â€œCredit Risk Management of Jamuna Bank Limitedâ€?
CHAPTER ONE Introduction 1.1 Introduction: Modern banks play an important part in promoting economic development of a country. Bank provides necessary funds for executing various programmers underway in the process of economic development. They collect savings of large masses of people scattered throughout the country, which in the absence of the banks would have remained ideal and unproductive. These scattered amounts are collected, pooled together & made available to commerce in industry for meeting the requirements. Economy of Bangladesh is in the group of world's most underdeveloped economies. One of the reasons may be its underdeveloped banking system. Government as well as different international organizations have also identified that underdeveloped banking system causes some obstacles to the process of economic development. So they have highly recommended for reforming financial sector. Banks are becoming more important to the economy as a whole and to local communities day by day. Certainly banks can be identified by the functions (service or role) they perform in the economy. Bank is a financial intermediary accepting deposits and granting loans; offers the widest menu of services of any financial institution. Banks are the most important financial institution in the economy. They are the principle sources of credit (loan able funds) for millions of individuals and families for many units of the government. Banks are also closely watched because of their power to create money in the form of easily spend able deposits by banks appears to be closely correlated with economic conditions, especially the growth of jobs & the presence of absence of inflation. The fact that banks creates money, which impacts the vitality of the economy. Bank provides individuals and business with loans that support consumption and investment spending. Financial Institution perform the essential economic function of channeling funds from people who have saved surplus funds by spending less than their income to people who have a shortage of funds because they wish to spend more than their income. The channeling of fund from savers to spenders is
so important to the economy because people who save are frequently not the same people who have profitable investment opportunities available to them. The absence of financial market individual lender and investor/borrower cannot get together. Without a financial market it is hard transfer funds from savers to investors/borrower. Financial intermediaries' i.e. Depository Institution like Commercial Bank, Savings & Loan Associations, and Credit Institutions. It mainly consists of export, import and other foreign remittance. Direct Investment, export import and foreign remittance etc. play an important role in a developing economy. There is a great opportunity to invest the foreign remittance, which also comes from 'wage earners' working abroad, in several prospective investing fields like energy sector, telecommunication, and information technology etc in our economy. Measured by total assets, commercial banks are the most important financial intermediary. Like other financial intermediaries, they perform a critical function of facilitating the flow of funds from surplus units to deficit units. Commercial banks basically focused on commercial lending. From the end of 19th century they are providing diversified services. Commercial Banks have different sections such as section focusing on lending; a section helps in foreign trade, a section that collects deposits. This study more or less relates with general Banking & credit risk management of the activities of Jamuna Bank Limited. 1.3 Background of the Study: To supply well-versed graduates Stamford University is conducting MBA program with excellent reputation. Each of the professional degree needs practical knowledge of respective field of discipline to be fruitful. To complete MBA program also has an Internship Report, relating to the exchange of theoretical knowledge into the partial fulfillment of the Internship program conducted by the Department of Business Administration, Stamford University. 1.4 Objective of the Study: General Objective: The General Objective is to prepare and submit a report on the topic "Credit Risk Management of Jamuna Bank Limited". Specific Objective: ď‚§
The main objective of the study is to get a clear idea about the Banks and how it runs and what functions it does.
To observe the functionality of credit division at an scheduled bank.
To have idea on credit risk management and its regulation.
Compare JBL’s credit rating system with a same category schedule bank.
To identify pitfalls in existing system practiced by JBL and suggest necessary changes on the policy guideline.
1.5 Scope of the Study: The study encompasses the banking management, organizational structure, credit facilities and credit risk management of Jamuna Bank Limited. This is the Thesis Paper on credit risk management of Jamuna Bank Ltd.
1.6 Methodology of the Report: This report is based on the primary and secondary data. This report also bears the practical knowledge of individual worked at the particular branch during the internee period. So the methodology is the mixing of primary and secondary data with practical knowledge. 1.7 Sources of Information:
In order to make the report more meaningful, two sources of data have been collected.
Primary Source of Data:
Observation of working procedure while working in JBL (Jamuna Bank Limited).
Data collected through Face to Face interaction with client and relationship manager.
Data gathered from visiting head office credit division.
Secondary Sources of Data:
Printed materials like annual report, brochures, instruction manuals.
Various review journals were used as sources of relevant secondary data.
Other secondary sources were books and articles on the related factors in the conceptual framework of the report.
Website several other bank including JBL (Jamuna Bank Limited).
1.8 Limitation of the Report: Although efforts will be made to make the report as comprehensive as possible, nevertheless, the following limitations have been identified for the preparation of the report.
Time is main point of limitation for this wide range of study. Due to the time limit, the scope and dimension of the report may not be broadened.
There is a lack of sufficient secondary data
All the concerned personnel of the bank’s different departments may not be interviewed.
Lack of in-depth knowledge and analytical ability for writing such report.
CHAPTER TWO Profile of Jamuna Bank Limited 2.1 Historical Background of Jamuna Bank Limited: Jamuna Bank Limited (JBL) is a Banking Company registered under the Companies Act, 1994 with its Head Office at Chini Shilpa Bhaban, 3 Dilkusha C/A, Dhaka-1000. The Bank started its operation from 3rd June 2001. The Bank undertakes all types of banking transactions to support the development of trade and commerce of the country. JBL's services are also available for the entrepreneurs to set up new ventures and BMRE of industrial units. Jamuna Bank Ltd., the only Bengali named new generation private commercial bank was established by a group of winning local entrepreneurs conceiving an
idea of creating a model banking institution with different outlook to offer the valued customers, a comprehensive range of financial services and innovative products for sustainable mutual growth and prosperity. The sponsors are reputed personalities in the filed of trade, commerce and industries. The Bank is being managed and operated by a group of highly educated and professional team with diversified experience in finance and banking. The Management of the bank constantly focuses on understanding and anticipating customers needs. The scenario of banking business is changing day by day, so the bank's responsibility is to device strategy and new products to cope with the changing environment. Jamuna Bank Ltd. has already achieved tremendous progress within only eight years. The bank has already ranked as one of top quality service providers & is known for its reputation. At present the Bank has real-time centralized Online banking branches (Urban & Rural) throughout the Country having smart IT-Backbone. Besides these traditional delivery point, the bank has ATM of its own, sharing with other partner banks & Consortium throughout the Country. The operation hour of the Bank is 10:00 A.M. To 6:00 P.M. from Sunday to Thursday with transaction hour from 10:00 A.M. to 4:00 P.M. The Bank remains closed on Friday including government holidays. 2.2 Vision: To become a leading banking institution and to play a pivotal role in the development of the country. 2.3 Mission: The Bank is committed to satisfying diverse needs of its customers through an array of products at a competitive price by using appropriate technology and providing timely service so that a sustainable growth, reasonable return and contribution to the development of the country can be ensured with a motivated and professional work-force.
2.4 Objectives of Jamuna Bank Limited: â€˘
Offering quick and improved clientele service through application of modern information technology. Bringing modern Banking facilities to the doorstep of general public through diversification of Banking services, thereby arousing saving propensity among the people.
Playing an important role in the national progress by inculcating improved banking-customer relationship, thereby bringing us closer and closer to them.
Ensuring highest possible dividend to the respect shareholders by making best use of their equity.
Pursuing the policy of nurturing balance growth of bank in all sectors.
Consolidating our position in the competitive market by introducing innovative banking products.
Ensuring highest professional excellent for our work force through enhancement of their work efficiency and technological knowledge.
Expanding the bank’s area of investment by taking part in syndicate large loan financing.
Upholding the image of the bank at home and abroad by pursing dynamic and time-befitting banking activities.
Ensuring capital adequacy, asset quality, efficient management, highest profit and satisfactory liquidity through successful implementation of the programmed for Marketing Core Risk banking.
2.5 Business Ideology: Alongside providing best service to the clients, patronizing and taking part in social development activities as well as making due contribution to growth of the national economy. 2.6 Division of Jamuna Bank Limited: Name of the divisions of JBL are as follows: A. Human Resources Division (HRD): It is one of the important divisions of the bank. It formulates the draft policies for the bank that is usually placed in the board meeting to accept. The division controls all the administrative activities of the banks. Decision about requirement, and postings of the bank employees in different divisions or branches as well as other important decisions are taken by the division. B. General Service Division (GSD):
Administrative activities regarding general banking done here. To control these activities divisions issues necessary circulars. JBL other activities regarding general banking are:
Opening new branches
Issuance of power of attorney to the officer of the bank.
General correspondence with Bangladesh
Cash affairs of the bank.
C. Audit and Inspection Division: The role of the division is to conduct extensive visit to all branches allover the country and head office also. At the time of inspection the officers audit the books accounts and of the respective ranch, observe their performances and takes notes on their issues, which they think, are not fit to the originality. In this way each and every branch of allover the country comes under H/O’s supervision.
D. Finance and Administration Division (FAD): This division can be called the central account division because all the accounts related activities are done here. All the branches send their monthly statement to the head office. In this divisions, using annual closing statements, which prepares monthly position of the bank in cumulative basis. The in charges of the branches are requested to ensure completion of annual closing of accounts and preparation of all the statements and returns accurately as per following detailed programmed. It may be mentioned here that from the annual closing statements, to prepare balance sheet, profit and loss account, close flow statement, statement of change in equity and liquidity statements according to bank companies Act. That bank, profit target of the bank for the year 2004 has been fixed at taka 125crores, deposit target at taka 3100 crores and advance target at taka 2700 crores. In this connection all concerned are ardently requested to exert all out combined efforts to raise the profit of the bank by taking all possible steps for enhancing quality, business of the bank and controlling avoidable expenditures which will help to earn higher earnings and make us able to achieve profit target. Some important points and entries that are given below (From annual closing): 1) Balancing of Books. 2) Balance certificate. 3) Incidental charges/ service charges. 4) Interest on monthly savings scheme deposit and special deposit scheme a/c.
