Letter of Transmittal 5th November, 2008 Mohammad Shaiful Khan Lecturer Dept. of Finance University of Dhaka.

Subject: Submission of report. Dear Sir With suitable respect I would like convey to your knowledge that as per our BBA program we have prepared our report paper under the topic of Accounting Practice byThe Trust Bank Limited. Now we like to submit my paper to you. We have tried my best to prepare the paper in consistence with the optimal standard under your v aluable direction. We request you modestly to accept our paper as it may suffer from some shortcomi ngs. We desired and endeavored to make this paper a complete one. Therefore, We hope that this will meet the standard of your judgment. Sincerely yours Jannatul Islam 43 Tanvir Hassan Chowdhury 99 Kamrun Nahar .109 Shoaibur rahman Sarkar..125 Saika Ninad..137 Mohammed Shohel ..151 Dept. of Finance University of Dhaka Acknowledgement It was a great pleasure to prepare report on the various aspects of credit activ ities and operations by The Trust Bank Limited. We would like to thank and conve y my gratitude to honorable Professor, Dept. of Finance, University of Dhaka, fo r letting us to prepare this report. We are also grateful to the management of The Trust Bank Limited for co-operatin g us to gather information and prepare this report. We are also owed to each person who I bothered inside and outside of TBL, SKB Br anch, in carrying out this report.

EXECUTIVE SUMMARY The principal reason banks are chartered by the government and the central bank is to make loans to their customers. Banks are expected to support their commun ities with an adequate supply of credit for all legitimate business and consumer financial needs and to price that credit reasonably in line with competitively determined interest rates. Indeed, making loans is the principal economic functi on of banks to fund consumption and investment spending by businesses, individua ls, and units of government. How well a bank performs its lending function has a great deal to do with the economic health of fits region, because bank loans su pport the growth of new businesses and jobs within the banks trade territory and promote economic vitality. Moreover, bank loans often seem to convey positive i nformation to the marketplace about a borrowers credit quality, enabling a borrow er to obtain more and perhaps somewhat cheaper funds from other sources. For most banks, loans account for half or more of their total assets and a bout half to two-thirds of their revenues. Moreover, risk in banking tends to be concentrated in the loan portfolio. When a bank gets into serious financial tro uble, its problems usually spring from loans that have become uncollectible due to mismanagement, illegal manipulation of loans, misguided lending policies, or an unexpected economic downturn. No wonder, then, when examiners appear at a ban k they make a thorough review of the banks 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 banks loan policy to ensure that it is sound and prudent in order to protect the publics funds

The Trust Bank Ltd. started their operation more than 6 years ago. They gained success from the very beginning of their operation and were capable enough to ho ld 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 We lfare Trust. Total loans & advances of the bank as on December 312007 was Tk. 9,7 38.32 million as against Tk. 6,804.45 million in FY2006, showing an increase by 43.12% over the preceding year. The credit portfolio of the bank is a mix of sch eme loans, namely Micro credit, Consumers durable scheme loan (CDS), Marriage Lo an, Car Loan, HBF Loan and Commercial Loans. Commercial Loans comprise Trade fin ancing in the form of working Capital and industrial loans (both large and mediu m scale industries) in the form of Term loans and other funded & non-funded cred it facilities. Term financing indicates the participation in the industrial deve lopment of our country while by extending small loans TBL has fulfilled the borr owing needs of the low and medium income groups of our society. The classified l oans & advances accounted for only 3.16% of the total Loans & Advance of Tk. 189 7.63 million in FY 2004. The bank as a matter of priority in its the policy want s to ensure quality of its Loan Portfolio by strengthening post disbursement rec overy measures as well as by prioritizing on Early Warning System (EWS) to check the growth of non-performing assets.

Origin of the report Now a day, education is not just limited to books and classrooms. In todays world , education is the tool to understand the real world and apply knowledge for the betterment of the society as well as business. From education the theoretical k nowledge is obtained from courses of study, which is only the half way of the su bject matter. Practical knowledge has no alternative. The perfect coordination b etween theory and practice is of paramount importance in the context of the mode rn business world in order to resolve the dichotomy between these two areas. exp erience. This paper is entitled Accounting Practice By The Trust Bank Limited originated fr om the fulfillment of the course program. Objectives of the Study To present an over view of The Trust Bank Ltd. To analysis the Lending procedures maintained by the TBL To observe principal Lending activities of The Trust Bank Ltd. To evaluate Lending performance of The Trust Bank Ltd. To measure the actual position in classified Loan and provisions maintained by t he TBL To appraise the actual Recovery position of the TBL To compare the classified conditions of the NCBs vs. PCBs vs. FCBs in Bangladesh . To evaluate the success of credit operations compare with other Banks. To identify problems in credit operations of The Trust Bank Ltd. To recommend suggestions for the successful Lending Operations of the Trust Bank Ltd. Methodology For preparing this paper, I used both Secondary and Primary data. Collection of Primary Data: Many of the data and information were collected from our practical experience an d queries from the executives at The Trust Bank Ltd. Information and data regard ing Overview of the TBL, interest rates & charges, credit operations, performanc e measurement in Lending, SWOT Analysis, credit policies, Loan Agreement etc. we re collected from these sources. Collection of Secondary Data: Data regarding the Credit operations and Performance Evaluation of The Trust Ban k Ltd. were collected from secondary sources like: Annual Reports, Brochures, Ma nuals and Publication of The Trust Bank Ltd., Bangladesh Bank Library, BIBM Libr ary, DSE Library, News paper etc. were the major sources of secondary date. Limitation of the study The main problem faced in preparing the paper was the inadequacy and lack of ava ilability of required data. This report is an overall view of Accounting Practic e of The Trust Bank Ltd. But there is some limitation for preparing this report.

