to the Credit Division at Head Office in proper
Credit Line Proposal (CLP), giving the required information, evidenced by
documents. In the case of industrial loan proposals, a proper feasibility report must
accompany CLP. In the case of Working Capital to industrial clients, a full work-
sheet showing the working capital requirement of the industry must accompany the
CLP
iii. Branches shall send proposals to Head Office within the lending ceiling of the
branch, which is determined by its deposit position and manpower capacity.
Generally, Branches shall end only up to 70% of their total deposit
iv. All loan proposals must be discussed at Branch Credit Committee (BCC) before
they are forwarded to Head Office and shall bear signatures of all members of BCC
v. Before sending any proposal for any facility the following additional conditions
must be fully satisfied by the branches and Head Office Credit Committee (HOCC)
must also see that these conditions have been fulfilled
 Report from all other banks about liability situation of the proposed
borrower and the report must be satisfactory;
 No Objection Certificate from the concerned bank/banks should be obtain
ed if the borrower is in debt with those bank/banks;
 Report from Credit Information Bureau of Bangladesh Bank;
 Copies of statements of all types of accounts, i.e., C.C.(Hypo),
C.C.(Pledge), and Current Accounts maintained by the borrowers shall
accompany CLP and will be critically examined to determine the behavior
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of the accounts and volume of business to justify the quantum of proposed

loan;
 In case of proposals for Tk. 10.00 lac and above, the site inspection report
of a Senior Officer from the Head Office should be examined
before sanction/renewal.
vi. Loan supervision capacity of the branch proposing the loan and their capability to
manage crisis should be also taken into account by HOCC
vii. Usual lending risks must be analyzed by the branch before initiating the proposal
and HOCC shall verify these risks and put them to tests
viii. Head Office shall sanction or place proposals to the Board for sanction of loans
strictly if it meets the criteria under credit policy
ix. Letters issued from Head Office sanctioning/approving loans and advances must
clearly state all the terms and conditions in detail. The sanction letters shall state:
 Limit of loans/advances/facilities;
 Nature of loans/advances;
 The validity period of limit for utilization;
 Rate of interest/commission/fees on loans/advances/facilities;
 Margins to be held;
 Details of Securities to be obtained against the loans/advances/facilities and
instructions about creating legal charges on the securities.
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4.0 Credit Overview of Trust Bank Ltd.
4.1 Retail Products or Loans of TBL

A bank is an institution that creates money by money. Only collecting deposits is not the
task of a bank. They have to provide different loans to the customer. And in this way Bank
earns a profit. As a private commercial bank, Trust Bank Ltd has different types of retail
products. These Products create a center of attention of loans among the general customer.
Trust Bank provides Special offers for Bangladesh Army from its retail products. Retail
product given by Trust Bank Ltd is given below
 Car Loan
 House Hold Durable Loan
 Education Loan
 Doctor’s Loan
 Advance against Salary
 Any Purpose Loan
 CNG Conversion Loan
 Loan against TMDS
4.1.1 Loan Products
 Unsecured Loan
Personal Loan, Loan against Salary, Education Loan, Doctor’s Loan, Trust Digital
Loan. Any Purpose Loan for Defense Officers, Motor Cycle Loan for Defense
Personnel, Marriage Loan for Defense Personnel, House Hold Durable Loan for
Defense Officers, CNG Conversion Loan Defense Officers, OD against Salary for
Defense Officers, RRDH for JCO‟s and Others.
 Secured Loan
Car Loan, Apon Nibash Loan (House Finance), HBL against Registered Mortgage
for Defense Officers, Army Officers Housing Loan Scheme, Trust Thikana- Home
Loan, Loan against Commutation Benefits for Defense Personnel.
4.2 Credit Card

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 of Account information such as account balance checkup through mini-
statements and cash withdrawals. Trust Bank has successfully introduced Visa Credit
Cards to serve its existing and potential valued customers. Credits cards can now be used
at shops & restaurants all around Bangladesh and even internationally.
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Trust Bank has put emphasis on its Credit Card services. Already a Credit Card Policy has
been designed and in near future, the bank will come up with attractive features to provide
multi-level benefits to Card Holders.
4.3 Sectorial Credit Disbursement

In terms of the sectoral composition of credit of Trust Bank, the Construction with Housing
sector received the largest amount of credit (16.48%). Followed by RMG and Textiles
(13.82%), Manufacturing and Extractive Industries (11.15%), Trade and Commerce
(9.18%), Service Industries (7.92%), Food and Allied Industries (6.16%), Power and Gas
(3.42%), Cement and Ceramic Industries (2.22%).
Sector Wise Credit Disbursement

Construction with Housing
5% 3% RMG and Textiles

9% 23%
Manufacturing and Extractive

11% Industries
Trade and Commerce
13% 20%
Service Industries
16%
Food and Allied Industries
Figure 4.3: Sectorial Credit Disbursement

(Source: TBL Annual Report 2018)
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5.0 Credit Approval Process of Trust Bank Ltd.
5.1 Borrower Selection Process on TBL

