Executive Summary:

Mutu
Executive Summary:
Mutu
Executive Summary:
Mutual Trust Bank limited a private sector commercial bank. The bank has its head office at
Dhaka
and 50 branches. The bank conducts all types of commercial banking activities including foreign
exchange business and other financial services. The Company carries out international business
through a Global Network of Foreign Correspondent Banks. While running orientation with
MTBL
Principal Branch; generally I was placed in two vital departments, but I have gathered
knowledge other
department. My placing department is Customer Relationship Management and Credit Appraisal
and Credit Management Of Mutual Trust Bank Ltd. Different kinds of experience were gathered
while performing the job during the Internship period. During the period of internship there were
lots of
constrains, but the employee of Mutual Trust Bank Ltd solved it through authentic determination
and
the proper guidance. Customer Relationship is the starting point of all General banking
operations. It
is the department, which provides day-to-day services to the customers. General Banking
Department
comprises of account opening, short collection, remittance, clearing, cash etc. Through this
sections
the department establishes Banker relationship, collects bills from customers, remit funds of
customers from one place to another, honor cheque drawn. General Banking department provide
these service in a faster and better manner. The conventional banking operations MTB strives to
introduce an array of products and services and already launched a number of consumer banking
products with the aim of popularizing consumer banking operations and offer higher return to its
clients. These are :- Saving Deposit, Current Deposit, Fixed Deposit, Short Term Deposit, Brick
by
Brick Savings Scheme, Monthly Benefit Plan, Children Education Plan, Best Invest Plan, MTBL
Millionaire Plan, Festival Saving Plan, MTBL Double Sarver Plan, MTBL Triple Sarver Plan,
Unique
Saving Plan etc. Mutual Trust Bank online banking offers a customer to deposit or withdraw any
sum
of money from any branch anywhere.
Bank Credit is an important catalyst for banking about economic development in a country.
Without
adequate finance, there can be no growth or maintenance of a stable economy. The credit
department
approves the loans and advances of Corporate Banking division.
The main function is monitoring credit facilities granted by the corporate banking unit. The
credit
department of MTBL is divided into two parts: SME & Credit. Under SME the credit products
are-
Consumer Financing, Consumer Loan Scheme, Home Loan Scheme, Home Repair/ Renovation
Loan
Scheme, Auto Loan Scheme. And in credit, the consumers are offered Continues loan, Term
loan,
Export Finance. Though Mutual Trust Bank is going well in the market but it faced some
problems. To
recover this problem I gave some recommendation that will help them to work successfully in
the
future.
Background of the S tudy:
Banking sector plays a significant role in achieving the high economic growth of the country. A



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Home Business Finance Report on Fund and Credit Management in Mutual Trust
Bank
Report on Fund and Credit Management in Mutual Trust
Bank
Executive Summary
This report is completed as a partial requirement of my desk work which is mandatory for each
and every student of Stamford UniversityBangladesh. As I was working in Mutual Trust Bank
Limited, Panthapath Branch, Panthapath. I got the opportunity to learn different loan processing
activities, preparation of documents related with the loan processing activity, reporting of
different financial or non-financial statement to get the idea of loan processing and related
control mechanism in the banking system.
Mutual Trust Bank Limited, new generation private commercial bank, was established in 29
th

