Trust Bank Ltd: Corporate Information
1.1Institutional overview:
Trust Bank Limited is a scheduled commercial bank established under the Bank Companies Act, 1991 and incorporated as Public Limited Company under the Companies Act, 1994 in Bangladesh on 17 June 1999 with the primary objective to carry on all kinds of banking businesses in and outside Bangladesh. The Bank has Thirty five (35) branches operating in Bangladesh as 30th October 2008.
Initially bank has started its operation in the name of The Trust Bank Limited but on 12 November 2006 it was renamed as “Trust Bank Limited” by the Registrar of Joint Stock Companies. The new name of the bank was approved by Bangladesh Bank on 03 December 2006. Composition of the Board of TBL consists of Ex-officio Directors of in-service senior Army personnel, with the Chief of Army Staff as its Chairman and the Adjutant General as its Vice-Chairman.
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 plans to promote the agro-based industries of the country. The bank has already participated in syndicated loan agreement with other banks to promote textile sectors of the country. Such participation would continue in the future for 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 fulfillment of growing demands of its customers. Recently the bank has changed its logo. The bank believes the new logo is the symbol of dynamism automation and trust.
Previous Logo New Logo
2.1Corporate Information:
| Banking License received on | : | 15 July 1999 |
| Certificate of Incorporation received on | : | 17 June 1999 |
| Certificate of Commencement of Business received on | : | 17 June 1999 |
| First Branch License received On | : | 9 August 1999 |
| Formal inauguration on | : | 29 November 1999 |
| Sponsor Shareholders | : | Army Welfare Trust |
| Listed with DSE | September 25, 2007 | |
| Listed with CSE | September 24, 2007 |
Organization:
Head office : Dhaka
Department : 8
Branches : 35(as on 20 October 2008)
Employees : 508 (as of 31 December 2007)
Capital Structure and Sources of Fund:
Authorized Capital:
20,000,000 ordinary shares of Tk.100 each 2,000,000,000
Issued, Subscribed and Paid up Capital:
5,000,000 ordinary shares of Tk. 100 each 500,000,000
Other sources of Bank’s fund are the Bangladesh Bank, Commercial Banks, Local and Overseas financial institutions and customer’s deposits.
2.2 Vision and Mission Statement of TBL
The efforts of TBL are focused on delivery of quality service in all areas of banking activities with the aim to add increased value to shareholders’ investment and offer highest possible benefits to the customers. There must have the vision as well mission to what should back every effort of the bank as it is said, “A mission without any vision is a daydream and a vision without any mission is a nightmare”.
Vision: We aim to provide financial services to meet customer expectations so that customers feel we are always there when they need us, and refer us to their friends with confidence. We want to be a preferred bank of choice with a distinctive identity.
Mission: Our mission is to make banking easy for our customers by implementing one-stop service concept and provide innovative and attractive products and services through our skilled and qualified human resources. We always look forward to benefit the local community through supporting entrepreneurship, social responsibility and economic development of our country.
2.3 Core Values of the Bank
In all types of banking activities Trust Bank Ltd. sticks to six core values. In any way the bank does not compromise with any of these values. The bank believes the values are the guidelines in its banking operation. The core values of the bank are as follows:
- Dependable
- Professional
- Dynamic
- Reliable
- Trustworthy and
- Fair.
2.4Philosophy of the Bank:
At present, the bank has 35 branches across the country and it is committed to become equal service providers compatible with the norms of commercial schedule bank. It renders all types of personal, commercial and corporate banking services to its customers within the purview of the Bank Companies Act, 1991 and in line with the directives and policy guidelines lay down by Bangladesh bank.
2.5 Ownership:
Army Welfare Trust and some defense personnel have retained the total number of outstanding shares of this bank. Army Welfare Trust holds about 99.20% of total number of shares. And eight defense personnel have retained the remaining 0.80% shares equally.
Particulars of the Sponsor Shareholders are as follows:
| Name of the Sponsor Shareholders | No. Of Shares | Amount |
| 1. Army Welfare Trust
2. Lt Gen Moeen U Ahmed, psc 3. Maj Gen Md. Matiur Rahman ndu, psc 4. Brig Gen Md. Zillur Rahman, MCPS, MSC 5. Brig Gen S M Mahbubul Karim 6. Brig Gen Md. Rafiqul Islam, ndc, psc 7. Brig Gen Md. Shawkat Hossain, psc 8. Brig Gen Muhammad Anisur Rahman, ndc, psc 9. Brig Gen Mohd. Mahbubul Hasan, ndc, psc |
4,999,920
10 10 10 10 10 10 10 10 |
499,992,000
1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 |
| Total | 5,000,000 | 500,000,000 |
2.6 Managerial Hierarchy of TBL
The managerial hierarchy of Trust Bank Ltd. starts from Junior Officer and ends to the Managing Director. The managing Director is the apex body of the management of the bank
Figure: Organ gram of TBL
2.7 Nature of the Bank’s Business
Trust Bank Ltd offers full range of banking services that include:
- Deposit banking
- Loans & advances
- Export
- Import
- Financing inland
- International remittance facilities
The bank offers a full scale commercial banking that includes:
- Foreign Exchange transactions
- Personal Credit
- Consumer & Corporate Banking
2.8Management:
Management of this bank has been lead by the Managing Director. The operational head of each department represent in the management. Management of this bank consists of the following members:
· Managing Director (MD)
· Deputy Managing Director (DMD)
· Head of Credit represent by SVP
· Head of Operation represent by SVP
· Head of International Division represent by SVP
· Head of Human Resources Division represent by SVP
· Head of General Service Department represent by SAVP
· Head of Retail Banking Unit represent by VP.