Firstly this bank is very new so they do not have enough data, thats why I did n ot make vast compare this bank with other banks. Secondly when I was doing my in ternee then there internal and Bangladesh Bank auditing is going on thats why we did not get the after closing data that is available data of 2008. With all of t his limitation I tried my best to make this report as best as possible. So reade rs are requested to consider these limitations while reading and justifying any part of An Over View of the Trust Bank Limited The Trust Bank limited (TBL), a private commercial bank sponsored by the Banglad esh Army Welfare Trust, started its operations in November 29, 1999.The authoriz ed capital of the bank is Tk. 2,000 million. The Army Welfare Trust (AWT) is the major shareholder of the Trust Bank Ltd. Total shareholders equity at the end of December 2005 stood at Tk.991.97 million, where Paid-up capital is Tk 500 milli on, statutory reserve is Tk 113.14 million and Retained Earnings is Tk. 178.83 m illion and share money deposits Tk 200 million. The Paid- up capital is indicati ve of the face value of 5,000,000 ordinary shares of Tk.1,00/-each fully subscri bed by the shareholders. Status of The Trust Bank The Trust Bank Limited is a scheduled commercial bank established under the Bank Companies Act, 1991 and incorporated as a Public Limited Company under the Comp anies Act, 1994 in Bangladesh on June 1999 with the primary objective to carry o n all kind of banking business in and outside Bangladesh. The Bank had twenty on e (21) branches operating in Bangladesh now. It renders all types of personal, c ommercial and corporate banking services to its customers within the purview of the Bank Companies Act, 1991 and in line with the directives and policy guidelin es laid down by Bangladesh bank

Objective of the Bank The Trust Bank Limited has been established with the objective of providing effi cient and innovative banking services to the people of all sections of our socie ty. One of the notable strengths of this bank is that it is backed by the discip lined and strongest Institution of Bangladesh i.e. Bangladesh Army and there is a synergy of welfare and Profits in the dynamics of this institution. Bank is service-oriented industry and we on our part are committed to ensure cus tomized, qualitative and hassle free services in our banking operations along wi th the focus to broaden the clientele base. The bank has extensively in the coun trys industrial and agricultural sectors in the coming days. The bank is committe

d to contribute as such as possible within its limitations for the economic grow th and for ensuring value of its available resources. Performance of the TBL TBL a blend of expertise and technological excellence is in place to meet varied needs of modern customers. The bank aims at mobilizing untapped money of the co untry and prudent deployment for productive activities in the form of lending at a competitive interest rates/loan pricing. Towards attainment of its goals and objectives, the bank pursues diversified credit policies and strategic planning in credit management. To name a few, the bank has extended micro credit, consume rs durable scheme loans, house building loans etc. to cater to the needs of the individuals, which in turn has helped thousands of families. The bank also exten ds loan in the form of trade finance, industrial finance, project finance, expor t & import finance etc. The banks credit polices aimed at balanced growth and har monious development of all the sectors of the countrys economy with top most prio rity to ensure quality of lending by averting growth of non-performing assets.

Reserves The policy of the Trust Bank Ltd is to keep statutory reserve at 20% on profit b efore tax. The Bank raised its Statutory Reserve from Tk 43.26 million in FY 200 4 to Tk. 45.26 million in FY 2005.

Profit and Operating Results Total operating income of the bank in FY 2005 was Tk. 511.45 million against a t otal operating expenditure of Tk. 215.19 million. Total profit before provision stood at Tk. 296.26 million during FY 2005. After keeping Tk. 69.97 million as p rovision against classified loans & advances, and Tk. 105.00 million as provisi on for income tax, the net profit stood at Tk. 121.29 million during FY 2005. Ne t profit after income tax in the year 2004 posted by the bank was Tk. 216.38 mil lion. There is a significant increase in profit in 2005 over the preceding FY 20 04. The earning per share was Tk. 24.26 in FY 2005. The retained earning increas ed by 174% to Tk 178.33 million in FY 2005 compared to Tk. 102.80 million in FY 2004.