September, 1999. There are ten executives and officers in the Panthapath Branch. As Mutual
Trust Bank Limited, maintaining the pace with the competitive commercial banking in
Bangladesh, its activities, culture, philosophy and style leads an intern student to be the best at
any field of working life.
For this report I had to collect information from the bank itself. In this report I have tried to relate
accounting information system with the Credit Management Activities as well as related control
mechanism of Mutual Trust Bank Limited.
Mutual Trust Bank Ltd, a new generation private commercial bank strives to consolidate its
position among the top banks in the country through offering competitive services and products.
It started operations on 24 October 1999 with an authorized and paid up capital of Tk 1,000
million and Tk 200 million respectively. The bank has now 56 branches and 12 SME service
centers. The bank earned an operating profit of Tk 30,556.70 Million in 2010 against Tk
25,440.20 million in 2009. The net profit of the bank decreased to Tk 7551.57 million in 2010
against tk 8,206.05 million of the previous year.
Giving a thrust on the use of IT, the bank reorganized the DataCenter installing state of the art
modern hardware, network and security equipments. The bank has a strong presence in the
countrys growing stock market also. The bank has developed a number of products to cater to
the needs of corporate clients to small entrepreneurs and individual clients. It offers special
products for the remitters, whose hard earned money helps the country in development.
Representatives of the bank in the United Kingdom, the United Arab Emirates, Qatar, Canada
and other countries encourage the remitters to send money through formal channel and help the
economic activities to remain brisk.
Introduction
Now a day, it has become essential for almost every person to deal with banks somehow in their
bred and better life. As a result it has become essential for every person to have some idea of the
bank and banking procedure.
At present time, the banking procedure is becoming faster, easier and the banking arena is
becoming wider. As the comparative field of the banking sector, the banking organizations are
coming with innovative ideas.
Mutual Trust Bank is a financial institution whose main objective is the mobilization of fund
from surplus unit to deficit unit. In the process of acceptance of deposits and provision of loan,
Bank creates money. This characteristics feature sets Bank apart from other financial institution.
The bank can influence the money supply through lending and investment. The bank is an
economic institution whose main objective is to earn profit through exchange of money and
credit instruments.
Commercial bank is one which is concern with accepting deposit of money from the public,
repaying on demand or otherwise and withdraw able on demand or otherwise and employing the
deposits in the form of loan and investment to meet the financial needs of business and other
classes of society.
This report has been developed concentrating on the topic Credit Management of Mutual
Trust bank Limited, Panthapath Branch.
Objectives of the Study
To present an over view of Mutual Trust Bank Ltd
To analysis the Lending procedures maintained by the MTBL
To observe principal Lending activities of Mutual Trust Bank Ltd
To evaluate Lending performance of Mutual Trust Bank Ltd
To measure the actual position in classified Loan and provisions maintained by MTBL
To appraise the actual Recovery position of MTBL
To evaluate the success of credit operations compare with other Banks
To identify problems in credit operations of Mutual Trust Bank Ltd
To recommend suggestions for the successful Lending Operations of Mutual Trust Bank Ltd.
To contribute to the balanced development of economy by pursuing a sound credit policy that will put emphasis on
lending in desired sector.
To provide directional guidelines to all concerned to pursue the policy of sound lending,
improve risk management culture and establish minimum standard for managing risks in
credit operations and ultimately minimize credit risks.
To strictly comply with laws and norms related to lending operation.
To maintain adequate liquidity, make judicious investment planning and attain
sustainable growth and profitability.
To maintain balanced lending portfolio keeping strict watch on global economic situation
that might adversely affect the bank.
To ensure proper supervision, monitoring & follow up of asset portfolio.
To strengthen asset quality ensure safe return of money lent, minimizing of credit loss
and protect banks interest.
To make credit documentation exhaustive.
To make lending correct information based
To strictly comply with laws and norms related to lending operation.
To inform the banking credit facilities to the mass people.
To know about the Credit products and the way of disbursement.
Sources of Data:
The report is descriptive in nature. The information was collected from both primary and
secondary sources of data. Regarding the information required was collected within the
organization from the Corporate Division of Mutual Trust Bank Limited. In December 2000, the
total assets of the bank were valued at Tk 2,444.79 million. Assets sprung from off-balance-sheet
items were Tk 446.7 million. The bank earned a good amount of interest incomes through
treasury functions and by timely placement of surplus funds in call money market. Investment of
the bank other than loans and advances figured at Tk 125.10 million in 2000 and the whole
amount was in government bills. During 2000, the total operating income of the bank was Tk
178.20 million and its operating expenses were Tk 158.02 million which resulted in operating
profits of Tk 20.18 million. 1% provision on the unclassified advances equivalent to Tk 6.19
million was made and Tk 5.60 million was retained as provision for taxation. Of the net profit
after tax, Tk 2.80 million was transferred to Statutory Reserves and Tk 5.59 million to General
Reserves. The bank reached break even within only 67 days after it commenced business.
Collection of Primary Data
Many of the data and information were collected from my practical experience and queries from
the executives while doing my internship at Mutual Trust Bank Ltd. Information and data
regarding Overview of MTBL, interest rates & charges, credit operations, performance
measurement in Lending, SWOT Analysis, credit policies, Loan Agreement etc. were collected
from these sources.
Collection of Secondary Data
Data regarding the Credit operations and Performance Evaluation of Mutual Trust Bank Ltd.
were collected from secondary sources like: Annual Reports, Brochures, Manuals and
Publication of Mutual Trust Bank Ltd., Bangladesh Bank Library, BIBM Library, DSE Library,
News paper etc. were the major sources of secondary date.
Scope of the Study
This report has been prepared on the basis of experience gathered during the period of internship
from 16.06.11 to present 2011. For preparing this report, I have also got information from
Annual reports and Website of the Mutual Trust Bank Ltd. I have presented my experience and
findings by using different charts and tables, which are presented in the analysis part.
Limitation of the study
The main problem faced in preparing the paper was the inadequacy and lack of availability of
required data. This report is an overall view of Credit Operations of Mutual 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 not make vast compare this bank with other banks. Secondly
when I was doing my internee then there internal and Bangladesh Bank auditing is going on
thats why I did not get the after closing data that is available data of 2010. With all of this
limitation I tried my best to make this report as best as possible. So readers are requested to
consider these limitations while reading and justifying any part of my study.
Organizational Profile of MTBL:
Mutual Trust Bank Limited a private sector commercial bank. It started operations on 24 October
1999 with an authorized and paid up capital of Tk 1,000 million and Tk 200 million respectively.
The capital is divided into ordinary shares of Tk 100 each. In December 2004, the bank total
equity and reserve funds were Tk 208.48 million and Tk 8.48 million respectively. The bank is a
Bangladeshi joint venture company with equity participation from Advanced Chemical
Industries Ltd., East West Properties Development Ltd. and Associated Builders Corporation
Ltd. The management of the bank is vested in an 18-member board of directors, including
representatives of the 3 sponsor firms. The managing director is its chief executive.
The bank conducts all types of commercial banking activities including foreign exchange
business and other financial services. During the first two years of operations, the banks main
focus was on the delivery of personalized customer services and expansion of its clientele base.
The Company was incorporated on September 29, 1999 under the Companies Act 1994 as a
public company limited by shares for carrying out all kinds of banking activities with Authorized
Capital of Tk. 38,00,000,000 divided into 38,000,000 ordinary shares of Tk.100 each. The
Company was also issued Certificate for Commencement of Business on the same day and was
granted license on October 05, 1999 by Bangladesh Bank under the Banking Companies Act
1991 and started its banking operation on October 24, 1999. As envisaged in the Memorandum
of Association and as licensed by Bangladesh Bank under the provisions of the Banking
Companies Act 1991, the Company started its banking operation and entitled to carry out the
following types of banking business:
1. All types of commercial banking activities including money market operations.
2. Investment in merchant banking activities.
3. Investment in company activities financiers, promoters, capitalists etc.
4. Financial intermediary services.
5. Any related financial services
The Bank operates through its Head office at Dhaka with 68 Branches & 12 SME service
centers. The Bank carries out international business through a Global network of Foreign
Correspondents Banks
Mutual Trust Bank Limited at a glance:
Company Registration No: C38707 (665)/99 on September 29, 1999
Bangladesh Bank Permission No: BRPD (P)744(78)/99-3081 on October 5, 1999
Registered Office: MTB Centre, 26, Gulshan Avenue, Plot-5, Block SE (D), Gulshan-1. Dhaka
1212.
Swift Code: MTBLBDDH
Corporate Website: www.mutualtrustbank.com
The Company was incorporated on September 29, 1999 under the Companies Act 1994 as a
public company limited by shares for carrying out all kinds of banking activities with Authorized
Capital of Tk. 38,00,000,000 divided into 38,000,000 ordinary shares of Tk.100 each.
The Company was also issued Certificate for Commencement of Business on the same day and
was granted license on October 05, 1999 by Bangladesh Bank under the Banking Companies Act
1991 and started its banking operation on October 24, 1999. As envisaged in the Memorandum
of Association and as licensed by Bangladesh Bank under the provisions of the Banking
Companies Act 1991, the Company started its banking operation and entitled to carry out the
following types of banking business:
(i) All types of commercial banking activities including Money Market operations.
(ii) Investment in Merchant Banking activities.
(iii) Investment in Company activities.
(iv) Financiers, Promoters, Capitalists etc.
(v) Financial Intermediary Services.
(vii) Any related Financial Services.
The Company (Bank) operates through its Head Office at Dhaka and 36 branches and 5
SMEServiceCenters. The Company/Bank carries out international business through a Global
Network of Foreign Correspondent Banks.
Memberships:
Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI, D)
The Institute of Bankers Bangladesh (IBB)
Bangladesh Foreign Exchange Dealers Association (BAFEDA)
Bangladesh Institute of Bank Management (BIBM)