2.9 Audit Committee:
An audit committee has been formed by the Board of Directors of the Bank in its 64th Board meeting held on 05 February 2003. In accordance with the BPRD circular letter no. 12 dated 23 December 2002, the committee constituted with a chairman, two members and a members secretary.
At 31 December 2006, the Honorable Members of the committee were as follows:
| Name | Position | Status With committee | Educational qualification |
| Brig Gen S.M. Mahbubul Karim
Brig Gen Md. Shawkat Hossain Brig Gen Md. Shawkat Hasan Mr. Farhad Uddin |
Director
Director Director Director |
Chairman
Member Member Member Secretary |
B.Sc.(Eng)MBA
PSC NDC, PSC M.Com. ACMA |
2.10 Online baking service:
From 1st March 2007 this bank has introduced online banking service with the motive to provide faster and modern facilities to its customers. The bank is providing online services through FLORA BANK SOFWARE. With the introduction of this system the bank got positive feedback from its clients. The bank takes money from the clients as online service charge at the time of transaction.
2.11 SWOT Analysis of the TBL:
SWOT Analysis is an important tool for evaluating the company’s Strengths, Weaknesses, Opportunities and Threats. It helps the organization to identify hoe to evaluate its performance and can scan the macro environment, which is turn would help the organization to navigate in the Turbulence Ocean of competition. Following is given the SWOT analysis of The Trust Bank:
Strengths:
1. Top Management:
The top management of the bank, the key strength for The Trust Bank has contributed heavily towards the growth and development of the bank. The top management officials are army’s highest position holder, so they have a good idea about the current situation.
2. Company Reputation:
The Trust Bank has created a good reputation in the banking industry of the country. Their main customers are army persons and other defense persons. The popularity of this bank is increase day by day also in the general public area.
3. Sponsors:
The Trust Bank has founded by The Army Welfare Trust. The main sponsors for this bank are Sena Kalyan Sangstha. The chairperson of this bank is Chief of Army Staff and directors are also appointed by the Sangstha, that’s why the sponsor does not have any problem for the fund.
4. Modern Facilities and Computer:
From the very beginning The Trust Bank tries to furnish their work surroundings with modern equipment and facilities. For speedy service to the customer, The Trust Bank had installed money-counting machine in the teller counter. The bank has computerized banking operation under software called PC banking. More over computer printed statements are available to internal use and occasionally for the customers. The Trust Bank is equipped with telex and fax facilities.
5. Stirring Branches:
From the formative stage of The Trust Bank tried to furnish their branches by the impressive style. Their well-decorated branches gets attention of the potential customer, this is one kind of positioning strategy. The Sena Kalyan Bhaban Branch is also impressive and is comparable of foreign banks.
6. Interactive Corporate Culture:
The corporate culture of The Trust Bank is very much interactive compare to other local organization. This interactive environment encourages the employee to work attentively. Science the banking jobs is very much routine work oriented and lovely environment boots up the work capability of the employees.
Weaknesses:
1. Hierarchy Problem:
The hierarchy problem treated as a weakness for The Trust Bank, because the employee will not stay for a long. So there will be a chance of brain drain from this bank to other bank.
2. Advertisement Problem:
There is another weakness for The Trust Bank is advertisement. Their media coverage is so much low that people do not know the bank thoroughly.
Opportunities:
1. Diversification:
The Trust Bank can pursue diversification strategy in expanding its current line of business. They do not serve not only the army but also the general people.
2. Business Banking:
The investment potential of Bangladesh is foreign investors. So TBL has opportunity to expand in business banking.
3. Credit Card:
There is an opportunity to launch Credit Card in Bangladesh by TBL. Beside this, TBL can acquire services for cards like VISA, MASTER CARD etc. So that they can enhance the market based card service.