Deposits In FY 2005, the deposits of TBL shot up to Tk. 12704.90 million from Tk. 9314.65 million as recorded in FY 2004. During this period, the deposit base was increa sed by 36.40% compared to the preceding year. The combination of competitive int erest rates, depositors trust in the bank and mobilization efforts of the bank re sulted in this growth of deposits. Efforts are a foot being made to further incr

ease deposit base of the bank through promotion of business and exploring of pot ential scop

Loans & Advances Total loans & advances of the bank as on December 31, 2005 was Tk. 9,738.32 mill ion as against Tk. 6804.45 million in FY2004, showing an increase by 43.12% over the preceding year. The credit portfolio of the bank is a mix of scheme loans, namely Micro credit, Consumers durable scheme loan (CDS), Marriage Loan, Car Loa n, HBF Loan and commercial Loans. Commercial Loans comprise Trade financing in t he form of working capital and industrial loans (both large and medium scale ind ustries) in the form of Term loans and other funded & non-funded credit facil ities. Term financing indicates the Banks participation in the industrial development of our country while by extending small loans the TBL has fulfilled the borrowing needs of the low and medium income groups of our society. The bank in the year 2 005 is not extended repair & reconstruction of dwelling house. The classified lo ans & advances accounted for only 1.32% of the total Loans & Advance of Tk. 9,73 8.32 million in FY 2005. The bank as a matter of priority in its policy wants to ensure quality of its Loan Portfolio by strengthening post disbursement recover y measures as well as by prioritizing on Early Warning System (EWS) to check the growth of non-performing assets. Branch Expansion The TBL has taken up a programmed to expand its branches. The bank has already 2 1 branches in many different places in Bangladesh; most of them are inside the d ifferent cantonments. The management is filling that they need more branches all over the Bangladesh. So very recent they will open a branch in Gulshan, Dilkush a, Chittagong and Sirajgonj. As per Bangladesh Bank circular that if any banks o pen a branch in Dhaka then they have to be open a branch in out side Dhaka. Information Technology (IT) & Automation All the branches of the TBL are fully computerized. New software is now in use t o provide faster, accurate and efficient service to the clients. The bank is con tinuously striving for better services through extensive automation of its branc hes. We are soon going to launch One Branch Banking through on-line connectivity. The bank has set up a full-fledged IT division to keep abreast of the latest dev elopment of IT for better service in the days to come. Foreign Correspondents Foreign correspondent relationship facilities foreign trade operation of the ban k, mainly in respect of export, import and foreign remittance. The number of for eign correspondents and agents of the bank in the year 2005 stood at more than 3 00, which covers important business and trade centers of the world. The bank mai ntains excellent relationship with the leading international banks, for handling all foreign correspondent and maintaining all foreign business there is an Inte rnational Division, which is called ID.

Types of Credit made by the TBL Modern banking operation touches almost every sphere of economic activity. The e xtension of bank credit is necessary for expansion of business operations. Bank credit is a catalyst bringing about economic about economic development. Without adequate finance there can be no growth or maintenance of a stable output. Bank lending is important to the economy, for it makes possible the financing of com mercial and industrial activities of a nation. The credit facilities are general ly allowed by the bank may be in two broad categories. They are as follows: A. Funded Facilities: Funded facilities can also be divided into the following categories Term Loans: The term of loan is determined on the basis of gestation period of a project gen eration of income by the use of the loan. Such loans are provided for Farm Machi nery, Dairy, Poultry, etc. It is categorized in three segments: Types of Term Loan Time (Period) Short Term 1 to 3 years Medium Term 3 to 5 tears Long Term Above 5 years Over Draft (OD): OD is some kind of advance. In this case, the customer can over draw from his/he r current account. There is a limit of overdraw, which is set by the bank. A cus tomer can with draw that much amount of money from their account. For this there is a interest charge on the over draw amount. This facility does not provide fo r 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. Cash Credit (Hypo): 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 c redit. It allowed fewer than two categories: 1. Commercial Lending 2. Working Capital Cash Credit (Pledge): Financial accommodation to individual/firm for trading as well as whole sale pur pose or to industries as working capital against pledge of goods primary securit y falls under this head of advance. It also a continuous credit and like the abo ve allowed under the categories: 1. Commercial Lending 2. Working Capital SOD (General): Advance allowed to individual/firm against financial obligation (i.e. lien of FD R/PS/BSP etc.) and against assignment of work order for execution of contract wo