International Chamber of Commerce Bangladesh Limited (ICCB)
Association of Bankers Bangladesh Limited (ABB)
Bangladesh Association of Publicly Listed Companies (BAPLC)
American Chamber of Commerce in Bangladesh (AMCHAM)
Vision:
Mutual Trust Banks Vision is based on a philosophy known as MTB3V. They envision MTB to
be:
1. One of the best performing banks in the country
2. The bank of choice
3. A truly world class bank
Mission:
They aspire to be the most admired financial institutions in the country, recognized as dynamic,
innovative and client focused company that offers an array of products and services in the search
for excellence and to create an impressive economic value.
We aspire to be the most admired financial institution in the country, recognized as a dynamic,
innovative and client focused company, that offers an array of products and services in the search
for excellence and to create an impressive economic value.
Mission and Vision :
Extend all types of credit facilities at competitive price with prudence & efficiency
Offer wide range of financial products
Encourage loans & advances to productive income generating activities and there by
create employment opportunities and improve standard of living of the common people.
Loans and advances for productive purpose, which will alleviate poverty, will be given
priority.
Prioritize welfare oriented banking services.
Diversify lending activities by avoiding undesirable sect oral concentration and ensuring
balanced geographical dispersal.
Design loan operations keeping social and economic and environmental factors in to
consideration.
Attach due importance to consumer credit, personal loan, SME loan and agricultural
credit.
Constantly explore prospective and profitable ventures to achieve institutional and
national objectives.
Key Management People:
The Chairman: Mr. Samson H. Chowdhury, a recognized entrepreneur of the country, is
the Chairman of Mutual Trust Bank. This prolific business magnate with variegated
experience is a Senior Cambridge and he participated in the Management Training
Course jointly conducted by the University of Dhaka and the HarvardUniversity. He has
been an icon in the countrys pharmaceutical industry for long. He is the Chairman of the
reputed conglomerate Square. Furthermore, he is the Chairman of Central Depository Ltd
and Shabazpur Tea Estate as well as life member of Transparency International,
Bangladesh Chapter and its former Chairman.
The Vice-Chairman: Dr. Arif Dowla is the Vice Chairman of Mutual Trust Bank. He is
the Managing Director of Advanced Chemical Industries Limited. He obtained PhD
degree in Mathematics from the University of California, San Diego. He is also a member
of the American Mathematical Society. His doctoral dissertation was on non-stationary
stochastic processes, which is a field of study related to probability theory and statistics.
His thesis advisor was the renowned Time Series and Random Fields analyst Professor
Dimities N. Polities.
The Managing Director & CEO: Anis A. Khan (AAK) is Managing Director & CEO of
Mutual Trust Bank Limited (MTB), one of Bangladeshs leading private sector banks,
since April 15, 2009. Prior to joining MTB, AAK headed the countrys largest multi
product financial institution (non-banking), and one of its premier merchant/investment
banks, IDLC Finance Limited (IDLC), for six years, as its CEO & Managing Director. A
career banker, Anis earlier served for 21 years, in a multitude of roles, with the then
Grind lays Bank pals., ANZ Grind lays Bank and Standard Chartered Bank (SCB), both
in Bangladesh and abroad.
Founding Chairman: Mr. Syed Manzur Elahi is the founding Chairman of MTB. He
started his career as a professional with a leading multinational corporation and then
became an entrepreneur in the early post independence days,. Mr. Elahi is a prominent
businessman of the country and is the Chairman of Apex Group, a leading business
organization of the country. Throughout his illustrious career, he has made significant
contributions to the founding and development of various industrial and business
enterprises including banking. He is the founding Chairman of Apex Tannery Ltd., Apex
Adelphi Footwear Ltd., Apex Parma Ltd., Pioneer Insurance Co. Ltd. and Grey
Advertising (Bangladesh) Ltd.
Deputy Managing Director: Md. Hashem Chowdhury is the Deputy Managing Director
of Mutual Trust Bank Limited (MTB). He is a long experienced banker who joined MTB
as a member of its founding team in April 1999, and has over the last decade, made
considerable contributions to the bank. He has served MTBL Principal Branch for over
nine years, of which four years was spent at its helm, driving remarkable business growth
and delivering a steady stream of profits to the Bank. The branch achieved the distinction
as the most profitable one in MTB, especially during 2007 and 2008 and Hashem was
recognized as the Best Manager of Mutual Trust Bank for two consecutive years in
2007 and 2008. He was then transferred to the Head Office in January 2009 and took
charge of the General Services Department, Banking
Mutual Trust Bank Limiters Strategic Objectives:
To ensure inflow of funds at combination of least possible cost
To maintain a discreet credit policy
To enhance versatility and diversification through the penetration of new market
segments, thereby fulfillment unmet needs
To extend financial assistance to the citizens, living at dispersed locations by expanding
the network of branches
To practice stronger IT-driven initiatives that will meet the challenges and requirements
of the banks and its clients
To improve administrative and organizational structures in order to prepare the platform
for the best practices of corporate government.
To enrich the banking sector with improved awareness on corporate social responsibility
To provide extensive career opportunities through competitive pay and benefits and a
flexible environment.
Business Philosophy of MTBL
The philosophy of MTBL is to develop the bank into an ideal and unique banking institution.
The perception is that MTBL should be quite different from other privately owned and managed
commercial bank operating in Bangladesh. MTBL is to grow as a leader in the industry rather
than a follower. The leadership will be in the area of service, constant effort being made to add
new dimension so that clients get Additional in the matter of services to commensurate with the
needs and requirements of the countrys growing society and developing economy.
Global Economic Perspective
The growth of world economy, according to World Banks study on Global Economic Prospects
2009, has been broadening over the past few years. Real GDP growth of the world is expected to
be 3.20% in the year 2009 which is remarkably higher than that of previous years due to
improvement in macroeconomic fundamentals, enhanced structural flexibility, stronger
economic climate and progress toward reducing trade barriers. However, International Monetary
Fund (IMF) had forecasted 4.30% growth for 2009.
MTBL successfully maintained its growth during the year 2009 and 2010 in terms of business
and profitability, with its operating profit was 651.85 million and 969.47 million respectively.
The bank diversified its business in new areas of commercial banking operations, trade finance,
working capital finance, term finance, etc. the ON line operation of the bank was increasingly
gaining popularity and with opening of rural branches, modern banking services were now being
enjoyed by the valued customers in places outside Dhaka and even in rural areas, where MTBL
is operating.
Corporate Governance
Corporate Governance is the system by which organizations are directed and controlled
firmly. The bank follows the guidelines stated below to ensure corporate governance.
In accordance with the guidelines of Bangladesh Bank the number of directors in the
board is thirteen.
The board of directors has two committees namely Executive Committee and Audit
committee.
At least one board meeting is held every month.
The board reviews the policies related to credit and other major operations in order to
establish effective risk management
The board ensures the compliance with the rules and regulations of Securities and
Exchange Commission (SEC) and other regulatory bodies.
The management performs activities in line related with the board.
Risk Management:
The board and the management of MTBL acknowledges that risk is an integral part of business
and gives full cognizance to the importance of various risks involved in the banking business.
The bank has taken initiatives to structure the business units in line with Bangladesh Bank risk
management guidelines.
The bank takes/ will take care of /analyzes the risks involved with Cross Border lending. Risks
associated
with import of a commodity are kept in mind which may basically take the form of failure of the
foreign supplier to:
1. Supply goods of specified standard and quality.
2. Supply the contracted goods timely.
These risks are tried to be handled by obtaining satisfactory credit report on the supplier before
opening L/C. Track record of the exporter, past performance, capability of the seller to comply
with the terms of sale- purchase, timely shipment etc are examined before opening L/C. Advance
payment against import is avoided in order to avert credit associated risk. Risks involved in
export deal are also taken care of. Capability of the consignee is, when required, ascertained by
obtaining credit report on them. Here also past record, past payment behavior, instances of
payment refusal, instances of taking discount, frequency of raising of objections on minor
grounds and making delay in payments etc a carefully perused and the results form the basis of
proceeding properly avoiding risks associated with export deal. Besides, the country risks both of
importing & exporting are kept in view in respect of handling the import-export deal.
Corporate Social Responsibilities (CSR):
MTBL has always responded to its commitment to the society and has been taking part in
corporate contributions and donations to various charitable, educational and healthcare
institutions across the country. The Mutual Trust Bank Foundation has been formed to carry out
these benevolent activities. If any situational changes occur in the stipulations in terms of which
the loan was extended or if the capital of the borrower is impaired due to adverse conditions or if
the value of the securities decreases or if the recovery of the loan becomes uncertain due to any
other unfavorable situation, the loan will have to be classified on the basis of qualitative
judgment. Besides, if any loan is illogically or repeatedly re-scheduled or the norms of re-
scheduling are violated or instances of (propensity to) frequently exceeding the loan-limit are
noticed or legal action is lodged for recovery of the loan or the loan is extended without the
approval of the proper authority, it will have to be classified on the basis of qualitative judgment
.Despite the probability of any loans being affected due to the reasons stated above or for any
other reasons, if there exists any hope for change of the existing condition by resorting to proper
steps, the loan, on the basis of qualitative judgment, will be classified as Sub-standard. But
even if after resorting to proper steps, there exists no certainty of total recovery of the loan, it
will be classified as Doubtful and even after exerting the all-out effort, there exists no chance
of recovery, it will be classified as Bad & Loss on the basis of qualitative judgment. The
concerned bank will classify on the basis of qualitative judgment and can declassify the loans if
qualitative improvement does occur. But if any loan is classified by the Inspection Team of
Bangladesh Bank, the same can be declassified with the approval of the Board of Directors of the
bank. However, before placing such case
to the Board, the CEO and concerned branch manager shall have to certify that the conditions for