Threats:
1. Contemporary Banks:
The contemporary banks of The Trust Bank like: Dhaka Bank, Dutch Bangla Bank, National Bank, Mutual Trust Bank, Mercantile Bank are its major rivals. They are carrying out aggressive campaign to attract lucrative clients as well as big time depositors. The Trust Bank should remain vigilant about the steps taken by these banks, as these will in turn affect The Trust Bank strategies.
2. Multinational Bank:
The Rapid expansion of multinational bank poses a potential threat to new PCB’s. Due to the booming energy sector, more foreign banks are expected to operate in Bangladesh. Moreover, the existing foreign banks such as HSBC, AMEX, CITI N.A, and Standard Chattered are now pursing an aggressive branch expansion strategy. Since the foreign banks have tremendous financial strength, it will pose a threat to local bank to a certain extant in terms of grabbing the lucrative clients.
3. Default Culture:
Default culture is very much familiar in our country. For a bank, it is very harmful. As The Trust Bank is new, it has not faced it seriously yet. However as the bank grows older it might become big problems.
2.13 Activities of TBL:
The main activities of TBL are as follows:
· Deposit Banking
· Issuing Credit
· Supports in the industrialization
· Foreign Remittance
· Assistance in foreign transaction
· Providing safe locker service to its customers
· Supports to its clients.
2.14 Balance sheet of TBL:
2.16 Major Deposit Schemes of TBL:
Trust Bank Limited has introduced different type of deposit schemes to support lower, middle and high income group pf people. Presently they are offering Operational and Non-operational Account to their prospective customers.
Operational Account:
· Savings Account
· Current Account
· STD Account
Non-Operational Account:
· Fixed Deposit Receipt (FDR)
· Trust Smart Savers Scheme (TSS)
· Trust Money Double Scheme (TMDS)
· Trust Money Making Scheme (TMMS)
· Trust Educare Scheme (TES)
· Monthly Benefit Deposit Scheme (MBDS)
· Lakhopati Savings Scheme (LSS)
· Interest First Fixed Deposit Scheme (IFFDS)
· Foreign Currency Account (FC)
· Non-Resident Foreign Currency deposit Account (NFCD)
· Non-Resident Investors’ Taka Account (NITA)
3. Literature Review
Loans or credits comprise the most important asset as well as the primary source of earning for the banking institutions. On the other hand, loan/credit is also the major source of risk for the bank management. A prudent bank management should always try to make an appropriate balance between its return and risk involved with the loan portfolio. Credit appraisal process is the tool, which helps the bank to predict the risk and return on the proposed project for credit disbursement. Therefore, from the above definition it is clear that credit appraisal is a very important factor for banks. To get a clear idea about credit appraisal process we need to know the key factors of credit appraisal procedures.
3.1 Credit
The word credit is derived from the Latin word “credo” which means “I believe” and is usually defined as the ability to buy with a promise to pay. It consists of actual transfer and delivery of goods and services in exchange for a promise to pay in future. It is simply the opposite of debt. Diversification of banking service has accelerated the use of credit in the expansion of business operation. It is a fundamental precept of banking everywhere that advances are made to customers in reliance on his promise to pay rather than the security held by the banker.
3.2 Principles of Credit
A prudent Banker should always adhere to the following general principles of lending funds to his customers.
? Background, Character and ability of the borrowers
? Purpose of the facility,
? Term of facility,
? Safety,
? Security,
? Profitability,
? Source of repayment,
? Diversity.
Bank should never put “All its eggs in one basket”. It should be noted that selection of appropriate borrowers, proper follow-up and end-use supervision through constant close contact with the borrowers, are the corner stones for timely recovery of credit.
3.3 Factors of Credit Policy
Credit policy of all banks cannot be developed on same lines because of differences in their operational needs and resource structures. In designing a credit policy, considerations should be given to following:
1) Total deposit resources of the bank and rate of fluctuation of resources.
2) Deposit structure.
3) Trend of growth in deposit and economic growth rate of the country.
4) Capital fund and other reserves. Large bank’s capital fund and secondary reserve in investment can permit its loan policy to be liberal in respect of its limit of lending in high risk-high returns loans while a relatively new small bank would stress more on liquid and highly secured loans at lower interest in its policy.
5) Capability of loan administration shall have to be given due weight in the credit policy. A large bank is able to hire numbers of highly skilled specialists/experts in different areas to advise the bank in loan making but smaller banks relying on usual credit managers cannot venture into sectors that require expert appraisal of loan applications and also that requires intensive post implementation monitoring of large and complex industrial loans.
6) Investment size of the bank and its nature.