rks fall under this head. This advance is generally allowed for allowed for defi nite period and specific purpose. It is not a continuous credit. 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 p eriod, which is known as preemptor finance and falls under the category Commercia l Lending. PAD: Payment made by the bank against lodgment of shipping documents of goods importe d through L/C falls under this type head. It is an interim type of advance conne cted with import and is generally liquidated shortly against payments usually ma de by the party for retirements of documents for release of import goods from th e customer authority. It falls under the category Commercial Lending. LTR: Advances allowed for retirement of shipping documents and release of goods impor ted through L/C without effective control over the goods delivered to the custom er 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 wi thin a given period. This is also temporary advance connected with import that i s known post-import finance under category Commercial lending. IBP: Payment made through purchase of inlands bill to meet urgent requirements of cus tomer fall under this type of credit facility. This temporary advance is adjuste d from the proceeds of bills purchased for collection. It falls under the catego ry Commercial Lending. FDBP: Payment made to a party through purchase of foreign documentary bills fall under this head. This temporary advance is adjustable from the proceeds of negotiable shipping/export documents. It falls under category Export Credit. LDBP: Payment made to a party through purchase of local documentary bills fall under t his head. This temporary liability is adjustable from proceeds of the bill. Bank Guarantee: The exporters pay of the imported goods on behalf of the importer through bank g uarantee. If the exporter fails to make the fulfill payment at the moment the ba nk will take the liability and pay to the exporter. This type of guarantee is al so needed to attend in any tender. Micro Credit: Loan has given only to the Army Person for the purpose of Repairing and Reconstr uction of dwelling Houses.

CDS: A credit facility is available for Armed Forces officials (Major and above or eq uivalent Ranks and Status with minimum length 12 years of services). Car loan an d Marriage loan are also included as CDS. HBL: A credit facility is available for the retired Armed Forces officials. B. Non Funded Facilities: Non funded facilities are divided into the following categories: Bank Guarantee: A credit facility in contingent liabilities from extended by the banks to their clients for participation in development work, likes supplies goods and services . Letter of Credit: A credit facility in contingent liabilities from provided to the clients by the banks for import/procurement of goods and services.

Loan Disbursement After completing all the necessary steps for sanctioning loans bank will create a loan account by the name of the party and deposit the money to that account. B ank will give cheque books to the party and advise them to draw the money and us e it as soon as possible, because whenever the money will transfer to the accoun t interest will count from that time. Analyzing the Year Wise Loan Disbursement by the TBL YEAR AMOUNT OF LENDING (in million/Tk.) 2000 525.75 2001 1,603.95 2002 1,897.63 2003 4,358.31 2004 6,804.45 2005 9,738.32 TOTAL 24,928.41

From the graph we can say that in the year 2005 the total loan disbursement is 3 9% (Tk 9738.32 million) to compare with other financial years. In the year 2004 the loan disbursement was 28% (Tk 6804.45 million) and in the year 2001, 2003 & 2003 the loan disbursement was 7% (Tk 1603.95 million), 8% (Tk 1897.63 million) & 18% (Tk 4358.31 million). So according to this graph we can easily say that th e banks loan disbursement is increasing day by day. It is a positive sign for the bank. After establishing the bank, disbursement of loan is not so high because of their inexperience and inadequate loan disbursement policy. Now the bank has an attractive loan policy which attracts the customers. If we see the percentage increase by the year then in the loan disbursement is 39% and in the previous y ear it was 28%. So the percentage increases by 11% only. In the year 2003 & 2004 the percentage increased by 10%. In compare, the increasing percentage is about to same that is in 2005 the increasing percentage was 11% which is more then 1% in the previous year. It may be the good sign for the bank because the loan dis bursement is increasing or steady not decreasing. Banks main earning source is lo an disbursement, like: interest earning. It is a big part of the banks total earn ing. So the bank should take care in this loan side. Analyzing the Sector-wise Lending By the TBL (million/Tk) SECTOR 2003 2004 2005 Cash Credit 179.92 165.83 257.06 Cash Collateral 148.59 199.53 220.66 Overdraft 355.07 529.89 736.52 SOD 1,676.17 2,153.63 3,011.33 Marriage Loans (ML) 87.35 81.90 74.03 Car Loan (CL) 17.00 26.26 28.28 House Building Loan(HBL) 89.16 100.23 397.73 Term Loans 284.34 834.56 1,744.04 Staff Loans 11.23 20.94 46.16 Consumer Durable Scheme (CDS) 33.04 25.70 25.87 Repair & Recon. of Dwelling House (RRDH) 247.38 233.35 222.08 Loan Against Trust Receipts (LTR) 987.85 2,044.41 1,823.81 Payment Against Documents (PAD) 209.01 257.49 114.46 Bill Purchased & Discounted 30.49 114.04 354.86 Other Loans 1.72 16.69 681.42 Total Loans & Advances 4,358.31 6,804.45 9,738.32

Analyzing the Sector-Wise Loan Disbursement Of the TBL in the year 2003 In the year 2003, The Trust Bank Ltd. only passes three years experience with lo an disbursement. This is not enough experience for lending loan disbursement. Fr om the graph, we can say that the TBL was not able to maintain a good lending op eration in the year 2003, though it was the fourth year of the TBL Banking opera tions. The maximum portion of the lending has disbursed in the sector of Overdra ft. About 43.63% of total has given in this sector. The second position of loan disbursement was 22.67% on Loans against Trust Receipts (LTR). Repair & Reconstr uction of Dwelling House which another name is Micro Credit has given up a big p ortion of total loan disbursement. More than 19% of total loans have disbursed a

s other Loans (SOD, RRDH, ML, CL Letter of Credit etc.). About 6.52% loans has g iven in the sector as Long Term Loan and 7.54% loans have given as cash credit.