declassification have been fulfilled.
Developing annual business plans, strategies and steps to be taken to achieve targets.
Planning, developing and managing MTBL non-personal- corporate, commercial and
institutional businesses to ensure high profitability and sustained growth in line with
MTB strategic plan, credit policy and business objectives.
Providing overall co-ordination of marketing efforts for the banks non-personal
business.
Formulating strategy for joint campaigns with other banks/departments.
Formulating/establishing performance tracking system of Relationship Managers.
Maximizing profitability through cross sales of all bank products and appropriate loan
pricing.
Contributing to the development of relationship management skills of the Relationship
staff in Corporate Banking.
Ensuring compliance with MTBL credit policies and regulations of Bangladesh Bank and
other regulatory authorities.
Guiding and supporting the marketing team comprising of Relationship Managers
both at Head Office and Branches.
Ensuring that RM Team maintains thorough knowledge of borrowers business and
industry through regular contact, factory/warehouse inspections etc.
Ensuring that deterioration in borrowers financial standing is highlighted and
amendment in the borrowers Risk Grade takes place in a timely manner. Changes in
Risk Grades are advised to and got approved by Head of CRM.
Information Technology (IT) & Automation:
All the branches of the MTBL are fully computerized. New software is now in use to provide
faster, accurate and efficient service to the clients. The bank is continuously striving for better
services through extensive automation of its branches. It is 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 development of IT for better service in the days to come.
To ensure strong quality of asset portfolio, MTB emphasizes that a proper credit management
process is in place. For this purpose marketing, approval and disbursement functions/authorities
in MTB have been segregated. While Relationship Managers and Head pf Corporate Banking
Division are responsible for marketing, Head of Credit Risk management Division is responsible
for approval and Head of Credit Administration Department is assigned with the function of
disbursement. A copy of sanction letter will be sent by CRM Division to the Branch with copy to
HO Credit Administration Department/other related departments/divisions of Head Office.
Branch Credit Administration on receipt of copy of the sanction letter will complete full
documentation and other formalities as per terms of sanction and send compliance to HO credit
administration along with a list of documents (DCL) obtained. For exceptions, branch will
mention in the compliance certificate about the documentation which could not be completed for
genuine reasons and request HO credit administration for allowing them to disburse, pending
completion of these documents/formalities, mentioning specifically about time period within
which incomplete documentation will be completed.
Foreign Correspondents:
Banks foreign correspondent relationship facilities for foreign trade operations in respect to
export, import and foreign remittance. The number of foreign correspondents and agents of the
bank in the year 2010 stood at more than 300, which covers important business and trade centers
of the world. The bank maintains excellent relationship with the leading international banks, for
handling all foreign correspondent and maintaining all foreign business there is an International
Division, which is called ID. Foreign Exchange, like foreign trade, is a part of economic science.
It deals with methods by which wealth in one countrys are currency is converted into those of
another currency. The fluctuation of a Bank in foreign exchange is very important. Bank helps to
import, export and maintain exchange rate. A person opens a Letter of Credit (L/C) with the help
of bank to export or to import anything from other person. Thereby Banks are helping to balance
the economy of the world. Money is a medium of exchange for all transaction that takes place
inside the country as well as outside the country. Foreign trade financing is an integral part of
banking business. With the globalization of economics international trade has become quite
competitive. Timely payment for export; quicker delivery of goods is therefore a pre-requisite for
the success of international
trade operation. Growing complexity of international trade underline the need of evolving a
system that balances between the expectation of the seller and the buyer. According to Foreign
Exchange Regulation Act, a Revocable Letter of Credit is one which can be amended or
cancelled by the issuing bank at any moment and without prior notice to the beneficiary, but the
issuing bank is bound to reimburse the negotiating bank or any payment made prior to receipt of
notice of cancellation, against shipping documents which are apparently in accordance with the
terms of L/C. So this is clear that Revocable L/C can be amended any time without prior notice
to he beneficiary. So, revocable letter of credit is very risky. Unsecured Open Account terms
allows the importer to make payments at some specific date in the future and without the buyer
issuing any negotiable instrument evidencing his legal commitment to pay at the appointed time.
These terms are most common when the importer/buyer has a strong credit history and is well-
known to the seller. The buyer may also be able to demand open account sales when there are
several sources from which to obtain the sellers product or when open account is the norm in the
buyers market. This mechanism offers the seller no protection in case of non-payment.
However, an exporter can structure his open account sale transaction to minimize the risk of non-
payment. For example, the exporter can reduce the repayment period and retain title to the goods
until payment is made. Even then, it is difficult to enforce this especially if the goods have been
either resold by the buyer or consumed in some other processing activity. Despite the dangers,
open account terms with extended dating are becoming more common in international trade.
Exporters that offer open account terms are increasingly obtaining credit insurance to mitigate
the potential open account credit risks. There are many advantages and disadvantages of open
account terms. Under an open account payment method, title to the goods usually passes from
the Seller to the Buyer prior to payment and subjects the Seller to risk of default by the Buyer.
Furthermore, there may be a time delay in payment, depending on how quickly documents are
exchanged between Seller and Buyer. While this payment term involves the fewest restrictions
and the lowest cost for the Buyer, it also presents the Seller with the highest degree of payment
risk and is employed only between a Buyer and a Seller who have a long-term relationship.
Credit Management
Credit management is a term used to identify accounting functions usually conducted under the
umbrella of Accounts Receivables. Essentially, this collection of processes involves qualifying
the extension of credit to a customer, monitors the reception and logging of payments on
outstanding invoices, the initiation of collection procedures, and the resolution of disputes or
queries regarding charges on a customer invoice. When functioning efficiently, credit
management serves as an excellent way for the business to remain financially stable.
The process of credit management begins with accurately assessing the credit-worthiness of the
customer base. This is particularly important if the company chooses to extend some type of
credit line or revolving credit to certain customers. Proper credit management calls for setting
specific criteria that a customer must meet before receiving this type of credit arrangement. As
part of the evaluation process, credit management also calls for determining the total credit line
that will be extended to a given customer.
Several factors are used as part of the credit management process to evaluate and qualify a
customer for the receipt of some form of commercial credit. This includes gathering data on the
potential customers current financial condition, including the current credit score. The current
ratio between income and outstanding financial obligations will also be taken into consideration.
Competent credit management seeks to not only protect the vendor from possible losses, but also
protect the customer from creating more debt obligations that cannot be settled in a timely
manner.
Types of Credit made by the MTBL:
Modern banking operation touches almost every sphere of economic activity. The extension 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 commercial and industrial activities of a nation. The credit facilities are
generally allowed by the bank may be in two broad categories. They are as follows:
Funded Facilities:
Funded facilities can also be divided into the following categories:
To ensure strong quality of asset portfolio, MTB emphasizes that a proper credit management
process is in place. For this purpose marketing, approval and disbursement functions/authorities
in MTB have been segregated. While Relationship Managers and Head pf Corporate Banking
Division are responsible for marketing, Head of Credit Risk management Division is responsible
for approval and Head of Credit Administration Department is assigned with the function of
disbursement.
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 three segments:
Over Draft (OD):
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 a interest charge on the over draw amount. This facility does not provide for
everyone, the bank will provide only those who will fulfill the requirement. It means that only
real customer can get this kind of facility.
A copy of sanction letter will be sent by CRM Division to the Branch with copy to HO Credit
Administration Department/other related departments/divisions of Head Office. Branch Credit
.Administration on receipt of copy of the sanction letter will complete full documentation and
other formalities as per terms of sanction and send compliance to HO credit administration along
with a list of documents (DCL) obtained. For exceptions, branch will mention in the compliance
certificate about the documentation which could not be completed for genuine reasons and
request HO credit administration for allowing them to disburse, pending completion of these
documents/formalities, mentioning specifically about time period within which incomplete
documentation will be completed. In the cases where branch seeks permission for disbursement
keeping documentation /security formalities partially incomplete /keeping some documents
incomplete, Credit Administration Department of Head Office will go through the
documentation which have been completed and for which deferral have been requested by the
branch and if finds that allowing such deferral will not jeopardize Banks interest, will place a
note to the relevant committee for necessary recommendation, which then will be placed to the
Head of CRM/MD for approval of such deferral. Only upon getting deferral approval, Head
Office Credit Admin will issue Disbursement Approval /authorize disbursement with the
condition to complete incomplete documentation within specific time limit.
Cash Credit (Hypo):
Types of Term Loan Time (Period)
Short Term 1 to 3 years
Medium Term 3 to 5 tears
Long Term Above 5 years
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:
1Commercial Lending
2 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:
1. Commercial Lending
2. Working Capital
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. It is not a
continuous credit As management of problem loans is a dynamic process, management strategy
and adequacy of Recovery unit (at Branch/ Head Office level) who will be responsible for
coordinating and administering the action plan/recovery of the loans and advances. Recovery