3.4 Loan Documentation
The minimum requirements for loan or other facility documentation of a Bank are:
a) Copies of the relative sanction letter indicating that the transaction has been approved by properly authorized officers of the Bank.
b) A copy of the letter of sanction addressed to the customer and his acceptance thereof.
c) All necessary documentation required to meet the terms and conditions of the facility in the manner in which it was approved.
d) Before disbursement, it should be satisfied that all legal formalities have been completed.
e) Disbursement of all facilities shall be made on an Offering Sheet basis to ensure that all additional requests are duly approved by two authorized Officers one of which must be the Manager or Sub-Manager.
f) Securities offered should also be thoroughly verified / inspected once in a month and stock report prepared.
g) Where the loan agreement calls for restrictive covenants and ongoing conditions, the Manager must not only satisfy himself that these are adhered to at the outset of the transaction (i.e. date of initial takedown) but assure himself, at regular intervals, that these are not being violated.
h) Since the Manager together with the Credit Officer is fully responsible for documentation, they will formally sign a check list. Under no circumstances may anyone permit drawings under any facilities, until they have signed off the check list.
I) The Manager/Sub-Manager should ensure that appropriate steps are being taken to keep loan documentation current for all assets of the Bank. The loan documentation check-list, should therefore, be reviewed at regular intervals.
J) Lines of credit should, as a rule, be confirmed in writing to the borrower. A Specific expiration date for the line should be included. Moreover every letter of sanction must contain the Bank’s standard clauses.
K) The borrower must explicitly undertake that all information supplied by him to Bank in connection with the approved lines of credit is correct.
L) Any material or adverse change in business conditions will cause the amount due to Bank from the client immediately repayable. The Bank reserves the right to call back the facilities extended at any time without assigning any reason whatsoever.
3.5 Standard Procedure of Credit
The Standard Procedure of Credit of a Bank is completed through the following Steps:
A) Any request for credit facilities must be made by the borrower in the Bank’s prescribed standard form properly filled in and completed in all respect and duly signed by the prospective borrower.
B) Submission of past 3 Years financial statement: For all credit proposals, the borrowers and guarantors (if any) should, wherever possible submit past 3 years’ Profit & Loss A/C and Balance sheet duly audited by a recognized and competent Chartered Accountant containing unqualified opinions. Some borrowers may not have audited financial statements at all. In either case, the lending officer must interview the potential borrower or guarantor and obtain satisfactory, accurate and complete financial information supporting any prior financial statements either audited or not audited. In the case of an individual borrower or guarantor, the financial statements must be signed by competent authority and must contain legend to the signatory, all assets and liabilities both direct and contingent and all sources of income and items of expenses. For all un-audited statements provided by a company, financial officer of the company must execute such legend.
C) On all new credit arrangements and annual reviews emanating in Branches, an analysis of the credit worthiness of the borrower and guarantor (if any) should be prepared by the Credit Department at the Branch where credit monitoring responsibility lies and a copy thereof forwarded to the Head of Credit Division at ‘Head Office for pre-factor or post-factor review as the case may be. In case such credit originates in the Head Office, it will be forwarded to the Branch Manager for record and action.
3.6 Credit Analysis
When a customer requests a loan, bank officers analyse all available information to determine whether the loan meets the bank’s risk-return objectives. Credit analysis is essentially 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:
1. What risks are inherent in the operations of the business?
2. What have managers done or failed to do in mitigating those risks?
3. How can a lender structure and control its own risks in supplying funds?
The first question forces the banker to generate a list of factors that indicate what could harm a borrower’s ability to repay. The second recognizes that repayment is largely a function of decision made by a borrower. Is management aware of the important risks and has it responded? The last question forces the banker to specify how risks can be controlled so that bank can structure an acceptable loan agreement.
Therefore, 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 asses 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.
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 reduces loss, but does not justify lending proceeds when the credit decision is originally made.
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. Some of the key ratios which serve as a tool for financial analysis are classified as
1) Financial Ratio
2) Turnover Ratio
3) Profitability Ratio
1) Financial Ratio
Financial ratios indicate about the financial position of the company. A company is deemed to be financially sound if it is in a position to carry on its business smoothly and meet its obligations-both long-term as well as short term-without strain. Some of the important ratios which are calculated in order to judge the financial position of the company are:
i) Fixed Asset Ratio =
ii) Current Ratio =
iii) Quick Ratio =
iv) Debt Equity Ratio =
2) Turnover Ratio
The turnover ratios indicate the efficiency with which the capital employed is rotated. They are also known as Activity or efficiency ratio. The overall profitability of the business depends on the turnover i.e. the speed at which the capital employed in the business rotates. Higher the rate of rotation, greater the profitability. In order to find out which part of capital is efficiently employed and which part not, different ratios are calculated. These are:
i) Fixed Asset Turnover Ratio =
ii) Working Capital Turnover Ratio =
3) Profitability Ratio
Profitability is an indication of the efficiency with which the operations of the business are carried on. Poor operational performance may indicate poor sales and hence poor profits. Bankers look at the profitability ratio as an indicator whether or not the firm/company earns substantially more than it pays interest for the use of borrowed funds and whether the ultimate repayment of their debt appears reasonably certain. The important profitability ratios are:
i) Overall Profitability Ratio =
ii) Gross Profit Ratio =
iii) Net Profit Ratio =
3.7 Lending Risk Analysis
Lending Risk analysis (LRA) is simply a loan processing manual and has done when the amount of loan is above 1 core. By going through this manual the lending bankers can asses the creditworthiness of their prospective borrowers.