Analyzing the Sector-Wise Loan Disbursement Of the TBL in the year 2004 In the year 2004, from the graph we can say that the maximum portion of lending has disbursed to the Overdraft sector which was 39.45% of total loan disbursemen t. The total loan disbursement amount of Overdraft was increased but the percent age was decreased. In the year, loan disbursement of RRDH (Micro Credit) was dec reasing. The second highest percentage of lending was 30% of the total in Loans against Trust Receipts. Term Loans has maintained the third position in loan di sbursement by the TBL. The amount of loan was 834.56 million, which was about12. 26% of the total lending. A large amount of loans was also disbursed as Cash Cre dit. Loan has also disbursed as short-term loans, cash credit, House-building lo ans, Staff loans etc.

Analyzing the Sector-Wise Loan Disbursement Of the TBL in the year 2005

In the year 2005, from the graph we can say that the maximum portion of lending has disbursed to the Overdraft sector. Total percentage of Overdraft was 38.49%. Though total amount of this sector was continue to increase but the percentage of the sector was decreasing. RRDH or Micro Credit was highly decreased. Loan ag ainst Trust receipt and Term Loan are the second and third position in this year . The percentage of lending in LTR was 18.73% of the total in this sector. This year long term Loans have maintained the third position in loan disbursement by the TBL. The amount of loan was 1744.04 million which about 17.91% of the total lending. Loan has also disbursed as Cash credit, House building loans, Marriage loan, Car loan, Consumer Durable Scheme etc.

Chart of Interest rate of The Trust Bank for Lending SL Sector-Wise Lending Rate of Interest 01 Agriculture/ Agro-Based Industry a Loan to Primary Producer 10 11% b Loan to Agriculture input Traders/Fertilizer Dealers/Distributors 10% c Agro Processing Industries / Firms 10% 02 Large & Medium Scale Industry (Term Loan) 16%

03

Working Capital a Jute 11% b Other than Jute 16% 04 Export Financing a Jute and Jute Products 7% b Other Exports 7% 05 Commercial Lending a Loan against work order & brick manufacture 16% b Commercial Loan (Garments) 15% c Commercial Loan (Others) 16% d Small and Medium Scale Enterprise 17% 06 Term Loan a Small and cottage industries 14% b Urban Housing (Residential) 15% c Urban Housing (Commercials) 16% d Loan for dwelling house repair & reconstruction ( Banks scheme loan for low income bracket) 12% e Transport Loan 17% f Customer durable scheme 17% g Car and Marriage Loan 12% h House building scheme loan for in service Army Officers 11% 07 Loan against FDR issued by TBL 2.5% above FDR rate but not less tha n 12% 08 Loan against Lien/ Pledge on saving certificates WEBD & other financial assets issued by TBL. 12% 09 Loan against lien/ pledge on FDR , Saving Certificates, WEBD & Other allowable financial assets issued by TBL/ Financial Institution. 14% aga inst FDR & Financial Assets iss -ued by Banks/Fina -ncial Institution Revised on May, 2006 These sector-wise interest rates have been introduced by the Head Office of the Trust Bank Limited. They use cost-plus pricing method in case of pricing the loa ns. The Head office and the twenty (21) branches of the Trust Bank Limited have maintained these rates strictly except in case of some quality and credit-worthy lenders. After judging the lenders credit-worthiness, the Trust Bank Limited giv es some beneficiary to this kind of lenders. They can enjoy a decreasing interes t rate, which maintained by the Trust Bank Limiteds branches internally. Other wi se, the scheduled rates are maintained by all the TBL branches. In case of Micro Credit, as the loan amount is not so large thats why the scheduled rate is maint ained by the Bank. Actually, the Lending rate is based on the prescription, whic h is given by Bangladesh Bank. Recently TBL has revised their lending interest r ate on April, 2006. The revised lending interest rates have been effective from May 01, 2006 for all existing and fresh sanction of credit facilities.

Sector-wise Interest Income of the TBL During the year 2003-2005(million/Tk) INTEREST INCOME SECTOR 2003 2004 2005 Interest on Consumer Durable Scheme 6.76 3.02 Interest on Over Draft 5.79 11.72 15.30 Interest on SOD (Industrial ) 75.27 236.45 351.35 Interest on Cash Credit 27.29 17.85 24.68 Interest on Marriage Loan 13.76 9.93 8.55 Interest on Car Loan 2.98 3.00 3.94 Interest on Payment Against Document (PAD ) 15.52 Interest on Reair&Recon. of dwelling House(RRDH) Interest on House Building Loan 9.08 11.34 24.37 Interest on Term Loan 28.24 58.34 157.48 Interest on Time Lone 1.35 27.38 Interest on Inland Bills Purchased & Other Loan 109.17 Interest on Cash Collateral 6.58 17.32 31.60 Interest on Other Loans 0.95 235.99 Interest from Banks & Other Financial Institutions Interest on FDR 66.92 112.37 122.40 Interest on Bangladesh Bank Foreign Currency Accounts 0.12 1.04 2.59 Interest Received From Local Banks 1.39 0.75 Interest on Call deposits 2.30 1.57 5.38 Interest Received from Foreign Bank 0.26 0.42 Total Interest Income 403.82 749.03 1,100.21