Lending means deployment of credit and all loans contain some degree of risk involved in
the whole process. A borrower is a party in a loan agreement that receives money or other
instruments from a lender and promises to repay the lender in accordance with agreed
terms. So, the selection of borrowers is an important component of the credit-granting
process. Professional loan officers analyze financial and non-financial information of
proposed borrowers and set preferred levels of collateral and covenants. Borrower selection
is associated with the amount of information examined, lenders' risk preferences, and years
of lending experience.
So, borrower selection is very much important to minimize the risks of lending as wrong
borrower selection may lead to unexpected situations among the Bank, the depositors, and
the borrower based upon trust.
5.2 Credit Analysis Process of Trust Bank Limited

Credit Analysis is an integral part of the lending process in Trust Bank Ltd. Credit analysis
is of utmost importance for the lending process to be successful. Proper credit analysis
helps to avoid risks in the lending process and brings transparency. Credit analysis is
generally done at the branch level of the lending process and the results and findings are
evaluated in the head office.
Trust Bank Limited uses multiple methods or techniques to assess the prospective borrower
as well as the project in question. These techniques include analysis of
1. CIB Report;
2. Appraisal of Project Feasibility;
3. Lending Risk Analysis;
4. Financial Spreadsheet Analysis (“Y” score and “Z” score)
5.2.1 Evaluation of CIB Report
Bangladesh Bank provides Credit Information Bureau (CIB) Report to banks and other
financial institutions. It contains the following information
 Debtor/borrower information (outstanding loan balance and loan classification
status), owner’s information;
 Group/Related business information;
 Credit Exposure Matrix/financial information
 Third-party guarantor’s information.
Trust Bank uses CIB Report as part of its credit appraisal procedure. It serves as a useful
tool to assess borrower’s credit standing and loan repayment behavior.
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5.2.2 Analysis of Project Feasibility

In order to obtain a credit, the prospective borrower has to apply through a request for a
credit limit form in the format provided by Prime Bank. This form, in effect, serves as a
project feasibility report. It covers the following aspects of the project
 Identification of the Project and the Promoters;
 Project Organization and Management;
 Technical & Marketing Aspects of the Project;
 Project costs and Financial Aspects of the Project i.e. BEP & Financial Ratio
Analysis;
 Socio-Economic aspects of the project.
5.2.3 Lending Risk Analysis

Lending comprises a very large portion of a Bank’s total assets and forms the backbone of
the bank. Interest in lending constitutes the highest proportion of the income of a bank. As
such, credit quality remains the prime indicator of a bank’s success. The good lending
practice is very important for the profitability and success of a bank.
The Financial Sector Reform Project (FSRP) designed a Lending Risk Analysis (LRA)
package which provides a systematic procedure for analyzing and quantifying the potential
credit risk. Bangladesh Bank has made it mandatory for Commercial Banks to use Lending
Risk Analysis for evaluating credit proposals amounting to TK 1.00 crore and
above. Lending Risk Analysis has divided the various risks into two groups namely,
Business Risk and Security Risk
1) Business Risk
a) Industry Risk
i) Supply Risk
ii) Sales Risk
b) Company Risk
i) Company Position Risk
 Performance Risk
 Resilience Risk
ii) Management Risk
 Management Competence Risk
 Management Integrity Risk
2) Security Risk
a) Security Control Risk
b) Security Cover Risk
5.3 The Lending Process

The lending procedure starts with building up a relationship with customers through
account opening. The stages of credit approval are done both at the branches and the Head
Office levels.
The lending procedure as observed in Trust Bank Ltd. is described below in sequential
order.
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5.3.1 Application from the Credit Applicant

A loan procedure formally starts with a loan application from a client who must have an
account with the Bank. At first, it starts at the branch level. The branch receives an
application from the client for a loan facility. In the application, the client mentions what
type of credit facility he/she wants from the bank including his/her personal information
and business information. The branch Manager or the Officer-in-charge of the credit
department conducts the initial interview with the customer.
5.3.2 Obtaining the CIB Report
After receiving the loan application from the client, the bank sends a letter to the Credit
Information Bureau of Bangladesh Bank for obtaining a credit inquiry report of the
customer. This report is called the CIB (Credit Information Bureau) report.
5.3.3 Collection of Documents

If Bangladesh Bank sends a positive CIB report on that particular borrower and if the Bank
thinks the prospective borrower to be a good one, then the bank scrutinizes the documents
 In the case of the corporate client, financial documents of the company for the last
three to five years. If the company is a new one, projected financial data for the
same duration is required;
 The personal net worth of the borrower(s);
 In this stage, the bank will ensure that the documents are properly filled in and duly
signed. Credit-in-charge of the relevant branch is responsible for enquiring about
the ins
and outs of the customer’s business by discussing it with them.
5.3.4 Scrutinizing Documents
Bank officials of the credit department inspect the project for which the loan is applied.
Here project existence, its distance from the bank, monitoring cost and possibilities,
etc. are examined. If the proposed amount exceeds Tk. 10.00 lac, a Senior Officer from the
Head Office performs an on-site inspection of the project.
5.3.5 Analysis of Collected Information