Therefore, LRA is such an instrument which is definitely and directly related with lending information to analyze the borrower’s financial, marketing, managerial and organisational aspects subjectively and objectively. It also facilitates the analyst to know the security risk of the credit. Lending risk Analysis involves assessing the likelihood of repayment of loans to the bank as per agreement on the basis of analysis of certain risks. To analyze these risks bankers will need to fill-up a 16-page LRA form. The form leads to scoring various risk factors involved in lending. LRA has divided the various risks into two groups namely, Business Risk and Security Risk.
1. Business Risk:
Business Risk is concerned with whatever the borrowing company would fail to generate sufficient cash out of business to repay the loan Business Risk, the main component of lending risk, consists of the Industry Risk and the company Risk
A. Industry Risk:
Due to some external reasons a business may fail and the risk which arrives from external reasons of the business is called Industry Risk. It has two components:
i) Supplies Risk:
When the business fails due to disruption in the supply of inputs, the consequent risk which would arise is known as Supply Risk
ii) Sales Risk:
When the business fails for disruption in sales, this type of risk would generate.
B. Company Risk:
Company Risk is shown for some internal reasons of the business. It has also two main components and four sub-components
i) Company position Risk:
Each and every company holds a position within an industry. This position is very much competitive. Due to weakness in the company’s position in its industry, a company may fail and the risk of failure is called Company Position Risk. It depends on-
(a) Performance Risk:
If a company fails to perform well enough to repay the loan because of its weakness under given expected external conditions, the company is said to suffer from performance risk.
(b) Resilience Risk:
When a company fails due to lack of its resilience to unexpected external conditions, the resilience risk is generated.
ii) Management Risk:
If the management of a company fails to exploit the company’s position effectively, the company can fail and this risk of failure is called management Risk. It can be subdivided further-
(a) Management Competence Risk:
Management competence risk is the risk that the company fails because the management is incomplete
(b) Management Integrity Risk:
Management integrity risk is the risk that the company fails to repay its loan due to lack of management integrity.
2. Security Risk:
Security risk is the risk that the realised value of the security does not cover the exposure of loan. Exposure means principal plus outstanding interest. Security risk can be divided into two parts:
(a) Security Control Risk:
Security control Risk is the Risk that the bank fails to realise the security because of lack of bank’s control over the security offered by the borrowers.
(b) Security Cover Risk:
Security cover risk is the risk that the realised security value may not cover the full exposure of loans.
3.8 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 reduces loss, but does not justify lending proceeds when the credit decision is originally made.
3.8.1 Characteristics of Good Collateral
The following five items determine the suitability of items for use as collateral. The suitability depends in varying on standardisation, durability, identification, marketability and stability of value.
1. Standardization:
The standardisation leaves no ambiguity between the borrower and the lender as to the nature of the asset that is being used as collateral.
2. Durability:
Durability refers to the ability of the assets to withstand wear. Or it can refer to its useful life. Durable goods make better collateral than non-durable. Stated otherwise crushed rocks make better collateral than fresh flowers.
3. Identification:
Certain types of assets are readily identified because they have definite characteristics or serial numbers that cannot be removed. Two examples are a large office building and an automobile that can be identified y make, model and serial number.
4. Marketability:
In order for collateral to be of value to the bank, the collateral must be marketable. That is the borrower must be able to sell it. Specialised equipment is not as good as collateral as are dump trucks, which have multiple uses.
5. Stability of value:
Bankers prefer collateral whose market values are not likely to decline dramaticallyduring the period of the loan such as common stock.
3.8.2 Different Kinds of Collateral
Secured loans have a pledge of some of the borrower’s property behind them (such as home or an automobile) as collateral that may have to be sold if the borrowers have no other way to repay the bank. Some of the most popular collaterals are:
1. Account Receivable: The banks take a security in the form of a stated percentage of the borrower’s balance sheet. When the borrowers credit customers send in cash to retire their debts this cash payments are applied to the balance of borrowers loans. The bank may agree to lend more money as new receivable arise from the borrowers sells to its customers thus allowing the loan to continue as long as the borrower has need for credit and continuous to generate and adequate volume of sales .
2. Factoring: Bank can purchase a borrowers account receivable based upon some percentage of the book value because the bank takes over the ownership of the receivable, it will inform the borrowers customers that hey should send their payments to the purchasing bank.
3. Inventory: A bank will lend only a percentage of the estimated market value of a borrower’s inventory in order to leave a substantial cushion in case the inventories value begins to decline. The inventory pledged may be controlled completely by the borrower using a so-called floating line approach.