2.87

32.61 31.43

33.05 24.55

22.51

5.20

23.35

4.71 2.74

Analyzing the Year-Wise Total Interest Income Of the TBL

From the graph we can say that in the year 2005 the total interest income is 110 0.21 million to compare with other two financial years. In the year 2004 the int erest income was 749.03 million and in the year 2003 the total interest income w as only 403.83 million which is more than the interest income year 2000 &2001. S o according to this graph we can easily say that the banks total interest income is increasing day by day. It is a positive sign for the bank. But there is one t hing that if we see the percentage increase by the year then in the interest inc ome is 76.16% in year 2005 and in the previous year 2004 it was 71.00%. So the p ercentage increases by 5.17% only. The total interest income was 75.40% in year 2003. In the year 2005 to 2004 the percentage increased but in compare with year 2003 to 2004, the total percentage of interest income decrease. It may be not a good sign for the bank, because banks main earning source is interest earning. S

o the percentage of total interest income should be steady & increase year after year. It is a main part of the banks total earning. So the bank should take care in this interest income sectors.

Analyzing the sector-wise Interest Income of The TBL in the year 2003

According to the graph, we see that in the year 2003, the total interest income was Tk 403.83 million. In this year, the highest interest income was come from t he Overdraft & SOD which was Tk 81.06 million. Next position for the interest in come was held from the Local financial institution & banks. Cash credit and Repa ir & Reconstruction of Dwelling House (RRDH) which another name is Micro credit were about to same contribution of the total interest income in this year. Inter est income from consumer durable scheme, IBP, Foreign exchanges also influence s trongly on the TBLs total interest income in this year.

Analyzing the sector-wise Interest Income of The TBL in the year 2004

According to the graph, we see that in the year 2004, the total interest income was Tk 749.03 million. In this year, the highest interest income was come from t he Overdrafts and Loan against Trust Receipts (LTR) & Payment Against Document ( PAD) which was Tk 248.18 & Tk 232.26 million. In this year, the interest income of RRDH that means Micro Credit was continuing to decrease. Next position for th e interest income was held from the local financial institution & banks. Interes t on Term loans & Cash Credit also has the large impact on the total interest in come in this year. Interest income from Marriage & Car Loan, IBP, Foreign exchan ges etc also influence strongly on the TBLs total interest income in this year.

Analyzing the sector-wise Interest Income of The TBL in the year 2005

According to the graph, we see that in the year 2005, the total interest income was Tk 1100.21million. In this year, the highest interest income was come from t

he Overdraft & SOD which is Tk 366.65 million that was 33.23%. In this year, Mic ro credit sector continue decrease the interest income. Next position for the in terest income was held from loans against trust receipts (LTR) & payment against document (PAD) and local financial banks & financial institution and the amount were Tk 234.61 & Tk 136.05 million. Interest on Term loans also has a large imp act on the total interest income in this year. Interest income from Cash credit, IBP, Foreign exchanges and other loans also influence strongly on the TBLs total interest income in this year.

Classified Loan conditions of the TBL (million/Tk) Particulars 2000 2001 Unclassified Loans & Advances 9,609.36 Sub-Standard Loans & Advances Doubtful Loans Advances Bad/Loss Loans & Advances Total 525.74 1603.95 1897.63 2002 2003 2004 2005 525.74 1583.21 1837.63 4,271.20 14.95 4.42 23.63 1.37 4,358.31 29.86 40.75 21.22 8.28 6.51 25.14 6,804.45 6,704.10 33.43 48.85 5.00 58.64 75.11 9738.32

Ratio of classified Loans to Total Loans of the TBL PARTICULARS 2000 Classified Loan 0% Unclassified Loan Total 100% 100% 2001 1.29% 100% 100% 2002 3.16% 98.71% 100% 2003 2.00% 96.84% 100% 2004 2005 1.48% 1.32% 98.00% 98.52% 98.68% 100%