Service charges irrespective of all A/C’s on half-yearly basis as per following details: Current A/c TK.200/-per year
Savings A/c TK.100/-per
STD A/c TK.200/-per year
C/C A/c TK.100/-per year.
Requirement For Opening NMS:
One copy passport size photo.
Nominee name and photo. 5) Interest on CIBTA A/C.
It should be charged at the prevailing interest @8.75% p.a on the credit balance of respective branch. 6) Income Tax on Deposit Interest.
It should be realized @10% from the Interest Payable to the depositors.
Excise duty on deposit & Advance Account. 7) Income tax on Commission earned on L/C deducted at source, vat on common Banking services
(L/C, L/G Remittance inland DD, TT, PO, SDR, MT, ETC) and vat on fuel bill. Income Tax at the rate of 5% on commission earned on L/C from Bank’s portion of commission, VAT at source at the rate of 15% on the commission on banking services and VAT at the rate of 2.25% on fuel bill. 9) Stationary Consumed: All stationary consumed up to debited to Expenditure A/C Printing Stationary and Expenditure A/C Security Stationary and Credited to Stock of Printing Stationary and Stock of Security Stationary in hand. 10) Expenses: Accrued / Pre-Paid. 11) Interest on Advances. Interest on Loans, Overdrafts and Cash Credits that is charged on quarterly basis must be actually and correctly calculated and charged for the quarter of the year. 12) Reversal of Adjusting Entries.
It must be reversed on the next working day after closing of the year. 13) Cash Remittance. Outstanding in the Sundry Assets A/C if any, on account of cash Remittance made by the Branches must be adjusted. 14) Discounting of TT. 15) Unclear Cheques / Cheques under Collection. Branches are advised that they should credit in the Deposit Accounts the amounts, which have actually been received/collected by them. Under no circumstances the Branch should include the amount of unclear CHEQUES in Deposits by Debiting Suspense A/C /CIBT A/C/BP A/C and Clearing Adjustment A/C. All advices pertaining to inter-Branch Transaction must be responded on or before closing to avoid inflated deposits. 16) Statements of Reconciliation of Bankers Account. All concerned are advised to prepare separate statements of Reconciliation of Banker’s Account for the accounts maintained with different Bank’s. The monthly statement should be prepared correctly and the certificate of balances from each of the Banks should be enclosed with the relative statements. E. International Division: JBL has separate division to deal with foreign exchange business, which is known as international division. It plays a middleman role between a branch of JBL and foreign correspondents in the case of Export-import and other foreign exchange activities.
F. Marketing Division: It is directly related to the marketing of the bank’s services. It takes all the arrangement in deposit mobilization, customer service related activities and all other marketing related activities. The main task of this division is to formulate strategies of achieving the bank’s corporate objectives.
G. Credit Card Division: The bank sets this division only for implementation purpose of its credit card service. This division controls all activities dealing with operation of credit card. The bank has implemented its credit card on March 20, 1997. H. Computer Division: As all the branches of JBL except sandpit become computerized this division has a lot of activities to
maintain all branches. I f any problem faced by any officer of any branches he/she can get help by telephone and can get guidance from this department. For significant problem this division sent their related specialist to this branch to correct this problem. On the other this division always helps by providing latest software of banking sector. I. Tax Department: This new and special department is formed for the purpose of monitoring all activities related to tax of government. They always take steps as a way that will be easy to follow for their branches according to the rules regulation of taxation. For this reason this department always keeps proper communication and relation with Bangladesh Bank and National Board of Revenue (NBR) J. Law and Recovery Division: JBL has a separate division for recovery of classified stuck up advances and to take lawful actions against these types of defaulters. The main task of this division is to make proposal to take lawful action against the classified and stuck-up loan holders.
Sports and Cultural Activities: JBL is a vibrant and promising bank. Its activities are not limited only to business and financial matters. Out of social responsibility, JBL has extended its support for expansion of educated in the country. With this objective, the Jamuna Bank ltd. Foundation was formed in 1989. Since its inception, JBL has been playing a pioneering role in sponsoring sports and games in the country. JBL was the sponsor of Metropolis Football League and Senior Division Football League last year. Besides, JBL extended substantial patronization to Bangladesh Olympic Association and Bangladesh volleyball Federation in 2003.The Bank never hesitates to extend its helping hands to the people as in the days of crisis so also in the exuberant happy moments of cultural events. 2.7 Management Hierarchy of JBL: Chairman Managing Director (MD) Additional Managing Director (AMD) Deputy Managing Director (DMD) Senior Executive Vice President (SEVP) Executive Vice President (EVP) Senior Vice President (SVP)
Vice President (VP) Senior Assistant Vice President (SAVP) Assistant Vice President (AVP) First Assistant Vice President (FAVP) Junior Assistant Vice President (JAVP) Senior Executive Officer (SEO) Executive Officer (EO) First Executive Officer (FEO) Officer (General)
2.8 Organgram of JBL: In Charge/ manager (SVP)
2nd Officer (AVP)
Deposit in Charge (PO)
Cash In Charge Asst. Officer
Payment (Asst O)
Receive (Asst O)
Foreign Exchange Asst Officer
Acc Opening (JO)
Foreign Exchange Officer
Acct Section (SO)
Loan & Advance
Loan & Advance (PO)
Loan & Advance (PO)
2.9 Present Trends of The Bank: 2.9.1 Number of Branches: JBL, which started its operation at Dilkusha Branch on 1994, was the first and major private commercial Bank in Bangladesh operating throughout the country as well as the age of the Bank is 10 years. During this period it has established total 57 branches over the country and made a smooth network in side the country as well as throughout the world. The number of increasing branches as year wise is mentioned in the table.
Table 01: Number of Branches of JBL from year 2005 to 2009.
Number of Branches
Number of Branches
60 50 40 Number of Branches
30 20 10 0 2005
Graph 01: Number of Branches of JBL. Interpretation: Numbers of branches remain same of JBL from 2005 to 2009; which are 40 in numeric number increased in 2008, which was 45, confirms the better performance over the years. In 2009 the number has been increased to 57, which is a good achievement for any private bank. It indicates that the bank is performing well over the last five years. 2.9.2 Number of Employees: Jamuna Bank ltd .is the pioneer in private banking sector. The numbers of employees increased throughout its life because of growing nature. In 2008 the number of employees were 2270, which were 2183 in 2007 and 2133 in 2006. Number will be increased when the number of branches will be increased.
Table 02: Numbers of Employees of JBL from year 2005 to 2009. Years
Number of Employees
2500 2000 1500
Years Number of Employees
1000 500 0
Graph 02: Numbers of Employees of JBL.
Interpretation: It seems that as the branches increases, the numbers of the employees also increases to provide better customer service to retain the passion in the banking sectors. It indicates that the bank is performing well over the last five years. 2.9.3 Number of Foreign Correspondents: Jamuna Bank ltd. is the pioneer in private banking sector. In 2008 the Number of foreign correspondents are 400, which are 391 in 2005 and 358 in 2004. Number of Number of foreign correspondents will be increased when JBL is able to make contract with other oversees financial institution. Table 03: Number of Foreign Correspondents of JBL from year 2005 to 2009. Years
Number of foreign correspondents 358
Number of Foreign Correspondent 410 400 390 380 370
360 350 340 330
Graph 03: Foreign Correspondents of JBL. Interpretation: It seems that JBL maintains good relationship with its foreign banks and exchange houses. For this reason the number of the foreign correspondences are increasing day by day. It indicates that the bank is performing better over the last five years. 2.9.4 Capital Structure of Jamuna Bank Limited: Jamuna Bank ltd. is one of the oldest banks in Bangladesh. It owns one of the strongest capital structures in the banking history of Bangladesh. Authorized capital is increased in 2008 which is 2450 millions. Apart from that paid up capital is also increased since it started its journey. On the report the paid up capital is reported Taka 805.47 million. Last year it was 619.59 million, which was lower than the amount reported in the year 2008. Table 04: Capital Structure of JBL from year 2005 to 2009 . Years Authorized
Paid up capital
Capital of JBL
4000 3000 2000 1000 0 2004
Years Authorized capital
Paid up capital
Graph 04: Capital Structure of JBL. 2.9.5 Deposits of Jamuna Bank Limited: On 2009 total deposits of the bank stood at TK. 47961.2 million which is higher than last years 40350.9 millions and the growth rate is 18.86%. The increasing trend of collecting deposit is followed in last five year. Table 05: Deposits of JBL from year 2005 to 2009. Year
Growth rate NIL
Deposits of JBL
Graph 05: Deposits of JBL .
Interpretation: From30000 the Chart and the Table shown above, it is visible that from the year 2005 to 2006 the deposit had20000 been increased by 30.18%. It is also seen that from the year 2007 to 2009 the amount has been increased 10000 steadily. In the year 2007, the total deposit of Jamuna Bank Limited has 0
reached 47961.2million Taka, which is 18.86% more from the year 2008. It indicates that the bank is performing well over the last five years in collecting deposits. 2.9.6 Loans and Advances of Jamuna Bank Limited: With a view to improve the quality and soundness of Loan portfolio, the bank arranges more strict procedure for risk assessment, lending decisions and monitoring functions at the time of granting Loans and Advances. The emphasis on maintaining the quality of assets has rendered a diversified and well-structured advances portfolio. I have furnished below the loan and advances position of Jamuna Bank .Limited to comparison its progress for last five years. Table 06: Amount of different types of advances of JBL from year 2004 to 2009.
Loans, Cash credit,
Loans and Advances
40000 30000 20000 10000 0 2005
Years Loans, Cash credit, Overdrafts etc.