Any loan proposal needs to be evaluated on the basis of financial information provided by
the loan applicant. Financial spreadsheet analysis which consists of a series of quantitative
techniques is employed to analyze the risks associated with a particular loan and to judge
the financial soundness and worthiness of the borrower. Besides, Lending Risk Analysis is
also undertaken by the bank to measure the borrower’s ability to pay considering various
risks associated with the loan
5.3.6 Legal Opinion

Obtaining legal opinion on the collateral provided by the applicant, whether those are
properly submitted and are regular and up-to-date. Else, those documents will be asked to
regularize by the applicant.
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5.3.7 Credit Proposal

The branch starts processing the loan at this stage. Based on the analysis (credit analysis)
done by the branch, the branch prepares a loan proposal. The proposal contains the
following important and relevant information
 Name of the borrower;
 Nature of credit;
 Purpose of credit;
 The extent of credit;
 Collateral Margin;
 Rate of interest;
 Repayment schedule;
 Validity etc.
5.3.8 Collection of Charged Documents

After issuing the sanction advice, the bank collects necessary charge documents. Charge
documents vary on the basis of types of facilities, types of collateral, etc.
5.3.9 Collection of Charged Documents
Finally, the loan is disbursed by the branch through a loan account in the name of the
borrower, and monitoring of the loan starts formally.
5.4 Credit Approval Process

The process which Trust Bank Limited goes through for the approval of credit are stated
below-
5.4.1 Pre-Approval Stage at Branch

The credit proposals are generally routed through the Branches. The Loan Processing
Department at the branch level prepares the Credit Proposals through necessary evaluation
and analysis by fulfilling TBL‟s lending criteria, ensuring perfection of the security for the
loans, and to provide all information required on the creditworthiness of the clients.
Proposals, which do not meet TBL’s lending criteria, are not entertained generally without
particular merit and justification of the case. The credit proposals are signed by the Chief
Manager and the departmental head of credit. Then, the Credit Proposals with a specific
recommendation by the Branch are sent to the Head Office addressing Credit Risk
Management (CRM) Division for the pre-sanction evaluation and subsequent approval.
5.4.2 Approval Process at Head Office

Credit Risk Management (CRM) Division consists of Corporate Credit Unit, Small &
Medium Enterprise Department & Retail Banking Unit for processing & approval of credit
facilities matching with the requirement:
Upon receiving credit proposals from the branches, the respective department processes
the proposals and makes in-depth analysis taking different risk factors into consideration
for approval or rejection. It takes all the necessary measures to ensure quality assets. The
respective department finds out all the positive and negative sides of each credit proposal
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recommended by the branch credit officers or relationship managers. This department

ensures that the proposal has been analyzed as well as prepared complying all the necessary
rules, regulations, circulars, guidelines and recommendation has been made in conformity
with the Credit Policy, Guidelines and Credit Norm of our Bank, Bangladesh Bank, and
any other agency. It also ensures that the recommendation falls under the purview of the
bank’s lending cap, industry preference, liquidity preference, tenure preference, and other
considerable factors. If the result of the analysis is found to be very satisfactory, then a
memo on the proposals is prepared for approval from the delegated body with the opinion
of the department.
Upon the recommendation of the respective department, the proposal is placed to the
competent delegated authority as per discretionary power viz. Head of CRM, Deputy
Managing Director, Managing Director, the Executive Committee of the Board of
Directors, or the Board of Directors for final approval.
Upon approval as per delegation, Sanction Advice is prepared to stipulate all the standard
terms and conditions to the respective branches and the copy is forwarded to the
Monitoring & Control Department.
5.5 Conveying Credit Rejection

In the case of all borrowers seeking loans, the bank would convey in writing, the main
reason which, in the opinion of the bank after due consideration, has led to a rejection of
the loan applications. In case the proposal does not meet the internal risk parameters of the
bank, the borrower would be intimated accordingly.
5.6 Loan Applications and Appraisal under

Syndication
In the case of lending under a syndication arrangement, the bank would endeavor to evolve
procedures to complete appraisal of proposals in a time-bound manner to the extent
feasible, and communicate its decisions on financing or otherwise within a reasonable time,
in coordination with other members of the syndicate.
5.7 Disbursement of Loans including changes in terms

and conditions
The bank would ensure timely disbursement of loans sanctioned in conformity with the
terms and conditions governing such sanctions. It would give notice of any change in the
terms and conditions including interest rates, service charges, etc. Terms and conditions
are revised as per prior agreement with the customer, the process for which is covered in
the sanction letter duly accepted by the customer on the loan agreement.
5.8 Conveying Credit limit and terms& Conditions

