Categorization of loans and credit risk management of Trust bank limited

Abstract

The principal reason banks are chartered by the government and the central bank is to make loans to their customers. Indeed, making loans is the principal economic function of banks to fund consumption and investment spending by businesses, individuals, and units of government. Bank loans support the growth of new businesses and jobs within the banks trade territory and promote economic vitality. For most banks, loans account for half or more of their total assets and about half to two-thirds of their revenues. No wonder, then, when examiners appear at a bank they make a thorough review of the bank’s loan portfolio. Usually this involves a detailed analysis of the documentation and collateral for the largest loans, a review of a sample of small loans, and an evaluation of the bank’s loan policy to ensure that it is sound and prudent in order to protect the public’s funds. Trust Bank Ltd. gained success from the very beginning of their operation and were capable enough to hold the success year after year because they have a very strong backup to provide them financial support and they are the Army Welfare Trust. Total loans & advances of the bank as on December 31’2009 was Tk. 3266.31 Crore as against Tk. 160.40 Crore in FY2001. The credit portfolio of the bank is a mix of scheme loans, namely Micro credit, Consumers durable scheme loan (CDS), Marriage Loan, Car Loan, HBF Loan and Commercial Loans. Commercial Loans comprise Trade financing in the form of working Capital and industrial loans in the form of Term loans and other funded & non-funded credit facilities. Term financing indicates the participation in the industrial development of our country while by extending small loans TBL has fulfilled the borrowing needs of the low and medium income groups of our society. The classified loans & advances accounted for only 2.64% of the total Loans & Advance. The bank as a matter of priority in its the policy wants to ensure quality of its Loan Portfolio by strengthening post disbursement recovery measures as well as by prioritizing on Early Warning System (EWS) to check the growth of non-performing assets.