Graph 06: Loans and Advances of JBL. Interpretation: Here it can be observed from the chart that the growth rate of loans and advances has been increased day by day and it recorded 13.28% growth rate in the year 2009. Jamuna Bank .Limited extended its credit in different sectors like Agriculture, pharmaceuticals, textiles and garments, chemical industries, Food and allied, transport and communications industries, electronics and automobiles industries, housing and constructions industries, engineering and metals industries, energy and power industries, services industries and many other industries. 2.9.7 International Trade of Jamuna Bank. Limited: In the year 2009 Jamuna Bank Limited remains highly active in the arena of international trade financed by offering a board spectrum of services namely, Issuance of Documentary Credit, Advising of Export L/Cs, Purchase and negotiation of export bills, Documentary collections, pre-shipment and post-shipment financed, Remittance Disbursement Activities etc. Import: In the year 2009, Jamuna Bank ltd. saw the highest ever growth rate in import business, which stood at Tk 62759.00 million, compared to 2008 volume of Tk 42458.50 million marking the increase of 47.81% from last year. The major import items of the year were: Coals, Steel items, HDPE, Raw cotton, Fabrics and Accessories, Industrial commodities and Seeds, poultry feeds, capital machineries etc
Table 07(a): Import of JBL from year 2005 to 2009.
Import 70000 60000 50000 40000 30000 20000 10000 0
Graph 07(a): Import Performance of JBL. Interpretation: Throughout the years JBL is getting better and better in import business service provider, because they provide the best customized self-tailored service to its different valued customers. It indicates that the bank is performing well over the last five years in import service business. Export: Jamuna Bank ltd .experienced sound growth of export business in 2009 from 2008. The volume of export business rose 28019.2 million from Tk 31824 million in 2009 showing and increase of around 13.58%. As before, Ready Made Garments still remained in the major export item of 2009 constituting more than 19.3%. The other export items were frozen fishes, which was 4.2% of total export. Table 07(b): Export of JBL from year 2005 to 2009.
Year Export Growth rate
2005 16341.8 NIL
2006 17105.3 4.67%
2007 21344.1 24.78%
2008 28019.2 31.27%
2009 31824 13.58%
Export 35000 30000 25000 20000 15000 10000 5000 0
Graph 07(b): Export Performance of JBL. Interpretation: The increasing trend of performing export business for client has been experienced for last few years. In the year 2008, JBL experienced the highest ever growth rate which was 31.27%, but the highest amount of export revenue is earned by JBL in the year 2009, which is around 31824 millions. It seems that JBL is getting better and better day-by-day in this sector. 2.9.8 Foreign Exchange Business: Jamuna Bank .Limited has passed a successful year in foreign exchange business. JBL expended the foreign exchange business in different countries with different agencies in last year. Jamuna Bank ltd. made money transfer arrangements with Bolaka exchange house last year. JBL has the highest number of foreign correspondents in abroad. So it receives the major portion of remittance from the non-returning Bangladeshis and from the international importers. National Bank's remittance volume increased at a huge amount by 56.80% about Tk 21353.9 million from last year's Tk 13618.2million. It also increased by 29.07% in the year 2009. Table 08: Foreign Remittance Business of JBL from year 2005 to 2009.
Foreign Remittance 30000 25000 20000 15000 10000 5000 0
Graph 08: Foreign Remittance of JBL. Interpretation: It indicates that the bank is performing well over the last five years in foreign remittance business. 2.9.9 Profit of JBL: Profit performance of Jamuna Bank Limited proves that it is performing well in the last five years. In 2005, profit before tax was 336.09 millions. Profit became 88.12 millions, when tax for that year was deducting. Since then, the profit before tax and profit after tax are increasing at a faster growth rate. The highest amount of profit is earned in 2009. The profit of last five years suggests that JBL is managed well during that time. Table 09: Profit of JBL from year 2005 to 2009.
Profit before tax
Profit after tax
Profit of JBL
2500 2000 1500 1000 500 0
Years Profit before tax
Profit after tax
Graph 09: Profit Level of JBL. Interpretation: It indicates that the bank is performing well over the last five years. Source & Utilization of Capital: Main part of the source of capital of JBL bank is Equity of Share Holder & Savings of mass people. That money the bank used for short term & long term debt/loan to the different enterprise & financial institutions and earn huge profit against that.
Source of Fund 1.45 5.32 1.72 5.28
Paid up capital Reserve Fund Deposit and others Borrowings
Pie Chart 01: Source of fund.
Uses of fund
Lons and Advances Investment
2.59 3.48 2.07
Cash and Banks Call money
Fixed Assets 69.9
Pie Chart 02: Use of fund.
2.10 Performance Management of JBL:
Since its inception JBL is operating by its high profile management. Many of its sponsor directors are leading industrialist of our country and manager including board members has wide and experience in banking industry. As its performance gave a clear idea of its management’s efficiency some the performance ratio is plotted below to give an idea of its management’s performance:
Fig 01: Performance of JBL’s Management
2.11 Well Performance Indicators of JBL and Their Reason: Measurement Marginal Cost of Fund
Reason As the economy money flow to the economy tightened after year FY 04 and onwards banks were to cut their interest rate due expansionary policy undertaken by Bangladesh bank
As efficiency ratio of any bank measures its overhead structure it indicates decline in its cost pattern it is mainly because of taking time to consume its cost occurred at itâ€™s inception.
2.12 Poor Performance indicators of JBL and its Reason: Measurement
Profit in Lending
It is clearly under stable from the graph that it is a perfect replica of marginal cost of funds. So we can assume and say that it is due to the policy undertaken by the Bangladesh bank authority and Government of Bangladesh
JBL has issued new issue in the year of 2004 and 2006 so its observe a declining trend afterwards year 2003.
It is also a reflection of the fast growing asset base of JBL relating to its profit. But it is alarming as it is failing to generate expected level of profit out of its assets.
Per Employee Deposit
JBL has recruited fair amount of people after wards 2003 responding to its expansionary policy and new branches also added to its operation every single year so it causes decline in pool of new deposit per employee.
2.13 Five Yearsâ€™ Performance: At A Glance
2.13.1 Highlights on The Overall Activities of The Bank as at and For The Year Ended at 31 December, 2005, 2006, 2007, 2008 and 2009:
Paid Up Capital
Year - 2008
Year - 2007
Year - 2006
Year - 2005
Tier I Capital (capital 4
Tier II Capital
Deposit (Core & Bank) 20,924.00
Profit Before Tax
Profit After Tax
Total Assets Contingent Liabilities and Commitments
Number of Branches
Number of Employees 861
(EPS) Net Asset per Share Taka
2.13.2 Financial Highlight â€“ Ratio Analysis:
Sl. No. Particulars Performance Ratio % 1 Return on Assets (ROA) 2 Return on average Assets (After tax) 3 Return on average equity (ROE) 4 Net Interest Margin (Average)
1.74 0.38 5.54 4.39
2.7 1.37 21.39 4.39
2.39 1.32 28.25 3.24
2.35 1.34 29.46 3.35
1.47 0.81 14.53 2.49
5 Net Interest Margin 6 Efficiency Ratio 7 Return on Investment 8 Profit Margin 9 Return on risk Weighted Assets 10 Burden Coverage 11 Ratio of fees Income 12 Interest Yield 13 Marginal Cost of Fund 14 Burden Cost of Fund 15 Burden Yield on Advances 16 Profit on Lending 17 Yield on Advance 18 Interest expenses to Total Expenses 19 Salary Exp. To Total Overhead Exp. 20 Salary Exp. To Fees Income 21 Expenses on Coverage 22 Return on Paid -up Capital 23 Productivity Ratio 24 Per Employee Deposit 25 Staff per Branch 26 Capital to Deposit Asset Quality Ratio % 1 Nonperforming Loan to Total Loan 2 Loan Loss Reserve to Total Loan 3 Loan Loss Reserve to NPL 4 NPL Reserve to NPL 5 Loan to Deposit Capital Ratio/ Regulatory Capital Ratio % 1 Total Risk- Based Capital Ratio 2 Tier 1 Risk- Based Capital Ratio 3 Leverage Capital ratio (Capital) 4 Leverage Capital ratio (Equity) 5 Average Equity to Average Assets
CHAPTER THREE Overview of Credit Risk Management 3.1 Overview of Credit Risk Management:
3.88 37.96 8.8 13.05 2.69 63.59 10.34 12.77 7.64 8.13 13.58 5.45 13.15 77.87 47.36 74.49 78.96 7.27 29.68 24.3 24.6 8.95
4.06 38.64 10.02 18.18 4.35 74.43 11.96 13.87 8.98 9.67 15.34 5.67 14.81 78.44 43.38 58.28 90.27 23.63 32.74 28.81 21.43 9.85
2.93 38.4 6.2 21.03 4.03 72.57 11 10.68 6.82 7.22 12.09 4.87 12.72 79.97 43.33 59.71 86.52 46.58 31.37 27.53 21.88 6.34
2.87 39.74 6.91 19.59 4.68 65.66 9.57 11.58 7.08 7.63 11.9 4.27 13.04 81.29 48.46 73.81 75.5 36.35 29.19 23.38 22.35 6.46
1.93 49.24 2.93 13.11 3.57 56.95 8.41 11.02 6.61 7.04 12.38 5.35 14.77 82.58 50.11 87.99 64.68 15.68 30.06 21.06 19.63 7.32
5.06 4.45 88.02 61.74 79.42
5.03 2.5 49.81 28.21 74.03
0.46 1.13 242.98 20 76.18
0.04 1.01 2,404.24 36.75 64.33
0.02 1.02 5,142.19 100 48.98
12.42 10.95 10.98 12.45 6.91
14.79 13.58 9.76 10.63 6.4
10.17 8.96 15.18 17.23 4.66
11.54 10.39 15.91 17.67 4.55
15.57 14.53 15.19 15.22 5.59
Banking is known as the backbone of the national economy. Banks play an important role in the business sector & promoting industrialization & economic development of the country. Banks provide necessary funds for. All sorts of economy & financial activities revolve around the bank. As the industry produces goods & commodities, bank creates & controls money market & promotes formation of Capital. Banks provide different services, credits to the customers. The customer comes from all walks of life, from a small business to a multi-nation corporate having its business activates all around the worlds. The bank has to satisfy the requirements of different customer belonging to various social groups. The banking business has therefore become complex & requires specialized skills. It functions as an agent for bringing about economic, industrial growth, & prosperity of the country. As results different types of bank with various services have come in to existence to suit specific requirements. 3.2 Bank: A bank is defines as a person who carries on the business of banking, which is specified as follows: ď‚§
Conducting Current accounting for his customer.