Loan closings represent the end of an approval process and the beginning of a relationship
process, which involves many different activities on the part of borrower and lender, which
include, among other processes, repayment, monitoring, and possibly collection activity.
All new loans and facilities must be evidenced by a signed agreement which is a contract
between the lender and the borrower. A borrower should know precisely what he is
receiving; how the loan is structured; how the bank intends to monitor and how it will
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enforce any special terms and conditions of the contract. Also, under the terms of the loan
agreement, the borrower acknowledges its responsibility to promptly advise the bank about
any inability to repay contractually and also of any material changes in circumstances that
could give rise to an event of default in an agreement.
5.9 Creation of charges on Securities and its Implications
For the sound lending procedure, the following points should be kept in view:
a) Judicious selection of Customers
b) Purpose
c) Safety
d) Security
e) Liquidity
f) Adequate Return (Profitability)
g) Supervision
h) National/ Social Interest
i) Credit Policy of Bangladesh
It is to be remembered that the Bank is the custodian of public money and as such we must
be judicious, careful, and selective while lending out the depositor’s money to ensure
timely recovery. The deciding factors for recovery of loans are a selection of the right type
of borrowers, end-use of credits, and effective follow-up and proper supervision.
5.9.1 Securities
Securities may primarily be divided into two categories as under;
 Primary Security
 Collateral Security
The assets created by the borrower from the credit facilities granted by the bank form the
primary security for the bank advance as a matter of rule. The bank invariably obtains a
charge over those assets. Similarly, other assets on which the advance is primarily based
even if it is not created from the credit facilities granted by the bank will also be taken as
primary security.
In some cases where primary security is not considered adequate or the charge on the
security is open the bank may insist on additional security to collaterally secure advances
granted by it. Such securities are termed as collateral securities. Collateral security may
either be tangible or third- party guarantees may also be accepted.
Note: Floating assets are not permanent and these are ever-changing assets that change
depending on the business e.g. cash, accounts receivable, notes receivable, finished
products, goods in the process of manufacturing, raw material, supplies, etc. Fixed assets
are those which are fixed in nature like plant/factory, machinery, building, land, etc.
(Fiedler)
5.9.2 Charging of Securities
While talking about charging securities, we basically mean charging tangible securities.
Tangible security is something that can be realized from the sale or transfer. Shares,
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inventory, land, machinery, furniture, vehicles, life policies, bills, savings instruments, etc.
are examples of tangible securities.
Security is obtained by the bank as an additional cover against default by the borrower in
repayment of the bank's dues. Charging of security means making such security available
to the bank and involves certain formalities. Charging should be legal and perfect so that it
is possible to realize the security if such a need arises. In order to perfect a claim on a
tangible asset offered as security, we need to establish Bank’s charge by obtaining proper
charge documents duly executed.
For example, if a borrower offers a pledge of his inventory as security against a loan, we
need to obtain a letter of pledge executed by the borrower. So, a pledge is a kind of charge
applied to certain kinds of assets offered as security. Similarly, there are other modes of
charging securities, applicable to different kinds of securities.
There are 7 different modes of charging security as under:
1. Pledge:
Pledge is a bailment of goods as security for payment of debt or performance of a
promise. In another definition it says that bailment is the delivery of goods by one
person to another for some purpose, under a contract that goods shall, when the
purpose is according, be returned or otherwise disposed of according to the
directions of the person delivering them.
So, a pledge may be in respect of goods, stocks & shares, documents of title to
goods, or any other moveable assets. Possession of goods is important in a contract
of pledge. A pledge is said to be created when the goods are handed over by the
borrower to the lender with the intention of their being treated as a security for the
repayment of the loan.
The pledge has a special interest in the goods pledged and has a right to retain the
goods until his claims are fully satisfied. If the borrower is in default in payment of
the debt against which goods are pledged, the lender may sell the goods held under
pledge as security on giving the borrower reasonable notice of sale. The document
executed to establish a contract of the pledge is called a Letter of Pledge.
2. Hypothecation:
Hypothecation is a charge against property for an amount of debt where neither
ownership nor possession is passed to the creditor.
In hypothecation, the goods remain in the possession of the borrower and are
equitably charged to the lender under a document signed by the borrower. The
borrower binds himself under hypothecation agreement to give possession of the
goods to the lender when called upon to do so. After possession is handed over to
the lender, the charge is converted from hypothecation to pledge. Hypothecation
being only an equitable charge on moveable assets without possession, the facility
is granted only to parties of undoubted means with the highest-integrity. However,
in the case of hypothecation advance to a limited company, the charge has to be
compulsorily filed for registration with the Registrar of Joint Stock Companies
under the relevant section of the Companies Act, 1994. However, due to the
underlying risks of making advances purely on a hypothecation basis, lenders
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usually prefer to obtain adequate collateral security in addition to the hypothecated