The Trust bank Limited recorded a satisfactory level of performance in all the a reas of its operations in the year 2001- 2005. The success due to the combined a nd concerted efforts of the management and staff of the bank under the able guid ance, support and patronage of the members of the Board. But these were not enou gh in case of the Lending operations. The graph shows that the percentage of classified Loan in the year 2001 was 1.29 % (Tk 20.74 million), but in the year 2002, it was vastly increased and went up to 3.16% (Tk 60.00 million). After that TBL decreased their classified loan. In the year 2003, the classified loan was 2.00% (Tk 87.11 million). Then in the yea r 2004 & 2005, the classified loan was 1.48% (Tk 100.35 million) & 1.32% (Tk 128 .96 million). According to international rules, a bank may have a maximum limit of classified Loans as 5% of the total Lending. Though TBL did not pass this lim it, but it is not a good sign for the Bank. In year 2002 TBLs CAMEL rating was 3, which means the Bank was only in a fair position. The main problem of the TBL w as that it was not able maintain a good Loan policy. As a result, classified loa

ns of this Bank have increased. After that TBL took some good loan policy which improves percentage of classified loan that is decrease the percentage. It may n otice that though the percentage of classified loan decrease every year but the total amount of classified loan increase every year. TBL must have to improve in this area and has to decrease the amount of classified Loans by a well-designed recovery polic Provision for Loans and Advances maintained By the TBL Loan Loss Provision Procedure As pert of pragmatic and conservative approach to sustain the quality of the Ban ks loan portfolio, Loan Loss Provision exercise made mandatory for all Line of Bu siness. Such exercise is decided by: a) generally accepted banking practice, b) conservative approach to assess the quality of Risk Assets whereby the most accu rate health of the Loan Portfolio is reflected on the books of the Bank and c) t o be guided by Bangladesh Bank instructions on provisioning. Following guidelines are to be observed: i. The prudential Provision Practice dictates that rather that wait until t he close of the fiscal year; provision exercise would be an on-going one, with t he needed provision created, when an account is classified and continues to rema in classified. The provision exercise is to be carried out by each quarter end, based on reports on Classified Accounts related to previous quarter. ii. Bangladesh Bank instructions are to be followed for the purpose of Loan Loss Provision exercise. iii. Unless otherwise enhanced by Bangladesh Bank regulatory body, Loan Loss Provision Policy as per the matrix given below is to be adopted and followed by the Bank: Past Due O/S Expired Credit (CRITERIA) Classification Status Maximum Provision to be held against Net Loan Value 180 days 270 days 360 days Substandard Doubtful Bad / Loss 20% 50% 100% iv. Following formula is to be applied in determining the required amount of provision: 1. Gross Outstanding XXX 2. Less: (I) Cash margin held or fixed Deposit (XXX) (II) Interest in Suspense Account ( XXX ) 3. Loan Value (For which provision is to be created before considering estimated realizable value of other security/collateral held) XXX 4. (XXX) Less: Estimated salvage value of security / collateral held XXX

Net Loan Value

Provisions for Loans & Advances maintained By the TBL PARTICULARS 2003 2004 2005 Provision held at the beginning of the year 39.95 60.23 108.12 Fully provided debts written off Provisions on classified Loans & Advance 11.12 8.52 16.71 1% General provision for Unclassified Loan 9.16 Provision Against Special Maintenance Account 2.50 Balance at the end of the year 60.23 108.12 178.10 39.37 50.77

Trust Bank limited is made provision for loans and advance on the basis of perio d-ended reviewed by the management on the basis of instruction contained in Bang ladesh Bank BCD circular No.34 of 1989, BCD circular No.20 of 1994, BCD circular No. 12 of 1995, BRPD circular No.16 of 1998 and BRPD circular No.9 of 2001. According to the graph, we see that the amount of provision for loans and advanc es of the TBL has increased gradually over the years. We know that provision for loans and advances depends both on classified and unclassified loans. As the am ount of classified & unclassified loans of the TBL has increased gradually, it s hows an increasing rate also in the maintaining provisions. In the year 2002, th e percentage of total classified loan has gone up 3.16%. After that the next thr ee years classified loan amount was decreasing and the percentage was 2%, 1.48% & 1.32%. Though the percentage of classified loan was decreasing but the total a mount of classified loan increased as the loan amount every year increased. In t he year 2004, total provision of loans have created Tk 108.12 million where prov ision of classified loan Tk 8.52 million & unclassified loan Year 2003 as Tk 60. 23 million. In the year 2005, the classified loan increased to double as Tk 16.7 1 million which is the bad sign for the bank. In this year provision against spe cial maintenance account was Tk 2.5 million. And provision against unclassified loan created 1% of total unclassified loan amount. Nationalized Commercial Banks Currently there are four NCBs- Sonali, Agrani, Rupali and Janata. These banks ar e inefficient because of the employees. As they are not responsible for their ac tivities, they can do whatever they wish. The easiest way to take loan from thes e banks is to give bribe to top officers. Most of the cases they dont go for the feasibility studies of the borrower. But recently Govt. become aware about this factor and takes several strong steps to remove this culture. But they dont succe ssful until and unless, Govt. impose punishment for the responsible employees. T he punishment may be sack from job and jail. Now the Govt. banker thinks whateve r may be the case they dont loose their job. If Govt. could remove this idea from them then they would become more careful about their activities. Foreign Commercial Banks Now lets put our attention to the FCBs. Currently twelve foreign banks operates i