Playing cheques drawn on him
Collecting cheques for his customer.
A banker or a bank is a financial institution that acts as a payment agent for customers & borrows & lends money. In most English common law jurisdiction there is a Bills Exchange Act that codifies the law in relation to negotiable instruments, including cheques & this act contains a statutory definition of the term banker, where banker include a body of a person, whether incorporated or not, who carry the business of banking. Although this definition seems circular, it is actually functional, because it ensures that legal basis for bank transaction such as cheques do not depends on how the bank is organized or regulated. 3.3 Credit: The flow of Credit in global financial markets has slowed from a glacial pace to a virtual standstill. And credit markets threaten stay that way despite immense amounts of cash being pumped in by governments and central banks around the world. 3.4 Risk:
Risk is an intrinsic part of doing business in banking and financial services, as firms must be willing to take on a fair amount of risk in order to provide the most value to shareholders. To successfully do so, you must:
Strike an optimal balance between growth and return objectives and the associated risks.
Apply resources efficiently and effectively in pursuit of those goals.
Accurate risk calculations and flexible reporting: •
Quickly and accurate calculates current and potential risk exposures-probability of default, exposure at default, credit migration, regulatory capital, risk weighted assets, credit value at risk (CVAR) and economic capital.
Enables improved credit loss forecasting, implementation of appropriate hedging strategies, improved capital allocation and maximized return from risk management investments.
Lets you conduct stress tests, perform mark-to-market calculations, model risk factors, run Monte Carlo simulations and explore multiple scenarios.
Lets you view, Validate, audit and customize every step of the process as needed.
Provides flexible reporting capabilities, with customizable templates that enable reports to be published to a Web portal or shared via e-mail or wireless devices.
3.5 Risk Management: Enterprise risk management delivers a current, credible understanding of the risks unique to your organization across a broad spectrum that includes all types of risk (credit risk, operational risk, market risk, liquidity risk and trading risk), lines of business and other key dimensions. SAS Enterprise Risk Management can help you. •
Improve financial performance by reducing losses, improving capital management and building a risk-aware culture throughout the organization.
Reduce time to and cost of compliance by effective and efficiently managing all types of risk and lowering associated costs.
3.6 Credit Risk Management: Accurately assess and report the risk of potential credit losses and calculate the capital reserves required to adequately cover that risk with SAS solutions for credit risk management. 3.7 Definition of credit Risk Management:
Credit Risk Modeling Design and Application this is an indispensable guide for credit professionals and risk managers who want to understand and implement modeling techniques for increased profitability –by Elizabeth Mays.
A practitioner’s view on the developments of internal models for credit risk * In-depth analysis of credit risk management methodology * by Michael, K ONG.
Managing Risk Provides a comprehensive description and analysis of modem risk management, including the regulatory aspects, organizational issues, potential problem areas, and tools to control and ma-by Michel Crouhy.
Draws upon financial insights derived from the S&L crisis of the 80s, as well as newly emerging financial practices in today’s derivatives markets, to illustrate an approach to controlling credit risk –by john B. Caouette from Managing Credit Risk : The Next Great Financial Challenge (frontiers in Financial Series).
Credit risk measurement and models, a book that would combine an overarching perspective with practical advice-by Anthony Saunders as Credit Risk Measurement: New Approaches to Value at Risk and Other Paradigms, 2nd Edition.
A cohesive, extensively referenced collection covering risk bonds, valuation of risky debt, credit ratings, migration alternative and management of credit risk for the practitioner-by David Shimko as from Credit Risk –Management
3.8 Tools of Credit Risk Management: Advance Financial Risk Management integrates rate risk, credit risk foreign exchange risk, and capital allocation using a consistent risk management approach it explains, in detailed, yet understandable terms, the analytics of these issues from A to Z. written by experienced risk managers, this book bridges the gap between the idealized assumptions used for valuation and the realties that must be reflected in management actions. It covers everything from the basics of present value, forward rates, and interest rate compounding to the wide variety of alternative term structure models. We use a comprehensive range of quantitative tools and metrics for monitoring and managing risks. 3.9 Function of Credit Risk Management:
Risk Management Contains: 1. Identification 2. Measurement 3. Aggregation 4. Planning and management 5. As well as monitoring
Process of Credit Risk Management:
Standard and Individual Processes Show a Number of General Characteristics Sales of standardized products Limited number of acceptable collateral
Individual customer service and sales of an expanded product catalog Relieving risk analysis Extended number of acceptable collateral
Automated credit decision -For residential real estate finance -Overdraft facility administration Credit decision based On the four-eyes Principle
Assumption of implementation of implement and credit administration Assumption of implementation & credit administration
*Voting by front office & back office *Application of rating procedures
Example for illustration purposes Sales
Standardized process . . . . Individual . process .. . . . . .
. Sales Risk Analysis Processing
The Credit Approval Process is subdivided into a large Number of individual Process Steps:
Conceptual presentation individual process Sales Acquisition credit specific customer service *Establishing contact * Evaluate first customer info * Customer meeting * Debriefing
Risk analysis Collect and review data
Collateral Documentation Approval and risk assessment
*Review *Inspect object *Complete loan *Request documents * Determine loan application documents * Follow-up with to value * prepare credit * Obtain loan officer account* Evaluation vote information manager Exposure * Hand over *Completeness credit file plausibility review * Standardized credit rating * Follow-up * Documentation of other credit related factors
Implementation on the credit decision
* Follow-up * Approved up Approval by decision makers
* Check compliance with authority structure * Prepare contracts *Get signatures * Provide security * Disbursement review * Disbursement
Internal Documentation and Credit Agreements:
Overview of core content of the documentation process: Preparation of
documentation *Coordinate type of finance and contract with departments * Prepare loan application * Prepare further internal Documents * Prepare credit file
*Coordination with account Managers * Coordination with customers - Cheek with department incase Changes are requested -Carry out possible changes -Initiate approval process again if approval is requested Documentations is followed by
* Credit agreement -Standard agreement -Individual agreement -Preparation by third parties * Collateral agreements -Standard agreement -Individual agreement -Preparation by third parties * Syndicated agreements if applicable -Subsidy agreements if a applicable transfer of collateral and
* printing out agreement -signing the agreements -cheek legitimacy -Fees -Archiving welling
Early Warning System:
Common Risk Signals in Static Early Warning Systems Illustrative selection
Retail Customer .
Insufficient credit transactions
Insufficient credit transactions
Delays in interest/principle repayment
Delays in interest/principle repayment
4 times per years
Markedly increased utilizations of credit lines
Total process in a table:
Risk management is a continues Industry process information of creating transparency and Risk Mitigation Transparency and Risk Mitigation Control
Identify Measure Aggregate Planning and controlling Monitoring cycleofiscredit embedded in a framework of 3.10Control Importance Risk Management:
Relevant types of risks • Market risk • Credit risk • Operational risks Measurement instruments • Forecasts • Stress tests *Assessment of overall risk • Correlations • Prortfolio models * Control instruments • Limiting • Risk-adjusted prices • Derivatives/ securitization/sale risk strategy, processes, and organization *Risk control/reporting • Limit control / reporting • Align with risk-bearing capacity
With confidence in today’s credit market at an all-time low, it is critical for banks engage in better credit risk management practices that can optimize risk-adjusted pricing and rectums throughout the organization. The importance of credit risk management is:
Access and aggregate credit data across disparate systems and sources.
Seamlessly integrate credit scoring/ internal rating with credit portfolio risk assessment.
Accurately forecast measure, monitor and report potential credit risk exposures across the entire organization on both counterparty and portfolio levels, allowing seamless integration of credit scoring with credit risk.
Evaluate alternative strategies for pricing, hedging or transferring credit risk.
Optimize allocation of regulatory capital and economic capital.
Meet the reporting and disclosure requirements of regulators and investors for a wide variety of regulations such as Basel ll.
Manage the entire lifecycle of a loan-from origination, to servicing, to collection /recovery.
CHAPTER FOUR Credit Risk Management of Jamuna Bank Limited
4.1 Credit Risk Grading (CRG): Risk is the element of uncertainty or possibility of loss that prevail in any business transaction in any place, in any mode and at any time. In the financial arena, enterprise risks can be broadly categorized as Credit Risk, Operational Risk, Market Risk and Other Risk. Credit risk is the possibility that a borrower or counter party will fail to meet agreed obligations. Globally, more than 50% of total risk elements in banks and FI’s are Credit Risk alone. Thus managing credit risk for efficient management of a FI has gradually become the most crucial task. Credit risk may take the following forms: •
In direct lease/term finance: rentals/principal/ or interest amount may not be repaid.
In issuance of guarantees: applicant may fail to build up fund for settling claim, if any.
In documentary credits: applicant may fail to retire import documents and many others.
In factoring: the bills receivables against which payments were made, may fail to be paid.
In treasury operations: the payment or series of payments due from the counter parties under the respective contracts may not be forthcoming or ceases.
In securities trading businesses: funds/ securities settlement may not be effected.
In cross-border exposure: the availability and free transfer of foreign currency funds may either cease or restrictions may be imposed by the sovereign.
Credit risk management encompasses identification, measurement, matching mitigations, monitoring and control of the credit risk exposures to ensure that.