4. Real Property: A bank may take a security interest in land and / or improvements on land own by the borrower and records its clime-a mortgage-with a government agency in order to define against successful claim by others.
5. Personal Property: Bank takes a security in jewellery, securities and other forms of personal property owned by a borrower.
6. Personal Guarantees: A pledge of the stock deposits or other personal assets held by the major stock holders or owners of a company may be required as collateral to secure a business loan.
Loans and Advances of TBL
The following types of credit facilities are generally allowed by Trust Bank ltd. to the individuals, partnership firms, Corporations and others, either on Demand, Time or Self liquidating basis and are carried on the Bank’s General Ledger. The credit facilities provided by the bank are divided into two broad categories:
- Funded Facilities
- Non- Funded Facilities
4.1 Funded Facilities
Any type of credit facility which involves direct outflow of Bank’s fund on account of borrower is termed as funded credit facility, the funded facilities of loans and advances are:
- Short Term Loans
- Short Term Loans (Others)
- Long Term Loans
4.1.1 Short Term Loans
a) Secured over draft
OD is some kind of advance. In this case, the customer can over draw from his/her current account. There is a limit of overdraw, which is set by the bank. A customer can with draw that much amount of money from their account. For this there is an interest charge on the over draw amount. This facility does not provide for every one, the bank will provide only those who will fulfill the requirement. It means that only real customer can get this kind of facility. The practice of TBL is that it states the Over draft as Secured Overdraft. This is a type of over draft facility given by keeping sufficient collateral from the customer. This facility provides specific right to a client to over draw within a pre fixed limit for a certain period of time. SOD is normally granted against the security of tangible asset such Lien of FDR, Bonds, Sanchay Patra etc. Interest charge on SOD is calculated on the basis of the security liened.
- Incase of FDR with Trust Bank the interest rate is 2.5% above the FDR rate, with other bank is 14%
- Incase of Sanchay Patra purchased from Trust Bank the interest rate is 2.5% above the rate Sanchay Patra, from other bank is 14%
- The common thing is 2.5% spread is kept in charging interest. Interest is calculated on outstanding amount at daily basis.
SOD (General)
Advance allowed to individual/firm against financial obligation (i.e. lien of FDR/PS/BSP etc.) and against assignment of work order for execution of contract works fall under this head. This advance is generally allowed for allowed for definite period and specific purpose.
SOD (Imports)
Advances allowed for purchasing foreign currency for opening L/C for imports of goods fall under this type of leading. This is also an advance for a temporary period, which is known as preemptor finance and falls under the category ‘Commercial Lending’.
b) Time Loan:
Cash Credit (Hypothecation):
It allows to individuals or firm for trading as well as whole-sale purpose or to industries to meet up the working capital requirements against hypothecation of goods as primary security fall under this type of lending. It is a continuous credit. It allowed fewer than two categories:
- Commercial Lending
- Working Capital
Cash Credit (Pledge)
Financial accommodation to individual/firm for trading as well as whole sale purpose or to industries as working capital against pledge of goods primary security falls under this head of advance. It also a continuous credit and like the above allowed under the categories:
- Commercial Lending
- Working Capital
4.1.2 Short Term Loans (Others)
a. Micro Credit:
Loan has given only to the Army Person for the purpose of Repairing and Reconstruction of dwelling Houses. It is usually given for a small amount, such as 20000, 30000, and 40000. The amount is given on the basis of salary range.
b. PAD (Payment against document):
Payment made by the bank against lodgment of shipping documents of goods imported through L/C falls under this type head. It is an interim type of advance connected with import and is generally liquidated shortly against payments usually made by the party for retirements of documents for release of import goods from the customer authority. It falls under the category ‘Commercial Lending’.
c. LTR (Loan against Trust Receipts):
Advances allowed for retirement of shipping documents and release of goods imported through L/C without effective control over the goods delivered to the customer fall under this head. The goods are handed over the importer under trust with arrangement that sales proceed should be deposited to liquidate the advances within a given period. This is also temporary advance connected with import that is known post-import finance under category ‘Commercial lending’.
d. IDBP (Inland documentary bill purchase):
Payment made through purchase of inlands bill to meet urgent requirements of customer fall under this type of credit facility. This temporary advance is adjusted from the proceeds of bills purchased for collection. It falls under the category ‘Commercial Lending’.
e. FDBP (Foreign documentary bill purchase):
Payment made to a party through purchase of foreign documentary bills fall under this head. This temporary advance is adjustable from the proceeds of negotiable shipping/export documents. It falls under category ‘Export Credit’.