goods or assets
3. Mortgages:
A mortgage is the transfer of an interest in specific immovable property for the
purpose of securing the payments of money advanced by way of loan, an existing
or future debt, or performance of an engagement which may give rise to a pecuniary
liability. The transferor is called a mortgagor, the transferee a mortgagee, and the
principal money and interest of which payment is secured for the time being arc
called the mortgage money, and the instrument by which the transfer is effected is
called a mortgage deed.
4. Registered Mortgage:
When a mortgagor executes a deed of mortgage in favor of a lender and the deed is
registered with Sub-Registrar's office, the mortgage thus created is called a
registered mortgage.
Banks usually prefer a registered mortgage as the encumbrance on the property is
registered and it will come in the notice if a search is made before anyone considers
accepting a transfer of right/interest in the property. Notwithstanding, any
subsequent mortgage or sale transaction registered will be effective subject to
redemption of the charge by the first mortgagee.
The mortgagor has a right of redemption on payment of the debt after it has become
due. However, a mortgage does not automatically give the right to sell the property
to the Bank in case of a borrower’s default. It is given through the Irrevocable
General Power of Attorney executed by the owner.
5. Assignment:
Assignment means the transfer of a right, property, or debt by one person to another
person. The person transferring the right is known as the assignor and the person to
whom the right is transferred is known as the assignee. The assignment may be
legal in which case the assignor must give written notice of the assignment stating
the name and address of the assignee to the debtor or may he equitable where no
such notice is sent. This form of charge is generally adopted for charging of book
debts, monies due from Government (supply bills) and life insurance policies, etc.
Banks generally go in for legal assignments and insist on obtaining an
acknowledgment of assignments from the debtor.
6. Set-Off:
Set-off is the right of combining of accounts between a debtor and a creditor so as
to arrive at a net balance payable to one or the other. Set off in relation to the bank
means his right to apply the credit balance in the customer's account towards the
liquidation of debit balance in another account of the customer provided both the
accounts are maintained by him in the same capacity. The right may not be
considered as absolute and the bank may be required to give a notice for exercising
his right to set-off. The right of set-off can be applied by the bank only if the
following conditions are met:
(a) The liability of the borrower is for a sum which is certain,
(b) The repayment of debt is due,
(c) Both the accounts are held by the customer in the same capacity.
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The right of set-off should, however, not be exercised arbitrarily, and notice for
combining the accounts must invariably be served by the bank on the customer.
7. Lien:
Lien means the right of the creditor to retain the goods or securities of the debtor,
which are in his possession until the debt due from the debtor is paid. It does not
require any specific agreement to support this right. The lien may be general which
confers the right to retain any goods for a general balance of the account or it may
be a particular lien where goods can be retained by the creditor for a particular debt
only. The person exercising general lien has only a right to retain the goods till the
dues are paid and may not be able to sell those goods.
The right of the banks to the general lien is, however, considered on a different
footing and banks have a general lien on all securities deposited with them as
bankers by a customer unless there be an express contract or circumstances that
show an implied contract, inconsistent with the lien. A banker’s lien is thus more
than a general lien, it is an implied pledge. The lien can be exercised on bills and
cheque deposited for collection, dividend warrants received by the banker as a
mandate from the customer, securities left with the banker after a particular loan
has been paid. The banker’s lien, however, does not extend to:
(i) Securities or valuables lying in the locker rented to the customer.
(ii) Securities deposited upon a particular trust.
(iii) Securities deposited to secure a specific loan.
No specific letter of lien agreement is necessary as the banks enjoy the right of lien
under the Contract Act. However, in some cases, the bank may obtain a specific
letter of lien so that the borrower is not able to contend later that the securities were
deposited by him for a specific purpose inconsistent with the lien.
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6.0 Evaluation of Credit Performance of TBL
6.1 Quantitative Analysis

Under credit analysis Bank also does Quantitative analysis which refers to the analysis of
financial statement ratios to know the past performance of a company.
Mainly the analysis has been used for expressing the relationship among selected items of
financial statement data, and this relationship is expressed in terms of a percentage, a rate,
or a simple proportion.
Single ratio analysis cannot provide very meaningful interpretations so in this report I have
calculated ratios over the five periods of time and are then compared to the base year with
TBL.
To understand the present situation of TBL I tried to describe some important ratios from
the last five-year data that are illustrated below with the graphical presentation.
6.1.1 Current Ratio

One of the best-known and most widely used short-term liquidity ratios is the current
ratio. The current ratio is defined as:
Current ratio = Current assets / Current liabilities
Year 2014 2015 2016 2017 2018
Current Ratio 43.44% 43.33% 49.56% 29.38% 24.11%
Current Ratio
49.56%
43.44% 43.33%
29.38%
24.11%
2014 2015 2016 2017 2018
Figure 6.1.1: Current Ratio of TBL (2014-2018)
A ratio that measures a bank's ability to pay short-term obligations called the Current
Ratio. The current ratio is an excellent diagnostic tool as it measures whether or not a
business has enough resources to pay its bills over the next 12 months. This graph
shows the current ratio of 2014,2015, 2017, 2018 is less than in 2016. It is bad for TBL.
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Because it indicates that the bank’s current liability was rising faster than the current
asset.
6.1.2 Capital Adequacy Ratio
The capital adequacy ratio (CAR) is a measurement of a bank's available capital expressed
as a percentage of a bank's risk-weighted credit exposures. The capital adequacy ratio, also
known as capital-to-risk weighted assets ratio (CRAR), is used to protect depositors and
promote the stability and efficiency of financial systems around the world. The formula of
Capital Adequacy Ratio is:
Total Capital/Risk-weighted Assets
Year 2014 2015 2016 2017 2018
Capital Adequacy 11.93% 10.81% 14.61% 12.92% 14.03%
Ratio
Capital Adequacy Ratio

14.61% 14.03%
12.92%
11.93%
10.81%
2014 2015 2016 2017 2018
Figure 6.1.2: Capital Adequacy Ratio of TBL (2014-2018)
6.1.3 Net Interest Margin