The individuals who take or manage risks clearly understand it.
The organization’s Risk exposure is within the limits established by Board of Directors with respect to sector, group and country’s prevailing situation.
Risk taking Decisions are in line with the business strategy and objectives set by BOD
The expected payoffs compensate the risks taken.
Risk taking decisions are explicit and clear.
Sufficient capital as a buffer is available to take risk.
Credit risk management needs to be a robust process that enables FIs to proactively manage facility portfolios in order to minimize losses and earn an acceptable level of return for shareholders. Central to this is a comprehensive IT system, which should have the ability to capture all key customer data, risk management and transaction information including trade & Forex. Given the fast changing, dynamic global economy and the increasing pressure of globalization, liberalization, and consolidation it is essential that FIs have robust credit risk management policies and procedures that are sensitive and responsive to these changes. 4.1.1 Risk Grading: The Credit Risk Grading (CRG) is a collective definition based on the pre-specified scale and reflects the underlying credit-risk for a given exposure. A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary indicator of risks associated with a credit exposure. Credit Risk Grading is the basic module for developing a Credit Risk Management system. Credit risk grading is an important tool for credit risk management as it helps the Financial Institutions to understand various dimensions of risk involved in different credit transactions. The aggregation of such grading across the borrowers, activities and the lines of business can provide better assessment of the quality of credit portfolio of a FI. The credit risk grading system is vital to take decisions both at the pre-sanction stage as well as post-sanction stage. At the pre-sanction stage, credit grading helps the sanctioning authority to decide whether to lend or not to lend, what should be the lending price, what should be the extent of exposure, what should be the appropriate credit facility, what are the various facilities, what are the various risk mitigation tools to put a cap on the risk level. At the post-sanction stage, the FI can decide about the depth of the review or renewal, frequency of review, periodicity of the grading, and other precautions to be taken. Risk grading should be assigned at the inception of lending, and updated at least annually. FIs should, however, review grading as and when adverse events occur. A separate function independent of facility origination should review risk grading. As part of portfolio monitoring, FIs should generate reports on credit exposure by risk grade. Adequate trend and migration analysis should also be conducted to identify any deterioration in credit
quality. FIs may establish limits for risk grades to highlight concentration in particular grading bands. It is important that the consistency and accuracy of grading is examined periodically by a function such as an independent credit review group. 4.1.2 Functions of Credit Risk Grading: Well-managed credit risk grading systems promote financial institution safety and soundness by facilitating informed decision-making. Grading systems measure credit risk and differentiate individual credits and groups of credits by the risk they pose. This allows FI management and examiners to monitor changes and trends in risk levels. The process also allows FI management to manage risk to optimize returns. 4.1.3 Use of Credit Risk Grading:
The Credit Risk Grading matrix allows application of uniform standards to credits to ensure a common standardized approach to assess the quality of individual obligor, credit portfolio of a unit, line of business, the FI as a whole.
CRG would provide a quantitative measurement of risk which portrays the risk level of a borrower and enables quick decision making,
As evident, the CRG outputs would be relevant for individual credit selection, wherein either a borrower or a particular exposure/facility is rated. The other decisions would be related to pricing (credit-spread) and specific features of the credit facility. These would largely constitute obligor level analysis.
Risk grading would also be relevant for surveillance and monitoring, internal MIS and assessing the aggregate risk profile of an FI. It is also relevant for portfolio level analysis.
CRG would provide a quantitative framework for assessing the provisioning requirement of a FI’s credit portfolio.
4.1.4 Risk Grading for Corporate and SME:
The proposed CRG scale is applicable for both new and existing borrowers.
It consists of 8 categories, of which categories 1 to 5 represent various grades of acceptable credit risk and 6 to 8 represent unacceptable credit risk. However, individual FI depending on their risk appetite may implement more stringent policy
Superior Good Acceptable Marginal/Watch list
NAME SUP GD ACCPT MG/WL
1 2 3 4
Special Mention Substandard Doubtful Bad & Loss
SM SS DF BL
5 6 7 8
Having considered the significance of credit risk grading, it becomes imperative for the financial system to carefully develop a credit risk grading model, which meets the objective outlined above.
The following Risk Grade Matrix is provided as an example. The more conservative risk grade (higher) should be applied if there is a difference between the personal judgment and the Risk Grade Scorecard results. It is recognized that the FIs may have more or less Risk Grades, however, monitoring standards and account management must be appropriate given the assigned Risk Grade:
DEFINITION Credit facilities, which are fully secured i.e. fully cash covered.
Superior – Low Risk
Credit facilities fully covered by government guarantee.
Credit facilities fully covered by the guarantee
of a top tier international Bank. Strong repayment capacity of the borrower
The borrower has excellent liquidity and low leverage.
The company demonstrates consistently strong earnings and cash flow certainty.
Borrower has well established, strong market share.
Very good management skill & expertise.
These borrowers are not as strong as GOOD Grade
borrowers, but still demonstrate consistent earnings, cash flow certainty and have a good track record.
Borrowers have adequate liquidity, cash flow and earnings.
Acceptable parent/sister company guarantee
Aggregate Score of 75-84 based on the Risk
Grade Score Sheet This grade warrants greater attention due to
conditions affecting the borrower, the industry or the economic environment.
Weaker business credit & early warning signals of emerging business credit detected.
The borrower incurs a loss
Facility repayments routinely fall past due
Account conduct is poor, or other untoward factors are present.
Credit requires attention
Aggregate Score of 65-74 based on the Risk
Grade Score Sheet This grade has potential weaknesses that deserve
uncorrected, these weaknesses may result in a deterioration of the repayment prospects of the borrower. Special Mention
Severe management problems exist.
Facilities should be downgraded to this grade if
4.1.5 Ratings Review: The rating review can be two-fold:
Continuous monitoring by those who assigned the grading. The Relationship Managers (RMs) generally have a close contact with the borrower and are expected to keep an eye on the financial stability of the borrower. In the event of any deterioration the grading are immediately revised /reviewed.
Normally CRG should be reviewed at least once in a year. For risk grades starting from 5 to 8, CRG should be reviewed in every six months.
Secondly the risk review functions of the FI or business lines also conduct periodical review of grading at the time of risk review of credit portfolio.
4.2 Lending Guidelines: All FI’s should have established “Lending Guidelines” that clearly outline the senior management’s view of business development priorities and the terms and conditions that should be adhered to in order for facilities to be approved. The Lending Guidelines should be updated at least annually to reflect changes in the economic outlook and the evolution of the FI’s facility portfolio, and be distributed to all lending/marketing officers. The Lending Guidelines should be approved by the Managing Director/CEO & Board of Directors of the FI based on the endorsement of the FI’s Head of Credit Risk Management and the Head of Business Units. Any departure or deviation from the Lending Guidelines should be explicitly identified in credit applications and a justification for approval provided. Approval of facilities that do not comply with Lending Guidelines should be restricted to the FI’s Head of Credit or Managing Director/CEO or Board of Directors. The Lending Guidelines should provide the key foundations for account officers/relationship managers (RM) to formulate their recommendations for approval, and should include the following: •
Industry and Business Segment Focus
The Lending Guidelines should clearly identify the business/industry sectors that should constitute the majority of the FI’s facility portfolio. For each sector, a clear indication of the FI’s appetite for growth should be indicated (as an example, Textiles: Grow, Cement: Maintain, Construction: Shrink). This will provide necessary direction to the FI’s marketing staff. •
Types of Facilities
The type of facilities that are permitted should be clearly indicated, such as Lease, Term Loan, Home Loan, and Working Capital etc. •
Single Borrower/Group Limits/Syndication1
Details of the FI’s Single Borrower/Group limits should be included as per Bangladesh Bank guidelines. FIs may wish to establish more conservative criteria in this regard. •
Sector Lending Caps
An important element of credit risk management is to establish exposure limits for single obligors and group of connected obligors. FIs are expected to develop their own limit structure while remaining within the exposure limits set by Bangladesh Bank. The size of the limits should be based on the credit strength of the obligor, genuine requirement of credit, economic conditions and the institution’s risk tolerance. Appropriate limits should be set for respective products and activities. FIs may establish limits for a specific industry, economic sector or geographic regions to avoid concentration risk. •
Product Lending Caps
FIs should establish a specific product exposure cap to avoid over concentration in any one product. •
Discouraged Business Types
Facilities should outline industries or lending activities that are discouraged. The Facility may have segregated sectors to be discouraged based on the following: GOVERNMENT SPECIFIED BEST PRACTICED Military Highly Leveraged
COMPANY SPECIFIC Finance of Speculative Mineral
Investments Share Lending
Extraction/Mining, or other
Taking an Equity Stake in
listed on CIB black list or
activity that is Ethically or
Counter parties in countries subject to UN sanctions
Bridge Loans relying on
equity/debt issuance as a source of repayment.
Facility parameters (e.g., maximum size, maximum tenor, and covenant and security requirements) should be clearly stated. As a minimum, the following parameters should be adopted:
Facilities should not grant facilities where the FI’s security position is inferior to that of any other financial institution.
Assets pledged as security should be properly insured.
Valuations of property taken as security should be performed prior to facilities being granted. A recognized 3rd party professional valuation firm should be appointed to conduct valuations.
Cross Border Risk
Risk associated with cross border lending. Borrowers of a particular country may be unable or unwilling to fulfill principle and/or interest obligations. Distinguished from ordinary credit risk because the difficulty arises from a political event, such as suspension of external payments.
