Credit risk management policy of Trust Bank Ltd.

Abstract

Importance of banking system in a country is increasing day by day. It is quite impossible for any country to develop in industrial and commercial sector without sound banking system in modern economic era. Credit/lo an is one of the significant functions of the bank. It plays a vital role in overall economy of the country. Credit // Loan constitute the major revenue earning asset of a Bank. Credit risk is the possibility that a borrower or a counter party will fail to meet its obligation in accordance with agreed terms. Trust Bank is very much careful in maintaining its credit risk as the Bank’s main asset is its loan portfolio. There is an independent risk management division called credit risk management (CRMM) to assess credit risks and suggest mitigations before recommendation of every credit proposal. A detailed study of borrower ’s creditworthiness is done before making any loan/credit to that borrower. Character, capacity, cash, collateral, conditions, and control these six aspects of a borrower is specially evaluated and All must be satisfactory for the loan to be a good one from the bank’s point of view. Physical Investigations, Customer financial statements, Experience of other lenders with this customer, Customer Annual Report, Local or regional credit bureaus etc. are the customer ’s information sources.. Trust Bank follows a credit risk grading system which describes the overall condition of the borrower and helps the bank to identify the risk level. Disbursement under loan facilities are in TBL only be made when all security documents are in place and credit approval has been made by the authority. Trust Bank’s total loan disbursement is increasing year by year. And, it’s a good sign for the bank because loan disbursement generates maximum earning for a bank. Monitoring of loans and advances is strongly followed in TBL as it’s the only way to ensure smooth recovery of the money extended to the borrower. There is a credit recovery unit too review loans and advances and strengthen the recovery process by ensuring better quality of loan portfolio. The Banker has to take appropriate supervisory or monitoring measures after disbursing too protect the bank against risks and to minimize classified loans. This paper will discuss regarding the related issues of credit risk management activities of Trust Bank Ltd.