Unit (Branch/ Head Office), if required, will seek assistance from HOCRMD but the
responsibility to recover NPL shall be with Recovery Unit (Branch/ Head Office). The initial
CLR shall highlight any documentation issues, loan structuring weaknesses, proposed workout
strategy and shall seek approval for any loan loss provision that are necessary. Facilities are
withdrawn or repayment is demanded as appropriate. Any further drawings or advances are
restricted, and only approved after careful scrutiny and approval from HOCRMD/MD.CIB
reporting is updated according to Bangladesh Bank guidelines and borrowers classification/ risk
grade is changed as appropriate. Loans are only rescheduled in accordance with the Loan
Rescheduling guidelines of Bangladesh Bank. Any rescheduling should be based on projected
future cash flows and should be strictly monitored. Prompt legal action is taken if the borrower is
not cooperative.
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. The amount of required
provision may, in some circumstances, be reduced by an estimated realizable forced sale value
(i.e. Salvage Value) of any tangible collateral held (via: mortgage of property, pledged goods / or
hypothecated goods repossessed by the bank, pledged readily marketable securities etc). Hence,
it is to be advised to evaluate such collateral, estimate the MOST realistic sale value under duress
and net-off the value against the outstanding before determining the Net Loan value for provision
purposes. Conservative approach to be taken to arrive at provision requirement and Bangladesh
Bank guidelines to be properly followed. MTBL will primarily peruse the policy of recovery of
NPL s of the bank through its dedicated officials by making them realize the essence of
maintaining quality of banks assets. Providing incentives to the officials may be considered as
an effective instrument for recovery of Non-performing loans. Such incentives may be awarded
in the form of cash reward, Letter of citation, expedited promotion etc.
PAD:
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.
LTR:
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.
IBP:
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.
In order to make a significant contribution in the living standards of the people of medium and
low income category, MTBL has introduced a scheme called Consumer Credit
Scheme. With a view to materialize the dreams of those who are unable to make one time
investment from their own savings, one can now afford to buy necessary household equipments
and thus improve the standard of living. A customer is not ordinary permitted to overdraw his
account without security. However, MTBL Motijheel Branch provides an unsecured advance
facility in exceptional circumstances, only for a short period, with define repayment
arrangement, subject to restrictions imposed by Bangladesh Bank or any other competent
authority, with prior approval of Head Office, to a customer on the basis of his/her personal
credit worthiness, standing and reliability. It is not granted unless the Sanctioning Authority.
The Credit Committee of Head Office has full confidence in the ability and reputation of the
customer to repay it, on demand, or at its maturity if it is a loan. Definite arrangements for
repayment, whether by installments or otherwise, is as a rule, made.
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. In order to determine required provision, Forced Sales
Value (FSV) being the amount expected to be realized through the liquidation of collateral held
as security or through the available operating cash flows of the business, net of any realizable
costs of collateral to be determined by Credit Recovery Cell for accounts grade 6 or worse.
LDBP:
Payment made to a party through purchase of local documentary bills fall under this 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 guarantee. If the
exporter fails to make the fulfill payment at the moment the bank will take the liability and pay
to the exporter. This type of guarantee is also needed to attend in any tender. Revised policy calls
for an independent assessment of each loan based on qualitative factors and objective criteria.
Each loan is branded with the worst level of classification resulting from these independent
assessments. If a Continuous Credit or a Demand Loan, remains non-performing for 6 months or
more it is classified Sub-standard.
Micro Credit:
Loan has given only to the Army Person for the purpose of Repairing and reconstruction of
dwelling Houses. Revised policy calls for an independent assessment of each loan based on
qualitative factors and objective criteria. Each loan is branded with the worst level of
classification resulting from these independent assessments. If a Continuous Credit or a Demand
Loan, remains non-performing for 6 months or more it is classified Sub-standard.
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. A Term loan is classified
Doubtful and Loss if the time-equivalent of unadjusted balance is 12 months and 18 months
respectively.
Letter of Credit:
A credit facility in contingent liabilities from provided to the clients by the banks for
import/procurement of goods and services. Agricultural Loan and Micro-Credit is classified Sub-
standard if non-performing for 12 months, Doubtful if non-performing for 36 months and Loss if
non-performing for more than 60 months.
Written Loan Policy:
One of the most important ways a bank can make sure its loans meet regulatory standards and
are profitable is to establish a written loan policy. Such a policy gives loan officers and the
banks management specific guidelines in making individual loan decisions and in shaping the
banks overall loan portfolio. The actual make up of a banks Loan portfolio should reflect what
its loan policy says. Otherwise, the loan policy is not functioning effectively and should be either
revised or more strongly enforced by senior management.
1. A goal statement for the banks loan portfolio (i.e., statement of the characteristics of a
good loan portfolio for the bank in terms of types, maturities, sizes, and quality of loans)
2. Specification of the lending authority given to each loan officer and loan committee
(measuring the maximum amount and types of loan that each person and committee can approve
and what signatures are required)
3. Lines of responsibility in making assignments and reporting information within the loan
department
1. Operating procedures for soliciting, reviewing, evaluating, and making decisions on
customer loan applications
2. The required documentation that is to accompany each loan application and what must be
kept in the banks credit files (required financial statements, security agreements etc.)
3. Lines of authority within the bank, detailing who is responsible for maintaining and
reviewing the banks credit files.
4. Guidelines for taking, evaluating, and perfecting loan collateral
5. A presentation of policies and procedures for setting loan interest rates and fees and the
terms for repayment of loans
6. A statement of quality standards applicable to all loans
7. A statement of the preferred upper limit for total loans outstanding (i.e. the maximum
ratio of total loans to total assets allowed).
8. A description of the banks principal trade area, from which most loans should come
A discussion of the preferred procedures for detecting, analyzing and working out problem loan
situation.
Steps in the Lending Process
1. Most bank loans to individuals arise from a direct request from a customer who approaches a
member of the banks staff and asks to fill out a loan application. Business can requests, on the
other hand, often arise from contacts the banks loan officers and sales representatives make as
they solicit new accounts from firms operating in the banks market
2. area. Sometimes loan officers will call on the same company for months before the customer
finally agrees to give the bank a try by filling out a loan application.
3. Once a customer decides to request a loan, an interview with a loan officer usually follows
right away, giving the customer the opportunity to explain his or her credit needs. That interview
is particularly important because it provides an opportunity for the banks loan officer to assess
the customers character and sincerity of purpose.
4. If a business or mortgage loan is applied for, a site visit is usually made by an officer of the
bank to assess the customers location and the condition of the property and to ask clarifying
questions. The loan officer may contact other creditors who have previously loaned money to
this customer to see what their experience has been.
5. If all is favorable to this point, the customer is asked to submit several crucial documents the
bank needs in order to fully evaluate the loan request, including complete financial statements
and, in the case of a corporation, board of directors resolutions authorizing the negotiation of a
loan with the bank. Once all documents are on file, the credit analysis division of the bank
conducts a thorough financial analysis of them aimed at determining whether the customer has
sufficient cash flows and backup assets to repay the loan. The credit analysis division then
prepares a brief summary and recommendation, which goes to the loan committee for approval.
6. If the loan committee approves the customers request, the loan officer or the credit
committee will usually check on the property or other assets to be pledged as collateral in order
to ensure that the bank has immediate access to the collateral or can acquire title to the property
involved if the loan agreement is defaulted. This is often referred to as perfecting the banks
claim to collateral. Once the loan officer and the banks loan
7. committee are satisfied that both the loan and the proposed collateral are sound, the note and
other documents that make up a loan agreement are prepared and are signed by all parties to the
agreement.
Credit Analysis
The division of the bank responsible for analyzing and recommendations on the fate of most loan applications is the
credit department. Experience has shown that this department must satisfactorily answer three major questions
regarding each loan application:
Is the borrower creditworthy? How do you know?
Can the loan agreement are adequately protected and the customer has a high probability of being able to service the
loan without excessive strain?
Can the bank perfect its claim against the assets or earnings of the customer so that, in the event of default, bank funds
can be recovered rapidly at low cost and with low risk?
Lets look in turn at each of these three key issues in the yes or no decision a bank must make on every loan
request.
Is the Borrower Creditworthy?
The question that must be dealt with before any other is whether or not the customer can service
the loan-that is, pay out the credit when due, with a comfortable margin for error. This usually
involves a detailed study of six aspects of the loan application- character, capacity, cash,
collateral, conditions, and control. All must be satisfactory for the loan to be a good one from the
lenders point of view. To become the client of the bank a person need to open an Account. After
opening of an account a person becomes a client of a bank. It is a legal contract between the bank
and the client. Through this contract a client is ready to deposit any sum of money with
purchasing the belief from the bank. Therefore it means the bank is selling their belief and
always ready to pay any sum of deposited money of any client. An accounting opening from is
the contractual document. It is the legal of Banker-Client relationship.
Character :
The loan officer must be convinced that the customer has a well-defined purpose for requesting
bank credit and a serious intention to repay. If the officer is not sure exactly why the customer is
requesting a loan, this purpose must be clarified to the banks satisfaction.