Synonymous with political & sovereign risk
Third world debt crisis
4.2.1 Factors Need to Be Considered In Assessing Credit Risk: As a Credit Assessment is a prior step before granting credit a thorough credit and risk assessment should be conducted prior to the granting of a facility, and at least annually thereafter for all facilities. The results of this assessment should be presented in a Credit Application As per the Bangladesh Bank Credit Risk Management manual following this: •
Credit Application Should summarize this following things in detail
Amount and type of facility(s) proposed
Purpose of facilities
Facility Structure (Tenor, Covenants, Repayment Schedule, Interest)
Government and Regulatory Policies
With these mentioned things it also address the following segments of risk
Historical Financial Analysis
Projected Financial Analysis
Account Conduction History
Concurrent with Internal Lending Guideline
Identifying Mitigating Factors
4.2.2 Preferred Structure in Risk Management:
Board of Director
Risk Risk Management Management Committee Committee (CEO (CEO and and Head Head of of all all Risk Risk management management committee) committee)
Credit Credit Risk Risk Management Management Committee Committee (Committee (Committee of of top top Executives Executives including including CFO& CFO& Head Head of of Credits) Credits)
Head Head of of Credit Credit Risk Risk Management Management
Credit Credit Approval Approval
Credit Credit Administration Administration
Head Head of of Business Business Unit Unit
Other Other Direct Direct Report Report (Internal (Internal Audit, Audit, etc) etc)
Relationship Relationship Management/Marketi Management/Marketi ng ng (RM) (RM)
Monitoring Monitoring Business Business Development Development
4.2.3 Credit Approval Process:
1. Application forwarded to Zonal Office or Head Office for review by the ZCRO or HCRO
Credit Application Recommended By RM/ Marketing 2
Zonal/HO Credit Risk Officer (ZCRO/HCRO)
2. Advise the branches
3. ZCRO/HCRO supports & forwarded to Head of Business Units (HOBU) within their delegated authority and to Head of Credit risk (HOCR) for onward recommendation
Head of Credit Risk (HOCR) & Head of Business Unit (HOBU) 6
5 Credit Committee
4. HOCR advises the review to ZCRO
7 Executive Committee/Board
5. HOCR & HOBU supports & forwarded to Credit Committee 6. Credit Committee advises the decision as per delegated authority to HOCR & HOBU 7. Credit Committee forwards the proposal to EC/Board for their approval within their
Indicative Delegated Approval Authority Levels Credit Committee Up to 10% of Capital Management Committee Up to 20% of
Determining Global Credit Portfolio Limits:
Determining global credit portfolio is one of the major steps of deciding credit proportion to different types of credit. By this JBL assign a limit to different facilities to minimize their risk. It is done to allocate their total credit portfolio in a mean which is less risky and exposed them to the highest profit. This is reviewed on change of the total economic scenario of the country as well as the global economy and JBL also tend to change this with the change or presence of new law.
This JBLâ€™s Global Credit Portfolio addressed the credit exposure to Tem Facilities, Total Facilities, International/Cross Border Credit Exposure, Customer Group Credit Exposure, Unsecured Credit Exposure. So far this Credit policy has been addressed all the issues but its timeliness and its affectivity is in question as it has not been reviewed for the last three years.
4.3.2 Deciding Sector wise Allocation:
After it decides it global portfolio limit it allocates its total credit portfolio according the decided parameter of the Global Credit Portfolio Limit. Sector wise analysis is done prior to allocating limit sector wise. It is also done with the thought of keeping the aggregate risk of the bank low and at the same time rotating the credit as much as possible. This is the snap shot of their sector wise credit portfolio for the last two years. (Appendix -1)
Graph 10: Sector Wise Credit Portfolio 4.3.3 Assessing Credit Risk:
If the applicants fall within the range of global credit limit and belong to a sector there is enough fund to accommodate this loan JBL forward this to the further processing after assessing its exposure to credit risk. A through credit risk assessment is to be conducted as per the credit policy paper prepared by JBL in the year 2005. According to that policy paper credit risk should be assessed before sanctioning any credit facility. And at the end of each year it should be reviewed for each relationship with respect to the changed condition of the business and economy.
Relationship manager (Branch Manager) should be responsible for all the relationship and must ensure the accuracy of the credit facilities before submitting for approval. It is also the manager who should be fully equipped with the knowledge of Bank’s Credit Risk Policy and conduct due diligence on the borrower. Followings are the areas of risk which should be assessed before sanctioning any credit facility:
Borrower Analysis a) Share Holding b) Reputation c) Education d) Experience – Success History e) Net Worth f) Age
Industry Analysis a) Industry Position/Treat/Prospect b) Risk Factor pertain in the industry c) Borrowers position/share in the industry d) Strength and Weakness of the borrower compared to the competitors
Demand Supply Position
V. VI. VII.
Technical Feasibilities and infrastructural facilities Management Team’s Competence Seasonality of Demand
Debt – Equity Ratio Historical Financial Analysis a) An analysis of 3 years historical financial performance b) Earning – its sustainability c) Cash flow d) Leverage e) Profitability f) Strength and Reliability of Balance Sheet
Projected Financial a) Sufficiency of cash flow to service debt repayments b) Debt Service Coverage Ratio
Trade Checking Account Conduct – For existing customer the repayment history, credit turnover, study of account statements and if the banker is migrated from another bank statement of that account is required from that bank.
Allied deposit and business with our bank
Pricing – Effective rate of return or investment
XV. XVI. XVII. XVIII. XIX. XX. XXI.
Loan Structuring – amount, tenor, etc Security – current valuation of the security by a professional enlisted agent Succession Issue Adherence to credit guidelines Mitigating factors Environmental factor Employment generation and contribution to the national economy
4.3.4 Organizational Structure for Credit Operation at JBL:
4.3.5 Valuation of Securities:
a) Valuation of Goods: a. LIM (Loan against Imported Merchandise) is allowed after import which is not more than the value of L/C. Here client take loan against the merchandise and buy it back from the bank after a predetermined period that sell price is to be determined and
approved by the head office. Generally it is the highest price between market price and landed price. b. Cash Credit facilities are granted against the pledged goods. And its limit shall not exceeds
i. For Imported goods - Landed cost or market price whichever is lower ii. For Locally produced commodities - Ex-mill factory price/market price whichever is lower iii. The wholesale price/competitive market price should be duly verified by the branch and approved by head office.
b) Valuation of collateral Security: a. In all cases where the value of collateral security is Tk 25 lac and above in those cases valuation of the property should be physically inspected and jointly verified by the bankâ€™s officer. And the forced sale value of the property should be 1.5 times higher than the facility allowed. b. A site plan or map should be obtained by the branch and enclosed with the file. c. Bankâ€™s lawyer should verify the authenticity of mortgage process. d. Vacant land and third party mortgage should be discouraged e. Kacha and temporary establishment should be excluded from valuation f.
Registered mortgage along with registered power of attorney in favor of bank should be obtained.
4.3.6 Credit Monitoring:
a) Software generated list of advance should be brought to the CRM for examination and in case of serious exception found it should be forwarded to the senior management.
b) CAD unit and HO should bring the information of shortfall and deficiencies in documentation to the knowledge of senior management and corrective measure should be taken.
c) Credit turnover for Cash Credit and Overdraft accounts shall be reviewed on a regular basis.
d) Recurring transaction are not allowed for one time limit.
e) Credit limit expertly should be maintained.
f) Use of loan money shall be monitored through analysis of financial system.
g) Financial statement of the customer should be obtained on the regular basis.
h) Progress against work order/contract financed.
Timely renewal of limit shall be ensured informing branches two month ahead of expertly date.
j) Borrower should be communicated in case of due installment.
k) Non-payment or late payments of instrument are to be duly communicated to the senior management.
4.3.7 Parameters of Credit Facilities:
a) Maximum Size
Loan to any single person or enterprise should not be more than 35% of bank’s capital and funded facility should not be more than 15%.
Non Funded credit facility also should be within 35% limit of bank’s capital but in case of export group’s single borrower it can be as much as 50%. When the credit facility is funded the limit for single borrower of export group should be 15% of total capital fund.
Loan greater than 10% of the bank capital is to be considered as large loan.
Credit limit should be set after the assessment of business.
b) Maximum Tenor i.
Short term loan – maximum of 12 months but actual limit should be st upon the business cycle and requirement of the business.
Medium Term Loan – 12 months to 36 months considering repayment ability and projected cash flow.
Long Term Loan – for more than 36 months considering repayment ability and projected cash flow.
c) Security Attempts should be made to cover the loan by tangible securities as far as possible. Followings are the base for provisioning for classified loan
Lien on bank deposit – 100%
Market Value of Gold – 100%
Lien on govt. bond - 100%
Guarantee given by Government of Bangladesh – 50%
Market Value of easily marketable security â€“ 50%
Market value of registered mortgaged land and building along with power of attorney favoring bank
52% of the average market value of last six (6) months trade.
Besides the above following securities are also obtained on a case to case basis. i.
Hypothecation of stock and machinery
First change/change on the fixed and floating asset of limited company with the register of joint stock company
Corporate guarantee of another company backed by board resolution
Personal guarantee under cover of forwarding letter
Assignment of bill/receivables duly accepted by the employer to issue cheques in favor of bank.
Ownership of vehicle/asset in the name of the bank.
Assignment of surrender value of life insurance policy
Pari passu security sharing agreement
Post dated cheque under cover of forwarding letter.
d) Covenants i.
Ownership statements shall not be changed without the approval of bank.
Current ratio maintained in the credit application should be maintained.
Customer shall not borrow from any other bank without approval of bank.
Customer shall not go for expansion without the approval of bank.
Customer shall not withdraw profit/declare dividend without approval of bank.
Customer shall financial statement within 30 days of the year ending.