The Net Interest Margin measures how large a spread between interest revenues and
interest costs management has been able to achieve by close control over earning assets
and pursuit of the cheapest sources of funding.
The formula for Net Interest Margin is:
(𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑰𝒏𝒄𝒐𝒎𝒆 − 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑬𝒙𝒑𝒆𝒏𝒔𝒆)
Total Assets
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Year 2014 2015 2016 2017 2018

Net Interest Margin 1.90% 2.11% 2.12% 2.29% 2.39%
Net Interest Margin

3.00%
2.50%
2.00% 2.29% 2.39%
2.11% 2.12%
1.50% 1.90%
1.00%
0.50%
0.00%
2014 2015 2016 2017 2018
Series 1
Figure 6.1.3: Net Profit Margin of TBL (2014-2018)
The Net Interest Margin of TBL in 2014,2015,2016,2017,2018 was 1.90%, 2.11%,2.12%,

2.29%,2.39% respectively. Which means that the Net Interest Margin increased every year.
6.1.4 Return on Asset

Return on assets (ROA) is measured by the ratio between net income and total assets. In
other words, the return on assets expresses profit per Taka on total assets. It can also be
expressed in percent. Mathematically:
Return on Assets = Net income / Total assets
This ratio measures how profitable a company is relative to its total assets. A high ROA
indicates that management is effectively utilizing the company’s assets to generate
profit
Year 2014 2015 2016 2017 2018

Return on Asset 0.84% 0.86% 0.95% 0.72% 0.73%
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Return on Asset
95%
84% 86%
72% 73%
2014 2015 2016 2017 2018
Figure 6.1.4: Return on Asset (2014-2018)
The Return on Asset (ROA) ratio is an indicator of how profitable a company is relative
to its total assets. ROA gives an idea as to how efficient management is at using its
assets to generate earnings. Return on Asset (ROA) ratio of TBL in 2014,2015, 2016,
2017 2018 are respectively 0.8%,0.9%, 0.7% and 0.7%. Here curve shows return on
assets is increasing from 20015 to 2016 which is a good sign for TBL. But from 2017
to 2018 the curve has fallen which indicates that the bank’s situation is not satisfactory.
6.1.5 Return on Equity

Return on equity (ROE) is a measure of how the stockholders did during the year. Because
benefiting shareholders is our goal, ROE is the bottom-line (basic) measure of performance
of the firm. ROE is usually measured as:
Return on equity = Net Income / Shareholder Equity
This ratio measures how much profit the shareholder’s investment has generated. A
higher ROE percentage indicates that shareholders are receiving a better return on their
investment.
Year 2014 2015 2016 2017 2018
Return on Equity 15.98% 16.18% 17.97% 14.27% 14.68%
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Return on Equity
20.00%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2014 2015 2016 2017 2018
Return on Equity
Figure 6.1.5: Return on Equity (2014-2018)
The ratio is the income to common Equity. The rate of return on stockholder’s investment
in TBL are 2014, 2015, 2016, 2017 and 2018 are respectively 15.98%, 16.18%, 17.97%,
14.27% and 14.68 %. From this result, we see that the ROE of 2016 is greater than
2014,2015, 2017, and 2018. It is not good for TBL. Because of a lower rate of ROE new
investors will not be interested to buy these banks share. This curve shows Return on equity
is getting low. From 2017 to 2018 it shows decreasing which is not a good sign for this
bank.
6.2 Trend Analysis

Trend analysis is a forecasting technique that relies primarily on historical time series data
to predict the future. For this report, the trends are discussed for credit- related factors
like total loan disbursements, the position of unclassified and classified loan amounts, etc.
6.2.1 Net Interest Income over the five years
Year 2014 2015 2016 2017 2018
Interest 12435.702 13894.898 13186.155 14363.844 17418.455
Income
Interest 9673.233 10075.226 8733.549219 8865.342 11209.595
Expense
Net Interest 2762.468 3819.672 4452.606 5498.502 6208.860
Income
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Net Interest Income

Interest Income Interest Expense Net Interest Income
40000
35000 6208.86
30000
3819.672 5498.502 11209.595
25000 4452.606
2762.468 10075.26
9673.233 8733.549 8865.342
20000
17418.455
15000 13894.898 14363.844
12435.702 13186.155
10000
5000
0
2014 2015 2016 2017 2018
Figure 6.2.1: Trend Analysis of Net Interest Income
In the graph, I focused that net interest incomes of the past five years of Trust Bank
Limited are rising over and over. Here in the year 2018, there was a high net interest-
income comparatively to other years.
6.2.2 Trend Analysis of Total Deposits and Loans &Advances

Year 2014 2015 2016 2017 2018
Deposits 125059 150854 173060 200453 212681
Loans& 106886 130615 141987 184911 197128
Advances
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Trend Analysis of Total Deposits and Loans &Advances
250000
200000
150000
100000
50000
0
2014 2015 2016 2017 2018
Deposits Loans&Advances
Figure 6.2.2: Trend Analysis of Deposits and Loans &Advances (TK in million)
The graphical representation indicates that Deposits and Loans &Advances are increasing
simultaneously from the year 2014 to 2018. The overall Deposits and Loans& Advances
are not fluctuating at all.
6.2.3 The trend of Non-Performing Loan