Responsibility, truthfulness, serious purpose, and serious intention to repay all monies owed
make up what a loan officer calls character Financial institution/ intermediary that mediates or
stands between ultimate borrowers and ultimate lenders is knows as banking financial institution.
Banks perform this function in two ways- taking deposits from various areas in different forms
and lending that accumulated amount of money to the potential investors in other
different Capacity:
The loan officer must be sure that the customer requesting credit has the authority to request a
loan and the legal standing to sign a binding loan agreement. This customer characteristic is
known as the capacity to borrow money. For example, in most states a minor (e.g., under age 18
or 21) cannot legally be held responsible for a credit agreement; thus, the bank would have great
difficulty collectors on such a loan. Bank shall take maximum care and remain alert to record
exactly all the transactions of both credit and debit in the Ledger with no fault. However, in case
of any mistake/ lapse bank shall reserve the right to rectify the same and recover the money from
the customer without any reference/ notice to the customer. Bank shall not make liable for any
loss/ inconveniences caused to the customer due to such error/ mistake/ lapses. Bank shall charge
incidental expenses and recover the same from the account once after every 6 months for
maintenance of the account. In case of closure of any account within 6 months from the date of
opening of the same, bank shall deduct Tk.50/= from the account prior to its closure.
Cash:
This key feature of any loan application centers on the question: Does the borrower have the
ability to generate enough cash, in the form of cash flow, to repay the loan? In general,
borrowing customers have only three sources to draw upon to repay their loans: or (a) cash flows
generated from sales or income, (b) the sale or liquidation of assets, or (c) funds rose by issuing
debt or equity securities. Any of these sources may provide sufficient cash to repay a bank loan.
Collateral:
In assessing the collateral aspect of a loan request, the loan officer must ask, does the borrower
possess adequate net worth or own enough quality assets to provide adequate support for the
loan? The loan officer is particularly sensitive to such features as the age, condition, and degree
of specialization of the borrowers assets. MTB will primarily peruse
the policy of recovery of NPL s of the bank through its dedicated officials by making them
realize the essence of maintaining quality of banks assets. Providing incentives to the officials
may be considered as an effective instrument for recovery of Non-performing loans. Such
incentives may be awarded in the form of cash reward, Letter of citation, expedited promotion
etc. to be decided by the Board from time to time.
Conditions :
The loan officer and credit analyst must be aware of recent trends in the borrowers line of work
or industry and how changing economic conditions might affect the loan. The types of securities
offered vary from place to place. In metropolitan cities, it may be Govt. bonds/ share/ assignment
of Book debt/ Bills receivable etc. Whereas, in the industrial area raw materials and finished
goods etc. may be offered as securities. Again agricultural produce is the principal securities in
the agricultural centers. Further, a bank also accepts moveable and immovable properties, life
insurance policy etc. as securities. Securities can be classified into primary security and collateral
security. Security is a cover against loans and advances. It ensures recovery of loans and
advances. Though now-a-days greater emphasis is put on the purpose of the loan rather than
securities, nevertheless the securities play an extremely important role to take a decision.
Generally loan limit sanctioned 50% against 100% security
Control:
The last factor in assessing a borrowers creditworthy status is control which centers on such
questions as whether changes in law and regulation could adversely affect the borrower and
whether the loan request meets the banks and the regulatory authorities standards for loan
quality Credit is a confidence of the lender of the in the ability and willingness of the borrower to
repay the loan at a future date. It is generally believed that confidence is the based of all
transactions. The fundamental principles upon which credit is generally based are Character,
Capacity, Capital and Responsibility, Reliability and Resources of the borrower. Lending is a
function, which is crucial to the Banker because of the associated risks and profit potentials.
Mutual Trust Bank Limited, Principal Branch also provides Commercial Credit. The loans which
are give are- Term Loan, Over Draft, Hypothecation, Pledge etc. The Bank provide loan to firm,
company, project etc. The client has to provide proper document to get this type of loan. At first
the client gives application to the branch for credit. Then the branch makes proper analysis by
ratio analysis, visiting the place, LRA (Lending Risk Analysis), feasibility analysis etc to find
out the financial position of the bank. After completing all they process they make a proposal
and send it to the Head Office. If the Head Office gives the permission to give the loan then they
finally disburse the loan to the loan applicant.
Can the Loan Agreement Be Properly Structured and documented?
The six Cs of credit aid the loan officer and bank credit analyst in answering the broad question:
Is the borrower creditworthy? Once that question is answered, however, a second issue must be
faced: Can the proposed loan agreement be structured and documented to satisfy the needs of
both borrower and bank?
A properly structured loan agreement must also protect the bank and those it represents-
principally its depositors and stockholders- by imposing certain restrictions (covenants) on the
borrowers activities then these activities could threaten the recovery of bank funds. The process
of recovering the banks funds- when and where the bank can take action to get its funds
returned-also must be carefully spelled out in a loan agreement.
Needs for Collateral:
Most Borrowers at one time or another will be asked to pledge some of their assets or to
personally guarantee the repayment of their loans. Getting a pledge of certain borrower assets as
collateral behind a loan really serves two purposes for a lender. If the borrower cannot pay, the
pledge of collateral gives the lender the right to seize and sell those assets designated as loan
collateral, using the proceeds of the sale to cover what the borrower did not pay back. Secondly,
collateralization of a loan gives the lender a psychological advantage over the borrower.
The goal of a bank taking collateral is to precisely define which borrower assets are subject to
seizure and sale and to document for all other creditors to see that the bank has a legal claim to
those assets in the event of nonperformance on a loan.
Information about Loan Customers:
The bank relies principally on outside information to assess the character, financial position, and
collateral of a loan customer. Such an analysis begins with a review of information supplied by
the borrower in the loan application. The bank may contact other lenders to determine their
experiences with this customer. Were all scheduled payments in previous loan agreements made
on time? Were deposit balances kept at high enough levels? How much was borrowed previously
and how well were those earlier loans handled? Is there any evidence of slow or delinquent
payments? Has the customer ever declared bankruptcy?
Sources of Information about the Loan customers:
1. Physical Investigations
2. CIB of Bangladesh Bank
3. Customer financial statements
4. Experience of other lenders with this customer
5. Customer Annual Report
6. Local or regional credit bureaus
7. Local Newspapers
8. Local chamber of commerce
Mechanism of Credit Distribution of the MTBL:
The primary factor determining the quality of the banks credit portfolio is the ability of each
borrower to honor, on a timely basis. All credit comities made to the bank. The authorizing credit
personnel prior to credit approval must accurately determine this. If the report of the project
appraisal is very satisfactory to approve the loan proposal, than the following steps furnish the
approval procedure:
Make a proposal by the client to the bank
Give all the necessary documents
Bank will send the parties statement to the Bangladesh Bank, their CIB (Credit Information Bureau) will inquiry that
whether this party is defaulter or a new one.
Bank will take the collateral from the party and analysis that how much it will cover the total loans.
Bank will send this proposal to the head office. In the head office the Board of Directors and Managing Director will
approve the loan.
Head office will send the approval to the branch office.
Branch office will give the sanction letter to the party.
Bank will take the security and make it in their favor.
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. Bank will give cheque books to the
party and advise them to draw the money and use it as soon as possible, because whenever the
money will transfer to the account interest will count from that time After the completion of
above formalities, the bank provides the client a Deposit Book and cheque book. The cheque
book can be of 10 or 25 pages. It will depend on the type of the account. The 10 pages cheque
book is issued to the Saving A/C holder and 20 pages cheque book is issued to the Current or
STD A/C holder. The client has to fill up the Requisition Slip for cheque book. Then the officer
will take a new cheque book with filling up account number of the client and the branch name in
each page of the cheque book. The name and the account number of the client are then registered
in the Cheque book issue register. The serial number of the cheque book is also entered in the
computer for proper maintenance of records. Cash is the key instrument of all financial
transaction. The cash section plays a significant role. It is a very sensitive part of the bank
because it deals with most liquid assets. Mutual Trust Bank Limited, Principal Branch has a well
equip cash section. This section receives cash from depositors and pays cash against cheque,
Demand draft, Pay order, and Pay-in-Slip over the counter. This section deals with all types of
negotiable instrument and it includes Vault, used as the store of cash and instruments. The Vault
is
Analyzing the Year Wise Loan Disbursement by MTBL:
YEAR AMOUNT OF LENDING
(in million/Tk.)
2005 14,373.26
2006 18,591.52
2007 22,683.23
2008 28,529.34
2009 33,883.92
2010 37,730.45
TOTAL 155,791.72
From the graph we can say that in the year 2010 the total loan disbursement is 27% (Tk.
37,730.45 million) to compare with other financial years. In the year 2009 the loan disbursement
was 24% (Tk. 33,883.92 million) and in the year 2006, 2007 & 2008 the loan disbursement was
13% (Tk. 18,591.52 million), 16% (Tk. 22,683.23 million) & 20% (Tk. 28,529.34 million). So
according to this graph we can easily say that the 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 than in the loan disbursement is 27% and in the previous year it was 24%. So the percentage
increases by 3% only. In the year 2008 & 2009 the percentage increased by 4%. In compare, the
increasing percentage is likely to be same in 2010. The increasing percentage was 27% which is
more than 1% in the previous year. It may be the good sign for the bank because the loan
disbursement is increasing or steady not decreasing. Banks main earning source is loan
disbursement, like: interest earning. It is a big part of the banks total earning. So the bank should
take care in this loan side.
Analyzing the Sector-wise Lending by MTBL (million/Tk):
SECTOR 2008 2009 2010
Cash Credit 1356.78 1557.87 1760.76
Cash Collateral 1544.56 1755.67 1867.65
Overdraft 1234.67 1435.65 1546.65
SOD 7,560.46