4.3.8 Credit Risk Grades Scoring at Jamuna Bank Ltd.: Criteria Weight A. Financial Risk 50% 1. Leverage: (15%) Debt Equity Ratio (X)- Times Total Liabilities to Tangible Net
Less than 0.25x 0.26x to 0.35 x 0.36xto 0.50 x
15 14 13
0.51x to 0.75 x 0.76x to 1.25 x 1.26x to 2.00 x 2.01x to 2.50 x 2.51x to 2.75 x More than 2.75x Greater than 2.74x 2.50x to 2.74 x 2.00x to 2.49 x 1.50x to 1.99 x
12 11 10 8 7 0 15 14 13 12
1.10x to 1.49 x 0.90x to 1.09 x 0.80x to 0.89 x 0.70x to 0.79 x Less than 0.70x Greater than 25% 20% to 24% 15% to 19% 10% to 14% 7% to 9% 4% to 6% 1% to 3% Less than 1%
11 10 8 7 0 15 14 13 12 10 9 7 0
More than 2.00x More than 1.51x Less than 2.00x More than 1.25x Less than 1.50x More than 1.00x less than 1.24x Less than 1.00x
5 4 3 2 0 50
Worth All calculations should be based on annual financial statements of the borrower (audited preferred)
2. Liquidity: (15%) Current Profit Margin (%) (Opening Profit/Sales) X 100 Current Assets to Current Liabilities
3. Profitability: (15%) Operating Profit Margin (%) (Operating Profit/Sales) X 100
4. Coverage: (5%) Interest Coverage ratio (x)- Times Earnings before interest & tax Interest on debt
Total Score- Financial Risk B. Business Industry Risk 18% 1. Size of Business (in BDT Crore)
Parameter > 60.00
30.00 - 59.99 10.00 - 29.99 5.00 - 9.99 2.50 - 4.99 < 2.50 > 10 Years > 5 - 10 Years 2 - 5 Years < 2 Year Favorable Stable Slightly Uncertain Cause for Concern Strong (10%+) Good (>5% - 10%) Moderate (1%-5%) No Growth (<1%) Dominant Player Moderately Competitive Highly Competitive Difficult Average Easy
4 3 2 1 0 3 2 1 0 3 2 1 0 3 2 1 0 2 1 0 2 1 0
Total Score - Business/ Industry C. Management Risk 12% 1. Experience
Parameter More than 10 years in the related line
18 Score 5
Quality of management based on total
of 5-10 years in the related line of
# of years of experience of the senior
business 1-5 years in the related line of
business No experience Ready Succession Succession within 1-2 years Succession within 2-3 years Very Good Moderate Poor Regular Conflict
0 4 3 2 3 2 1 0
The size of the borrower's business measured by the most recent year's Total sales. Preferably audited numbers. 2. Age of Business The number of years the borrower engaged in the primary line of business 3. Business outlook Critical assessment of medium term prospects of industry, market share and economic factors. 4. Industry Growth
5. Market Competition
6. Entry / Exit Barriers
management in Industry. 2. Second Line/ Succession
3. Team Work
Total Score- Management Risk
D. Security Risk Parameter 1. Security Coverage Fully Pledged Facilities/substantially cash
(Primary) covered / Req. Mortq. For HBL Registered Hypothecation
(1st Charge/1st Pari passu Charqe) 2nd Charge/Inferior change Simple hypothecation/Negative lien on assets No security Coverage Registered Mortgage on Municipal
( Property Location )
3. Support (Guarantee)
2 1 0 4
corporation/Prime Area Property Registered Mortgage on Pourashava/Semi Urban area Property Equitable Mortgage or No Property but Plant and Machinery as Collateral Negative lien on collateral No collateral Personal Guarantee with high net worth or Strong Corporate Guarantee Personal Guarantees or Corporate Guarantee with average financial strength No support/guarantee
3 2 1 0 2 1
Total Score- Security Risk
E. Relationship Risk 10% 1. Account Conduct
2. Utilization of Limit (actual/projection) 3. Compliance of covenants / Conditions 4. Personal Deposits
Parameter More than 3 year account with faultless record Less than 3 years Accounts with faultless record Account having satisfactory dealing with some late
Score 5 4 2
payments. Frequently Past Dues & Irregular dealings un account More than 60% 40% - 60% Less than 40% Compliance
0 2 1 0 2
Some Non-Compliance No Compliance Personal Accounts
1 0 1
Sponsors/Principals are maintained in significant deposits No depository relationship
the bank, with 0
Risk Grand Total- All Risk
This CRG score sheet of Jamuna bank is a carbon copy of the proposed CRG score of Bangladesh Bank. Bangladesh has proposed this on a generalized scenario but without the analysis of whether this could be fit on the Jamuna Bankâ€™s structure they adopt it without making any single change to the Credit policy Guideline: Industry Best Practice by Bangladesh Bank. 4.3.9 CRG Process: a) CRG should be applicable for al types of loan except SMS, Short Term Agriculture Loan and Micro Credit.
b) It should be done for each new or renewal facilities.
c) Credit officer should pass this CRG form to credit administration department, corporate banking/line of business/ recovery unit for updating MIS record.
d) If the score seem eligible then authority could sanction loan as per their delegated power.
e) Relationship manager ensure that Limit Utilization form is filled up to assess the earning from that relation.
4.3.10 Principal Risk Component of Credit Risk:
4.3.11 CRG Review: Number
1 2 3 4 5 6 7 8
Superior Good Acceptable Marginal/Watch list Special Mention Sub – Standard Doubtful Bad & Loss
SUP GD ACCPT MG/WL SM SS DF BL
Annually Annually Annually Half Yearly Quarterly Quarterly Quarterly Quarterly
This review is to keep the risk of credit portfolio at a minimal level. Relationship manager of the branch are to do this on due time and this report is to be updated on MIS and send to the higher authority in case of downgrade of any relation.
4.3.12 Early Alert System:
An early alert system is one that has risks or potential weakness of material nature requiring monitoring, supervision or close attention by management. Despite a prudent credit assessment process some time loan become problematic, it is essential to identify those problem ahead of time and before it occurs. And it should be reported to the management to take necessary action. With the time an account can be reclassified as regular account. If the problems or the symptoms which causes alert is mitigated than It could have been reclassified to the original classification. Here are the Typical Characteristics of Early Alert System identified by JBL: EA1 – Industry and Competition
Position within industry rapidly eroding
Industry may be matured and in long term decline or in cyclical downturn
EA1 – Ownership Management
Concerns over the ability of management to effectively manage existing operation, business expansion or business expansion plans
Owners show lack of commitment to support business operation
EA3 – Balance Sheet
Delay in submission, stale financial and or deterioration
Operating results are deteriorating or working capital cycle deteriorating
Highly geared relative to peer/industry and on upward trend
Rapid acquisitions of assets without proper financial restructuring
Declining asset cover short term debts
EA4 – Cash Flow/Repayment Source
Cash flow is Cash flow is unlikely to cover both mandatory debt service repayment and other business needs.
Ability to reduce working capital bank lines is limited or nonexistent.
Evidence of misuse of funds or monies diverted into non-core activities.
Liquidity Stained and there is a need for additional borrowing or capital now or in the near future.
EA5 – Performance
Payment defaults – interest payments are overdue for more than 15 days.
Temporary overdraft for 90 days or more has not been regularized with formal limit and security documentations
EA6 – Expired Limit/Incomplete Documentation
Security documentations are pending after 30 days of approved time.
Facilities expired for more than 30 days.
4.3.13 Recovery of Non Performing Loan:
Account Transfer Procedures
Within 7 days of an account being downgraded to substandard (grade 6), a Request for Action, RFA and a handover/downgrade checklist should be completed by the RM and Forwarded to RU for acknowledgement. The account should be assigned to an account manager within the RU, who should review all documentation, meet the customer, and prepare a classified Loan Review Report, CLR within 15 days of the transfer. The CLR should be approved by the head of Credit, and copied to the Head of Corporate Banking and to the Branch/office where the loan was originally sanctioned. This initial CLR should highlight any documentation issues, loan structuring weaknesses, proposed workout strategy, and should seek approval for any loan loss provisions that necessary. Recovery Units should ensure that the following is carried out when an account is classified as sub standard or worse:
Facilities are withdrawn or repayment is demanded as appropriate. Any drawings or advances should be restricted, and only approved after careful security and approval from appropriate executives within CRM.
CIB reporting is updated according to Bangladesh Bank guidelines and the borrower’s Risk Grade is changed as appropriate.
Loan loss provisions are taken based on Force Sale Value (FSV).
Loans are only rescheduled in conjunction with the Large 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 the borrower is uncooperative.
Non-Performing Loan (NPL) Monitoring
On a quarterly basis, a Classified Loan Review (CLR) should be prepared by the RU Account Manager to update the status of the action/recovery plan, review and assess the adequacy of provisions, and modify the bank’s strategy as appropriate. The Head of Credit should approve the CLR for NPLs up to 15% of the bank’s capital, with MD/CEO approval needed for NPLs in excess of 15%. The CLR’s for NPLs above 25% of capital should be approval by the MD/CEO, with a copy received by the board.
NPL Provisioning and Write-off
The guideline established by Bangladesh Bank for CIB reporting, Provisioning and write off of bad and doubtful debts, and suspension of interest should be followed in all cases. These requirements are the minimum, and Banks are encouraged to adopt more stringent provisioning/write off policies. Regardless of the length of time a loan is past due, provisions should be raised against the actual and expected losses at the time they are estimated. The approval to take provisions, write offs, or released of Provisions/upgrade of an account should be restricted to the Head of Credit or MD/CEO based on recommendation from the recovery unit. The Request for Action (RFA) or CLR reporting format should be used to recommend Provisions, write-offs or released/upgrades. The RU Account Manager should determine the force sale Value (FCV) for accounts grade 6 or worse. Force Sale Value is generally the amount that is expected to realize through the liquidation of collateral held as security or through the available operating cash flows of the business, net of any realization costs. Any shortfall of the Force Sale Value compared to total loan out standings should be fully provided for once an account is downgraded to grade 7. Where the customer is not cooperative, no value should be assigned to the operating cash flow in determining Force Sale Value. Force Sale Value and provisioning levels should be updated as and when new information is obtained, But as a minimum on a quarterly basis in the CLR Following formula is to be applied in determining the required amount of provision:
Gross Outstanding Less: Cash margin held or Fixed Deposits/SP under line Interest in Suspense Account Loan Value (For which provision is to be created before considering
XXX XXX XXX
security/collateral held) Less: Estimated salvage value of security/collateral held Net Loan Value
XXX XXX XXX
CHAPTER FIVE Analysis and Findings 5.1 SWOT Analysis: The SWOT analysis comprises of the Organizationâ€™s internal strength and weakness and external opportunities and threats. SWOT analysis gives an organization an insight of what they can do in
future and how they can compete with their existing competitors. This tool is very important to identify the current position of the organization relative to others, who are playing in the same field and also used in the strategic analysis of the organization. That is why this section of the report discusses about SWOT analysis of Jamuna Bank Limited.