n the country. Among them Standard Chartered Bank takes the leading role. Whatev er maybe the case, again here we try to find out why these banks hold less class ified loans. Firstly, out of twelve only five are effectively engaged in corporate banking, one is newly established and others are basically doing foreign transactions job . As a result their amount of classified loans becomes smaller then the other tw o types of banks. Secondly, their cost of fund is less than others banks. So they can charge less interest against the loan. As a result the demand for their loan is high and th ey have more options to choose clients than other banks. Finally and most importantly because of their organization structure their empl oyees are more efficient and responsible to their activities. The ultimate resul t is that they hold less classified loans. Private Commercial Banks At last, lets put our concentration to the PCBs. Among the three types of banks, these banks have about 26.10% classified loans because of two reasons. First of all, their cost of fund is not cheaper than the FCBs. So they cant comp ete with them. Secondly and finally, the employees of these banks are not Govt. employees. The y should to be responsible for their activities. Moreover the borrowers have to wait long to get loans. But because of the efficient employees the PCBs hold les s classified loans than the NCBs. In a nutshell, we can say that the FCBs and NCBs enjoy better facilities than th e PCBs. The elite customers, who look for cheaper source of money, nock the FCBs doors. The customers, who looks for quick source of money looks for the NCBs. P CBs have to deal with the rest of the clients. Another point is that the numbers of PCBs are several times higher than the FCBs and NCBs. So a strong competitio n is moving around in the market and the competition is not equal.

The Trust Bank Limited The Trust Bank Limited at a glance (million/Tk) Particulars 2004 2005 Deposits 9,314.95 12,704.90 Loans & Advances 6,804.45 9,738.32 Total Operating Income 427.43 511.46 Profits 216.38 226.29 Loans as (%) of total deposits 73.05% 76.65% Provisions 47.89 69.97 Unclassified Loans 6,704.10 9,579.68 Classified Loans 100.35 128.97 Ratio of classified Loans to total Loans 1.48%

1.32%

The Trust Bank Limited is one of the latest names in the PCBs. It started its op eration just five years back. In 2000, the percentage of lending to deposits was 48%, which increased in 2005 as76.65%. In 2004, the amount of total operating i ncome was about Tk 427.43 million but in 2005 it was vastly increased by Tk 84 million and the amount was Tk 511.46 million. In the year2004 total loan & advan ces and the deposits was Tk 6804.45 & Tk 9314.90 million which increased in year 2005 to Tk 9738.32 & Tk 12704.90 million. These are too difficult to make a com parison with the PBL. Here I tried to find out the reasons for the difference wi th PBL. First of all, their organization structure. Here basically the branch manager se eks the clients and sends documents to the Head Office Credit Division. Then cre dit division verifies those papers and send proposal to the Board of Directors. If the proposal approved then the client communicate with the head office to con tinue their facility and for money contract with the nearest branch. It is a tim e consuming procedure. As the branch and the credit division dose not located at the same place, they dont enjoy facility at right time. Finally and most effectively, their Recovery policy was not so good and which n eeded a compulsory change and that happened in the year 2003.

Findings and Analysis If we compare the above two banks then well find that the easiest credit facility is provided by PBL. As a result they get more options to choose clients and sel ect the bests. Moreover their branches are more or less autonomous. Because of t his, the branch managers take risk on their own shoulder and become responsible for their activities. The TBL is caught because of their inexperienced managemen t and the way of their credit facility. There is a universal truth in the business world is business is a game of profit and loss. If anybody things that he or she will only enjoy profit rather loss t hen he or she will make the mistake. This is also true in the Banking sector. Wh enever they give loan they have to put this thing in their mind is that some of the loan will become classified. But they should give their best effort to minim ize the figures of classified loans. Prime Bank Limited starts their operation i n 1995. And even after eleven years they are successfully able to rush their cla ssified loans at such a marginal level by doing an excellent job. The Trust Bank Limited established five years back. And as a latest bank their classified loan are not that much (more than PBL) but because of inexperience in lending their amount of classification increases suddenly in year 2002. But in the year 2003, their improvising ability has increased by changing the management in lending an d they are able to introduce the EWS Department. So the TBLs expectation increase s that they will be able to rush their classified loans at a marginal level.

Appendix-A Abbreviations SOD = Secured Over Draft PAD = Payment Against Documents LTR = Letter of Trust Receipts IBP = Inland Bill Purchase FDBP = Foreign Document Bill Purchase LDBP = Local Document Bill Purchase CDS = Consumer Durable Scheme RRDH= Repair & Reconstruction of Dwelling Houses HBL = House Building Loan TBL = Trust Bank Ltd. PBL = Prime Bank Ltd. NCB = Nationalized Commercial Bank FCB = Foreign Commercial Bank PCB = Private Commercial Bank

Bibliography Commercial Bank Management by Peter S. Rose Annual Reports of the TBL Annual Reports of the Prime Bank Ltd. Brochures of the TBL Annual Reports of the Bangladesh Bank Bangladesh Bank Bulletin Journals of Bangladesh Bank BIBM Library DSE Library News papers