9,541.65

11,598.71

Marriage Loans (ML) 1867.57 2087.65 2245.54
Car Loan (CL) 1950.67 2130.56 2240.54
HouseBuilding Loan(HBL) 1237.87 1434.76 1654.54
Term Loans 1355.24 1245.76 1,453.65
Staff Loans 30.67 120.65 150.54
Consumer Durable Scheme (CDS) 890.78 1124.65 1418.57
Repair & Recon. of Dwelling House
(RRDH)
670.78 870.34 1230.54
Loan Against Trust Receipts (LTR) 5890.1

7,122.03

8,036.48

Payment Against Documents (PAD) 576.87 879.65 1500.32
Bill Purchased & Discounted 560.66 650.76 875.32
Other Loans 56.88

50.67 150.64
Total Loans & Advances 28,529.34 33,883.92 37,730.45
Analyzing the Sector-Wise Loan Disbursement of MTBL in the year 2008
In the year 2008, Mutual Trust Bank Ltd. only passes four years experience with loan
disbursement. This is not enough experience for lending loan disbursement. From the graph, we
can say that the MTBL was not able to maintain a good lending operation in the year 2008. The
maximum portion of the lending has disbursed in the sector of Secured Overdraft. About 27% of
total has given in this sector. The second position of loan disbursement was 21% on Loans
against Trust Receipts (LTR). House building loan which is another name of Micro Credit has
given up a big portion of total loan disbursement. More than 25% of total loans have disbursed as
other Loans, (OD, RRDH, ML, CL Letter of Credit etc.). About 5% loans have given in the
sector as Long Term Loan and 5% loans have given as cash credit.
Loan-Pricing Policy Used By MTBL:
In pricing a business loan, Bank management must consider the cost of raising loan able funds
and the operating costs of running the Bank. This means that Banks must know what their costs
are in order to consistently make profitable, correctly priced loans of any type. There is no
substitute for a well-designed management information system when it comes to pricing loans.
Mutual Trust Bank Limited is generally used the simplest loan-pricing model which assumes that
the rate of interest charged on any loan includes four components: (1) the cost to the Bank of
raising adequate funds to lend, (2) the Banks no funds operating costs (including wages and
salaries of loan personnel and the cost of materials and physical facilities used in granting and
administering a loan), (3) necessary compensation paid to the Bank for the degree of default risk
inherent in a loan request, (4) Banks desired profit margin.
LOAN Marginal cost of raising No funds loan
able funds to lend + operating costs
INTEREST = Bank to the Borrower (including wages and
Salaries of Bank Personnel)
RATE
Estimated margin to Bank + Compensate the Bank + desired for default risk profit margin.
Chart of Interest rate of Mutual Trust Bank for Lending:
SL Sector-Wise Lending Rate of I nterest
01
Agriculture/ Agro-Based Industry
a Loan to Primary Producer 11-15%
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
Revised on May 2010
These sector-wise interest rates have been introduced by the Head Office of Mutual Trust Bank
Limited. They use cost-plus pricing method in case of pricing the loans. The Head office and the
twenty (25) branches of MTBL have maintained these rates strictly except in case of some
quality and credit-worthy lenders. After judging the lenders credit-worthiness, MTBL gives
some beneficiary to this kind of lenders. They can enjoy a decreasing interest rate, which
maintained by the Banks branches internally. Otherwise, the scheduled rates are maintained by
all the MTBL branches. In case of Micro Credit, as the loan amount is not so large thats why the
scheduled rate is maintained by the Bank. Actually, the Lending rate is based on the prescription,
which is given by Bangladesh Bank. Recently MTBL has revised their lending interest rate on
April, 2007. The revised lending interest rates have been effective from May 01, 2007 for all
existing and fresh sanction of credit facilities.
Sector-wise Interest Income of MTBL During the year 2008-2010(million/Tk):
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%
07 Loan against FDR issued by MTBL 2.5% above FDR rate but not less than 12%
08
Loan against Lien/ Pledge on saving certificates WEBD & other
financial assets issued by MTBL. 12%
09
Loan against lien/ pledge on FDR , Saving Certificates, WEBD &
Other allowable financial assets issued by MTBL/ Financial
Institution.
14% against FDR
&
Financial Assets iss
-ued by Banks/Fina
-ncial Institution
INTEREST INCOME SECTOR 2008 2009 2010
Interest on Consumer Durable Scheme 388.68 458.68 567.2
Interest on Over Draft 358.13 428.13 537.35
Interest on SOD (Industrial) 606.56 676.56 785.78
Interest on Cash Credit 257.54 327.54 436.76
Interest on Marriage Loan 177.75 247.75 356.75
Interest on Car Loan 275.43 345.43 454.65
Interest on Payment against Document (PAD) 585.32 655.32 764.54
Interest on Repair & Reconstruction of dwelling House
(RRDH)
171.53 241.53 350.75
Interest on House Building Loan 367.54 437.54 564.76
Interest on Term Loan 495.21 565.21 674.43
Interest on Time Lone 271.31 314.31 423.53
Interest on Inland Bills Purchased & Other Loan 575.1 645.1 754.32
Interest on Cash Collateral 364.28 434.28 543.5
Interest on Other Loans 355.92 425.92 535.14
Interest from Banks & Other Financial
Institutions

Interest on FDR 432.92 502.92 612.14
Interest on Bangladesh Bank
Foreign Currency Accounts
387.21 457.21 566.43
Interest Received From Local Banks 585.34 655.34 764.56
Interest on Call deposits 271.3 341.3 433.54
Interest Received from Foreign Bank 444.27