Year 2014 2015 2016 2017 2018
Non-Performing 2614.76 3588.48 4556.10 6192.03 15580.01
Loan
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Non-Performing Loan
20000
15000 15580.01
10000
5000 6192.03
3588.48 4556.1
2614.76
2014 2015 2016 2017 2018
0
2015 2016 2017 2018
Non-Performing Loan Year
Figure 6.2.3: Trend Analysis of Non-Performing Loan (TK in Million)
According to the graph, the NPL of Trust Bank shows a rising trend. The NPL kept rising
with every year from 2014 to 2018
6.2.4 Trend Analysis of Provision for Loans& Advances

Year 2014 2015 2016 2017 2018
Provision for Loans& 449.59 777.8 983.83 1871.64 2186.46
Advances
Provision for Loans

2186.46
1871.64
983.83
777.8
449.59
2014 2015 2016 2017 2018
Provision for Loans and Advances
Figure 6.2.4: Trend Analysis of Provision for Loans
From the graph, we can see that in the year 2018 provision for loans and advances was
comparatively higher than those of other years.
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6.2.5 Trend Analysis for Percentage of NPL’s to Loans and

Advances
Year 2014 2015 2016 2017 2018
Percentage of NPL’s to 2.45% 2.74% 3.21% 3.35% 7.90%
Loans& Advances
Percentage of NPL to Loans& Advances

7.90%
3.21% 3.35%
2.45% 2.74%
2014 2015 2016 2017 2018
% of NPL
Figure 6.2.5: Trend Analysis for Percentage of Non-Performing Loan to Loans&

Advances
From the graph, we can see that in the percentage of Non-Performing Loans to Loans&
Advances kept rising every year from 2014 to 2018.
6.2.6 Trend Analysis for Capital Adequacy Ratio

Year 2014 2015 2016 2017 2018
Capital Adequacy 11.93% 10.81% 14.61% 12.92% 14.03%
Ratio
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lOMoARcPSD|16041961

14.61% 14.03%
12.92%
11.93%
10.81%
2014 2015 2016 2017 2018
Figure 6.2.6: Trend Analysis for Capital Adequacy Ratio
The graphical analysis shows that the Capital Adequacy Ratio had fluctuations in the
rise and the fall of rates. But the fact which is important to note that, it was never less
than 10%, which is required as per the Bangladesh Bank guideline.
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7.0 Findings of the study

In the middle of the twenty-first century here we are facing heavy competition
with each other. Here everyone is competing with each and every single point. So,
today’s business institutions are moving forward to remember this concept. If
anyone has a weak point, the rival party will take the opportunity and make a
problem for the weak institution. After completing my internship at Trust Bank, I
realized that there are many problems and this may be a cause of the huge loss or
create a barrier for future prospects. So, the bank should take care of it very
seriously.
Bank faced with higher operating costs in recent years because Trust Bank has
increasingly turned toward automation and electric equipment’s to replace labor-
based production systems. Especially for making deposits, dispensing payments,
and taking credit available.
Bangladesh is a developing country. If bank service is replaced by electronic
communication and automated as a result further loss of jobs as capital equipment
is substituted for labor. So, bank employment will become declined.
 The Current Ratio of the Bank is not satisfactory for the last few years;
 Capital Adequacy Ratio is satisfactory and the important thing to notice is
that it was never less than 10%, which is a guideline of Bangladesh Bank;
 The Return on Asset is fluctuating;
 The Return on Equity is also fluctuating;
 Bangladesh Bank, the central bank, has instructed all banks to keep 1% as
a provision against outstanding total loans. This provision has been made to
meet any kind of future losses. Although Trust Bank Ltd does not have any
classified loans it is maintaining a 1% provision for the future. The bank is
prepared to meet any unwanted situation in the future;
 Net Interest Income of TBL kept rising over the years;
 The percentage of NPL’s to Loans& Advances kept rising every year;
 Trust bank Ltd making Salary card or debit card for Bangladesh Army. By
making this process, every army man will get an account number on the
trust bank. As a result, they will be interested in deposit money on TBL. On
the other hand, when soldiers get any purpose loan from Trust Bank, then
the loan’s default risk will reduce by this system.
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8.0 Conclusion
Banks and financial institutions play an important role in the process of economic growth
of a country. Given their considerable economic potential, these institutions have a far-
reaching impact on the development and welfare process of the surrounding societies. A
country cannot long continue to have a deficit on foreign current account but a favorable
balance of payments on current account may conceal a heavy adverse balance of
payments with one individual country or group of countries. The banking sector in
Bangladesh is playing a vital role by providing loans to business concerns.
Trust Bank Limited makes a significant contribution to the economy. They are performing
their activities, as a result not only the bank but also the economy is benefited. The bank
is performing general banking, Loan-advance, foreign exchange activities, etc., as a result,
they are mobilizing the money and do well for the economy. Although they have some
limitations in their services, they are doing a tremendous job for the economy. If they can
reduce their limitation and introduce new ideas, they can do better in the banking sector
of Bangladesh. Now TBL is continuing business operation successfully in Bangladesh
through developing an image and goodwill among its clientele by offering its excellent
services. The success has resulted from the dedication, commitment, and dynamic
leadership of its management. During the short span of time of its operation, Trust Bank
Limited successfully grabbed a position as a highly progressive and dynamic financial
institution in the country. The current situation of TBL is satisfactory. But in the age of
competition if the bank does not provide extraordinarily that means superior services
then it will be difficult to continue banking because everybody wants to maintain quality.
And when TBL will be able to overcome this type of problem then it would be more
structured compared to any other bank operating locally in Bangladesh.
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9.0 Appended Part
9.1 Reference
Trust Bank Ltd. Official Website.Retrieved from www.tblbd.com
TBL Annual Report. ((2014-2018). Retrieved from
https://www.tblbd.com/index.php/about-us/annual-reports-and-statements
Bangladesh Bank Credit Risk Guideline.Retrieved from www.bb.org.bd
BRPD Circular no.16. ( dated 06.12.1998 and no.9 & 10 dated).
Internship Report on Performance Evaluation on Credit Performance of Trust Bank Ltd.
Retrieved from https://core.ac.uk/download/pdf/61805504.pdf
Internship Report on TBL Foreign Exchange Department Retrieved from
https://www.academia.edu
MD. Saidur Rahman. “Implementation of Lending Risk Analysis (LRA) in lending
operation of Banks”, Bangladesh Bank Porikrama, BIBM.
Fiedler, E. (n.d.). The Meaning and Importance of Credit Risk,Measures of Credit Risk
and Experience.
McDonald, S. (4th Edition,2000). Bank Management.
Peter s. Rose, S. C. (2019-2020). Bank Management & Financial Services.
Zikmund, B. C. (2019-2020). Business Research Methods.