4.1.3 Long Term Loans
a. HBL (House Building loan)
A credit facility is available for the Armed Forces officials. This loan is provided to build and repair dwelling house. The highest limit of this loan is 25 lac.
b. Term Loans:
The term of loan is determined on the basis of gestation period of a project generation of income by the use of the loan. Such loans are provided for Farm Machinery, Dairy, Poultry, etc. It is categorized in the following segments:
Midterm – This loan facility is extended formore then 1 year but less the 3 year. Trust Bank encourages midterm loan.
Long term – Tenure of long term loan is more then 5 years.
The long term loans / Project loans are provided in two ways by TBL:
- Sole Financing
- Syndicate Financing.
4.1.3.1 Sole Financing by TBL
Here Trust Bank Ltd. finances the whole project from its own fund. Self help is the best help. TBL believes in this norm. for this it tries its best to fund the loan amount solely except very rare cases. The project appraisal in case of sole financing of TBL covers five different aspects of a project which we shall discuss later in
4.1.3.2 Syndicate Financing by TBL
Trust Bank is a private commercial bank. The main focus of Trust Bank is to provide short term & medium term loan facility. So it does not concern much about Long term project finance & syndicated finance. Trust Bank acts simply as a participatory bank rather than Lead bank. Its main concern is to collect the interest & the loan installment and all the regulatory & legal functions are performed by the Lead arranger.
The major syndicate loans provided by Trust Bank are Confidence Salt Ltd., Nasir Glass Industries Ltd, and Popular Pharmaceuticals Ltd.
For the Syndicate loan Trust Bank analyses the project feasibility by analyzing the projected data of the particular project. The project analysis practice of Trust Bank is given later in case of Confidence Salt Ltd.
Syndicate Loan to Nasir Glass Industries Ltd
The features of this syndicated loan are as follows:
1. Name of the Project: Nasir Glass Industries Ltd.
2. Type of Project: Manufacturing Plant of Float glass sheet.
3. Project Location: Gazipur.
4. Estimated project cost: Tk. 199.54 Crore.
5. Capacity: To produce 135 Metric Tons finished float glass sheet per day.
6. Source of raw materials: Both import & local procurement.
7. Total facilities granted by banks: Total facility provided by all banks is Tk. 100 crore where Trust Bank Ltd. provided 9 crore. Trust bank sanction the loan on 25-03-2004 and the expiry date is 24-03-2010.
8. Interest rate: @ 14% on the total amount of total facility provided, whereas trust bank charges @14% on loan provided by it.
9. Trust bank’s position in this Syndicate loan: Trust bank acts as participatory bank whereas Prime Bank Ltd. act as lead bank and all legal responsibility upon the lead bank. Other participatory banks are:
· Mutual Trust Bank Ltd.
· Dhaka Bank Ltd.
· Mercantile Bank Ltd.
· Arab Bangladesh Bank Ltd.
· United Commercial Bank Ltd.
· State Bank of India.
· Export Import Bank of Bangladesh Ltd.
· Dutch Bangla Bank Ltd.
· International leasing & Financial Services Ltd.
· Premier Leasing International Ltd.
· Uttara Finance & Investment Ltd.
· Standard Bank Ltd.
Syndicate loan in case of Popular Pharmaceuticals Ltd.
The features of this syndicated loan are as follows:
1. Name of the Project: Popular Pharmaceuticals Ltd.
2. Type of Project: Manufacturing biological and non-biological drugs.
3. Estimated project cost: Tk. 91 Crore 56 lac..
4. Source of raw materials: Both import & local procurement.
5. Total facilities granted by banks: Total facility provided by all banks is Tk. 39 crore where Trust Bank Ltd. provided 4 crore. Trust bank sanctions the loan on 19-12-2004 and the expiry date is 19-06-2012.
6. Interest rate: @ 11% on the total amount of total facility provided, whereas trust bank charges @14% on loan provided by them.
7. Trust bank position in this Syndicated loan: Trust bank acts as participatory bank whereas Prime Bank Ltd. acts as lead bank and all legal responsibility upon the lead bank. Other participatory banks are:
· United Commercial Bank Ltd.
· State Bank of India.
· Export Import Bank of Bangladesh Ltd.
· Standard Bank Ltd.
Security documents maintained by Trust Bank Ltd. in this syndicate finance:
- Facility agreement
- Paripassu security agreement
- Escrow account agreement
- Memorandum of deposit of title deeds and copy of certificate of registration of mortgage.
- Deed of agreement.
- Letter of hypothecation by way of fixed and floating charge.
- Personal guarantee of Managing Director and witnesses.
4.2 Non Funded Facilities provided by Trust Bank Ltd
Non funded facilities are divided into the following categories:
· Bank Guarantee.
· Letter of credit.
4.2.1 Bank Guarantee
Trust Bank offers guarantee for its reliable and valuable customer as per requirements. This is also a Credit facility in contingent liabilities from extended for participation in development work like supply of goods and services. The features of Bank Guarantee are as follows:
- It is a written document on non-judicial stamp
- Expiry date is mentioned specifically with other terms and conditions
- Trust Bank receives commission quarterly @ 0.50% of the guaranteed amount.