541.42

650.64

Total Interest Income 7371.34

8701.49

10,776.77

Analyzing the Year-Wise Total Interest Income of MTBL:
From the graph we can say that in the year 2010 the total interest income is 10,776.77 million to
compare with other two financial years. In the year 2009 the interest income was 8701.49 million
and in the year 2008 the total interest income was only 7371.34 million which is more than the
interest income year 2006 &2007. So 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
thing that if we see the percentage increase by the year than in the interest income is 76.16% in
year 2010 and in the previous year 2009 it was 71.00%. So the percentage increases by 5.17%
only. The total interest income was 75.40% in year 2008. In the year 2009 to 2010 the percentage
increased but in compare with year 2006 to 2007, 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. So 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.
Signs for Classification
First and foremost requirement for any credit managers is to identify a problem credit in its
earliest stages by recognizing the signs of deterioration. Such signs include but not limited to the
following:
1. Non-payment of interest or principal or both on due dates or past dues beyond a
reasonable period or recurring past dues.
2. In case of Overdraft no movement in the account beyond a reasonable period.
3. Deterioration in financial condition of the client, as gathered from clients latest financial
statement.
4. A shortfall in collateral coverage, particularly if the collateral was a key factor in the
decision-making.
5. Death or withdrawal of key owner(s) or management personnel.
6. Company filing for bankruptcy or voluntary dissolution.
7. Adverse market report about the company itself or its principal owners.
Steps to Follow for Classification
1. Recheck the account, for all outstanding, including any outstanding in allied or sister
company or in owners or partners or directors personal names.
2. Thoroughly review loan documentation to confirm, We have what we need, documents
are in proper from, properly executed and current (i.e. not time barred).
3. If possible take current market value of the securities according to liquidation basis. And
take a close look at the assets and liabilities to determine who has the prior right on those
assets.
4. If Grantors are involved, look closely at the net worth statement and send demand notice.
5. Once the account is classified Sub-Standard, credit lines must be frozen.
Classification Process
For the purpose of determining the Classified status of an account, following guidelines are to
be observed
The process of classification of an account will start with strict application of the risk rating
assessment that is
1.
1. Sub-standard
2. Doubtful
3. Bad or Loss
4. However unpaid interest or Principal or Expired Limit for a period of 180 days or
more or recurring past dues will remain the most significant rules for
classification.
Classification as Standard
A loan is classified as substandard if any one of the following conditions is met:
(a) If an advance or any portion of an advance or interest thereon remains overdue for 180 days
or more but less than 270 days then the advance is classified as substandard.
(b) For an advance of a continuing nature, even if the loan is not overdue as much as 180 days,
but the limit stands overdrawn by move than 50% for a period of 45 continuous days preceding
the reference date for the classification, then it is classified as substandard.
(c) If a loan has been renewed or rescheduled at least three times but is not overdue, and any of
the required payments for the required period have not made when they fall due, then the loan is
classified as substandard.
Classification as Doubtful
A loan is classified as doubtful if any one of the following conditions is met:
(a) The advance or any portion of the advance or interest thereon remains overdue for 270 days
or more but less than 360 days.
(b) A loan classified as substandard per clause 6 (b) above has remained substandard for 180
days or more.
(c) A loan classified as substandard per clause 5 (c) above has remained substandard
for 180 days or more.
(d) Legal action has been initiated.
(e) Qualitative criteria based on judgment.
Classification as Bad
A loan is classified as bad if any one of the following conditions is met:
(a) The advance or any portion of an advance or interest thereon remains overdue for 360
days or more.
(b) A loan classified as doubtful per clause 6 (b) above has remained doubtful for 180 days
or more.
(c) A loan classified as doubtful per clause 6 (c) above has remained doubtful for 180 days or
more.
(d) If legal action has been initiated and no court decision has been obtained within 360 days of
initiation of action then the loan is classified as bad.
(e) Qualitative criteria based on judgment.
Classified Loan conditions of MTBL (million/Tk)
3.11.
8
Ratio
of
classi
fied
Loan
s to
Total
Loan
s of
MTBL
PARTICULARS 2005 2006 2007 2008 2009 2010
Classified Loan 0% 1.29% 3.16% 2.00% 1.48% 1.32%
Unclassified Loan 100% 98.71% 96.84% 98.00% 98.52% 98.68%
Total 100% 100% 100% 100% 100% 100
Mutual Trust bank Limited recorded a satisfactory level of performance in all the areas of its
operations in the year 2006- 2010. The success occurs due to the combined and concentrated
efforts of the management and staff of the bank under the guidance, support and patronage of the
members of the Board. But these were not enough in case of the Lending operations.
The graph shows that the percentage of classified Loan in the year 2006 was 1.29% (Tk 20.74
million), but in the year 2007, it was vastly increased and went up to 3.16% (Tk 60.00 million).
After that MTBL decreased their classified loan. In the year 2008, the classified loan was 2.00%
(Tk 87.11 million). Then in the year 2009 & 2010, 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 MTBL did not pass this
limit, but it is not a good sign for the Bank. In year 2007 MTBL CAMEL rating was 3, which
means the Bank was only in a fair position. The main problem of the MTBL was that it was not
able maintain a good Loan policy. As a result, classified loans of this Bank have increased. After
that MTBL took some good loan policy which improves percentage of classified loan that is
decrease the percentage. It may notice that though the percentage of classified loan decrease
every year but the total amount of classified loan increase every year. MTBL must have to
Particulars 2005 2006 2007 2008 2009 2010
Unclassified Loans
& Advances
525.74 1583.21 1837.63 4,271.20 6,704.10 9,609.36
Sub-Standard
Loans & Advances
- 14.95 29.86 40.75 33.43 48.85
Doubtful Loans
Advances
- 4.42 23.63 21.22 8.28 5.00
Bad/Loss Loans &
Advances
- 1.37 6.51 25.14 58.64 75.11
Total 525.74 1603.95 1897.63 4,358.31 6,804.45 9738.32
improve in this area and has to decrease the amount of classified Loans by a well-designed
recovery policy.
The main reasons behind classification of MTBL
New Banker or lacking of experience.
1.
1. Most of the time bankers have to rely on the documents provided on the client.
But what is the purity of these data. Although the CA firm certifies the dates but
financial jugulating is practicing around the world.
2. Clients over confidence about the project.
3. Change in National and International Political scenery.
4. Sometimes borrower talks about some other repayment source out of the proposed
project but they dont keep the source as security to the bank.
5. Sometimes other than land or building banks also keep furniture and machinery as
security. Later on when bank come to sell those, they found that the market value
of those assets is much lesser than the book value.
6. Sometimes bankers dont go through the financial figures properly.
7. Most of the cases clients have done some financial jugulating on their data.
8. Sometimes Client caught by some unavoidable circumstances like- ship sink.
9. Sometimes bank dont take appropriate security from the client or grantor.
10. Sometimes bank dont put concentration about the insurance.
11. Most of the cases the bankers fail to forecast the future business condition of the
clients.
Loan Loss Provision Procedure
As a part of pragmatic and conservative approach to sustain the quality of the Banks loan
portfolio, Loan Loss Provision exercise made mandatory for all Line of Business. Such exercise
is decided by: a) generally accepted banking practice, b) conservative approach to assess the
quality of Risk Assets whereby the most accurate health of the Loan Portfolio is reflected on the
books of the Bank and c) to be guided by Bangladesh Bank instructions on provisioning.
A media can rise or fall an institution within very short time. So if we see to other developed
country then we can find that every business institution has a huge budget for the advertisement
purpose. They do not take this expense as an expense; they always take it as a huge investment,
because if the people do not know about my organization then how they will do business with
us (it dose not matter which type of organization is this), it may be big manufacturing company
or a bank. Here I realized for Mutual Trust Bank that they do not have any kind of vast
advertisement or any kind of social activities, so most of the people do not have any idea about
Mutual Trust Bank. In this case when any one asks that where are you working? then if any
one say that in Mutual Trust Bank then people reply at first that is this the bank for the army?
This bank is also serving the general people but it is not so much popular, because of
advertisement.
Following guidelines are to be observed:
1. The prudential Provision Practice dictates that rather that wait until the close of the fiscal
year; provision exercise would be an on-going one, with the needed provision created,
when an account is classified and continues to remain classified. The provision exercise
is to be carried out by each quarter end, based on reports on Classified Accounts related
to previous quarter.
2. Bangladesh Bank instructions are to be followed for the purpose of Loan Loss Provision
exercise.
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%
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)
1. Loan Value
(For which provision is to be created before
considering estimated realizable value of other
security/collateral held) XXX
4. Less: Estimated salvage value of security / collateral held (XXX)
Net Loan Value XXX
Provisions for Loans & Advances maintained by MTBL
PARTICULARS 2008 2009 2010
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 39.37 50.77
Provision Against Special Maintenance
Account
-

- 2.50
Balance at the end of the year 60.23 108.12 178.10
Conclusion:
Mutual Trust Bank limited is made provision for loans and advance on the basis of period-ended
reviewed by the management on the basis of instruction contained in Bangladesh 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 2005.
According to the table, we see that the amount of provision for loans and advances of the MTBL
has increased gradually over the years. We know that provision for loans and advances depends
both on classified and unclassified loans. As the amount of classified & unclassified loans of the
MTBL has increased gradually, it shows an increasing rate also in the maintaining provisions. In
the year 20072, the percentage of total classified loan has gone up 3.16%. After that the next
three 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 amount of classified loan
increased as the loan amount every year increased. In the year 2009, total provision of loans have
created Tk 108.12 million where provision of classified loan Tk 8.52 million & unclassified loan
Year 2008 as Tk 60.23 million. In the year 2010, the classified loan increased to double as Tk
16.71 million which is the bad sign for the bank. In this year provision against special
maintenance account was Tk 2.5 million. And provision against unclassified loan created 1% of
total unclassified loan amount.
MTBL 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 country 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, consumers 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 extends loan in the
form of trade finance, industrial finance, project finance, export & import finance etc. The banks
credit policies aimed at balanced growth and harmonious development of all the sectors of the
countrys economy with top most priority to ensure quality of lending by averting growth of non-
performing assets.
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