lOMoARcPSD|16041961
9.2 Appendix
Table-1: Total Assets, Total Liabilities and Shareholders’ Equity of TBL from 2014-2018
(in millions)
Year 2014 2015 2016 2017 2018
Total Assets 145,346.12 180,229.57 210,241.52 239,770.63 259,638.37
Total Liabilities 137,217.43 170,717.52 199,066.35 227,658.45 246,750.76
Shareholders’ Equity 8,128.69 9,512.05 11,175.16 12,112.18 12,887.61
Table-2: Current Assets, Current Liabilities, Total Eligible Capital (Tier-I & Tier-II) and
the Risk-Weighted Assets of TBL from 2014-2018 (in millions)
Year 2014 2015 2016 2017 2018
Current 18504.18 24525.17 36713 25610.4 24050.72
Assets
Current 56577.13 42614.15 74110.15 87140.47 99746.45
Liabilities
Tier-I 8,461.25 9,700.01 11,362.23 12,329.40 13,065.02
Tier-II 4,958.01 4,222.30 8,435.52 8,466.75 11,613.50
Risk 112,460. 128,770.20 135,455.40 160,906.95 175,796.56
Weighted 10
Asset
Table-3: Interest Income, Interest Expense and Net Income of TBL from 2014-2018 (in
millions)
Year 2014 2015 2016 2017 2018
Interest Income 12435.702 13894.898 13186.155 14363.844 17418.455
Interest Expense 9673.233 10075.226 8733.549219 8865.342 11209.595
Net Income 1299.197 1539.330 2008.844 1729.651 1892.582

Internship Report On Credit Operations of Trust Bank LTD

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Internship Report on credit operations of Trust Bank Ltd

Managerial Finance (Jahangirnagar University)

Studocu is not sponsored or endorsed by any college or university

Credit Operations System of

Downloaded by Mohammad Tajwar Rash Toky (1710086@iub.edu.bd)

Credit Operations System of Trust Bank Limited

Department of Finance& Banking

Date of Submission: 15th October, 2020

Downloaded by Mohammad Tajwar Rash Toky (1710086@iub.edu.bd)

Through: Ms. Asma Ahmed, Internship Program Supervisor.

Subject: Submission of Internship Report

Fahria Mahzabin Ahmed

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3.7.2 Control of Securities and Compliance .............................................................. 14

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5.7 Disbursement of Loans including changes in terms and conditions ....................... 24

9.0 Appended Part

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1.1 Background of the Study

1.2 Objectives of the Study

1.2.2 Secondary Objectives

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1.3 Scope of the Study

1.4.2 Secondary Sources

1.5 Data Analysis

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1.6 Limitations of the Study

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CRRAR- Capital-to-Risk Weighted Assets Ratio

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2.0 An Overview of Trust Bank Ltd. & Job

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 Long Term Sustainable Growth- diversified business with robust risk

2.4 Different Departments

Figure 2.4: Different Departments of TBL

2.5 Products and Services

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2.6 Working Experience at Trust Bank Limited

2.7 Job as an Intern

2.7.1 General Banking Division

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 Helping Clients to fill up account opening and pay order forms;

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3.0 Theoretical Framework

3.1 Risk Management

3.2 Risk Management Process

Learn Analyze &

Control Plan & Schedule

Track & Report

Figure 3.2: Risk Management Process

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A brief introduction of the risk management process is stated below;

1. Identifying Risk – Risk identification allows individuals to identify risks so that

3.3 Credit Risk

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3.4 Types of Credit Risk

3.5 Credit Analysis