Trust Bank offers two types of Bank Guarantee, which are as follows:
1. Tender or Bid Bond Guarantee
In time of tender bidding either cash or bank guarantee is required in case payment of earnest money. The tender guarantee assures that the tenders shall uphold the conditions of his tender during the period of the officer as binding and that he /she will also sign the contract in the event of the order being granted. The steps in the process of Bid bond Guarantee are:
· Request letter from customer along with board resolution in case of Limited company
- Trade license in case of Proprietorship Company
- Copy of tender form
- Margin:
- Incase of reliable client 10% to 20%
- For a new client 100% margin is required
- Bank guarantee is issued in 150 Tk. Stamp Pad
- Note is initiated
- Approval of Bank guarantee is given.
2. Performance Guarantee:
Trust Bank also gives guarantee on behalf of the customer on completion of the delivery or performance after getting the tender. Beneficiary finds that as a guarantee, the contract will be fulfilled in every respect and can retain the guarantee as per provision for long time. Including a clause stating that the supplier can claim under the guarantee, by presenting an acceptance certificate signed by the buyer, can counteract this. Document required for performance guarantee are:
- Tender schedule.
- Guarantee letter.
A guarantee can be converted into funded facility if it is en cashed. If the client is unable to meet up banks demand a loan account is created like Over Draft as Bank is liable to pay to the beneficiary of the guarantee. If Bank guarantee is not used then the beneficiary or party to whom the guarantee was given on behalf of the client will sign on the back of the Bank Guarantee stamp and write the word ‘Released’. Then the facility will be expired as well as banks liability.
4.2.2 Letter of Credit
Through Letter of Credit Trust Bank Ltd. provides a credit line to an importer to facilitate both foreign and inland transactions. This is a contingent liability which can be converted to a funded facility incase bank makes the payment on behalf of the importer. A letter of credit can be revocable or irrevocable, restricted or negotiable so on.
As Letter of Credit is an issue to be discussed in the management of Foreign Exchange Operation of the bank, we shall not proceed in discussing this issue.
4.3 The Rates of different types of loans
The revised lending rates as mentioned below effected from 30.04.2007 for all existing and fresh sanction of credit facilities.
| Particulars of Sectors | Revised rate(s)% p.a | |
| 1. | Agriculture/Agro-based industry:
a) Loan to primary producer |
10.50 |
| b) Loan to Agricultural in put Traders/Fertilizer Dealers/Distributors | 10.00 | |
| c) Agro processing industry/farms | 10.00 | |
| 2. | Large & Medium scale industry (Term Loan) | 15.00 |
| 3. | Working Capital:
a) Jute b) Other than jute |
11.00
15.00 |
| 4. | Export Finance:
Jute & Jute Products Other Exports |
7.00
7.00 |
| 5. | Commercial Lending:
Loans against Work order and Brick Manufacturing Commercial Loan (Garments) Commercial Loan (Others) Small & Medium Scale Enterprises (SME’s) |
15.00
14.00 15.00 16.00 |
| 6. | Term Loan:
a) Small and Cottage industries |
14.00 |
| b) Urban Housing (residential) | 15.00 | |
| c) Urban Housing (commercial) | 15.50 | |
| d) Loan for dwelling house repair and reconstruction
(Bank’s Scheme loan for low income bracket) |
12.00 | |
| e) Transport loan | 16.00 | |
| f) House building scheme loan for serving Army Officers | 11.00 | |
| g) Consumer Durable Scheme | 17.00 | |
| h) Car & Marriage Loan Scheme | 12.00 | |
| 7. | Loan against FDR issued by Trust Bank Ltd. | 2.50% above FDR rate |
| 8. | Loan against Savings Certificates & other allowable Financial securities issued by TBL | 13.00 |
| 9. | Loan against Lien of FDR / Savings Certificates / WEDB & other allowable instruments issued by other Banks/ Financial institutions | 14.00 |
It is mentioned that variation by 1.5% is allowable both at the upper and lower end from the mid rate on case to case basis with the approval of head office.
Consumer Credit Scheme
Retail banking is a modern concept of the age. Trust Bank Ltd. has also introduced retail banking recently. The consumer product is not new for TBL. Before Retail banking scheme TBL also provided some credit of retail banking. The new change is that TBL has added few new credit lines and opened a new department named Retail Banking. The credit lines of Consumer Credit are as follows:
- Any Purpose Loan
- Apon Nibash Loan
- Car Loan
- Household Durables Loan
- Doctors Loan
- Marriage Loan
- CNG Conversion Loan
5.1 Any Purpose Loan
“Any purpose” Loan is a terminating facility offered by the Retail Banking Unit of