SWOT Analysis of Jamuna Bank Limited: a) Strength: •
Sound profitability and growth with good internal capital generation.
Experienced and efficient management term and human resource
Recruitment of brilliant MBA, BIBM, MBA.
Quality products and services.
Better infrastructural facilities and friendly corporate culture.
Already established Company reputation and goodwill as a leading Bank.
Long historical banking experience in the region.
Strong Financial Position.
Excellent advertising efforts.
Motivated young people with strong commitment.
Always consumer focus.
Welfare for the society.
Better location of the branch.
Highly motivated and pro-active team of employees.
High quality transaction processing across the Group.
Focused and detailed marketing plan with prior concurrence from Credit Management.
Full-fledged back –up data center support.
Strong image and good reputation.
b) Weakness: •
Marginal capital adequacy.
High concentration on fixed deposits and large-scale loans.
Lack of adequate marketing (advertising and promotion) effort.
Lack of full scale automation.
Smaller number of branches in Bangladesh in comparison with the major competitors likes Jamuna Bank Ltd.
Lack of proper motivation, training and job rotation.
Customer service booths are not available.
Poor waiting arrangements at Malibagh branch leads to customer discomfort.
Not flexible. Very compliant to rules and regulations.
Some lack of experience and motivation at mid-level management.
Employees not have enough basic knowledge about computer. They only know how can use the Mysis (Software).
Greater participation in management could be achieved.
Indicate working force .
Conservative loan policy.
Still the bank is not fully computerized. So manual registers are used some cases.
Less interest payment then others in some accounts.
Lack of computer in the branch.
There is no IT manager. So sometime simply problem kill the valuable time both the client and employees.
c) Opportunities: •
Scope of market penetration through diversified products.
Automation of transaction processes and online branch banking.
Government’s policy of encouraging heavy inflow of foreign investment.
Regulatory environment favoring private sector development.
Value addition in products and services.
Increasing purchasing power of people.
Increasing trend in international business.
Retail Banking—Asset based products like Mortgage loans, Consumer Loans (ex. car loans).
Electronic Banking could be installed.
ATM Both should be expanded.
Foreign Exchange policy liberalization to encourage foreign investments, thus increasing the inter bank and corporate FX revenue.
Devaluation of taka raised concerns for better FX management amongst corporate customers, which will create more opportunities for FX corporate business.
Sophisticated customers service schemes of the Jamuna Bank.
Market leadership of Jamuna Bank Ltd.
d) Threats: •
Increased competition for market share in the industry.
Frequent changes of banking rules by the Central Bank.
Market pressure for lowering of lending rate.
National and global political unrest.
Default culture of credit.
Other commercial banks operating in Bangladesh, e.g. Standard Chartered Bank, Dutch Bangla Bank, Islami Bank Ltd.
Government rules and regulation.
Step-by-Step Summary of a SWOT Analysis: SWOT analysis has several steps. These steps include brought Broad External Environmental Analysis, Competitive Analysis, Internal Environment SWOT Analysis, and SWOT Analysis. All these steps have many areas. These are mentioned in the following table: Step-1 Step-2 Broad External Competitive Analysis Environmental Analysis
Step-3 Internal Environment SWOT Analysis
Step-4 SWOT Analysis
Areas for Analysis 1. Political 2. Social 3. Economic 4. Technological
Areas for Analysis 1. Financial position 2. Product/service Position. 3. Product/service Quality. 4. Organizational structure 5. Marketing capability
Areas for Analysis 1. Strengths 2. Weaknesses 3. Opportunities 4. Threats
Areas for Analysis 1. Industry structure 2. Individual Competitor
6. Human Resources
Procedure 1. Identify the key forces that are most likely to affect the Organization.
Procedure 1.Analyze the competitive nature of the industry. 2.Identify& analyze Competitors.
Procedure 1. Identify the internal strengths and weaknesses as a result of the Analysis. 2.Analyze each of above areas.
Procedure 1. Assess the attractiveness of the organization's Situation.
5.2 BCG Matrix:
The Portfolio Matrix is a tool for allocating resources. The portfolio Matrix was
Boston Consulting Group (BCG), so that it is also called BCG Matrix. It shows the linkages between business growth rate and the market share. Placing products in the BCG matrix results in 4 categories in a portfolio of a company.
Business in the question mark with a high growth rate & weak market share. It usually requires cash investment. In stars business in the high growth rate & strong market share. It use large amounts of cash and are leaders in the business so they should also generate large amounts of cash. In the cash cow, businesses have low growth rate and strong market share. They are usually establish in the market, such as: multinational company. In the dogs, the business has low growth rate and weak market share. This type of business are usually non profitable & generally should be close that business.
In the BCG Matrix Jamuna Bank Ltd, stand in the Stars. Because they have high business growth rate and strong market share. If we see the last 5 years performance, we can see their business growth rate is gradually increasing compare to other leading bank in Bangladesh. For example: Jamuna Bank The Loan and advance department, deposit, foreign trade growing up.
In 2003 loan and advance department portfolio of JBL was 22,257315 and in 2007 that was 36,475.74 million taka. and Jamuna Bank was 16492 in 2003 & 57683 million taka in 2007. And JBL Deposit in 2005 was 27,762.12 and in 2009 that was 47,961.22 million taka. & Jamuna Bank was 20483 in 2005
& 57683 million taka in 2009. In foreign trade JBL opened 18,039 import LCs worth USD 907.08 million and handling export document worth USD 14,369 million in 2009 & Jamuna Banks import was 25441 in 2005 & 70617 million taka in 2009, and export was 16490 in 2005 & 51316 million taka in 2009.
Fig 02: BCG Matrix.
5.3 Loan & Advance Life Cycle: Introduction stage In the Introduction stage, the product is introduced to the market through a focused and intense marketing effort designed to establish a clear identity and promote maximum awareness. Many trial or impulse purchases will occur at this stage. Growth stage This is the second stage of Product Life Cycle. At this stage people know about the product & the demand of the product grows up rapidly & profit also goes up at this stage.
The loan & Advance department of
JBL are now in the growth stage, because JBL introduce
different types of loan such as: Syndicate loan, Project loan, Housing loan, Lease finance, SME, Agri loan etc. If we follow the last 5 years performance of Loan & Advance department we can see the JBL has been able to increase its Loan & Advances despite adverse condition in the domestic as well as in the global economy. The bank recorded growth of 11.51% with a total loan and advances portfolio of Tk 3647.57 crore at the end of December 2009 compare to Tk 3270.97 crore at the end of December 2008. Maturity stage This is the third stage of Product Life Cycle. Arrival of the product's Maturity stage is evident when competitors begin to leave the market, sales velocity is dramatically reduced, and sales volume reaches a steady state. At this point in time, mostly loyal customers purchase the product. But in this stage no one can stay longer. Decline stage It is the last stage of Product Life Cycle. Continuous decline in sales signals entry into the Decline stage. The lingering effects of competition, unfavorable economic conditions, new fashion trends, etc, often explain the decline in sales.
Fig 03: Loan & Advance Life Cycle. 5.4 Deposit Life Cycle: Introduction stage In the Introduction stage, the product is introduced to the market through a focused and intense marketing effort designed to establish a clear identity and promote maximum awareness. Many trial or impulse purchases will occur at this stage. Growth stage This is the second stage of Product Life Cycle. At this stage people know about the product & the demand of the product grows up rapidly & profit also goes up at this stage. The Deposit of JBL are now in the growth stage, because JBL innovative products including NMS and NDS attached a huge
number of customers, which contribute the growth of deposit. If we follow the last 5 years performance of Deposit of
JBL we can see the JBL has been able to increase their Deposit. From
27,762.12 in 2005 to 47,961.22 in 2009 (Tk in million). Maturity stage This is the third stage of Product Life Cycle. Arrival of the product's Maturity stage is evident when competitors begin to leave the market, sales velocity is dramatically reduced, and sales volume reaches a steady state. At this point in time, mostly loyal customers purchase the product. But in this stage no one can stay longer. Decline stage It is the last stage of Product Life Cycle. Continuous decline in sales signals entry into the Decline stage. The lingering effects of competition, unfavorable economic conditions, new fashion trends, etc, often explain the decline in sales.
Fig 04: Deposit Life Cycle.
5.5 Analysis of Jamuna Bank Ltd:
Banking is one the most competitive industries of Bangladesh that has seen a huge amount of growth during the last decade. A large number of new banks have made their places in the industry and yet there are more to register in the list. In such a highly competitive service industry, the importance of credit risk management cannot be de-emphasized. Improved risk management system and loyalty gives a firm better base than its rivals and allows it flourish in the industry. All financial activates involve a certain degree of risk and particularly, the financial institutions of the modern era are engaged in various complex financial activities requiring them to put proper attention to every detail.
5.5.1 Credit Assessment: A through credit and risk assessment shall be conducted for all types of credit proposals. The results of this assessment to be presented in the approved Credit Appraisal From that originates from the credit risk manager / Relationship Manager (RM) and is to be approved by the Credit Committee/ Executive Committee of the Board of Directors / Board of Directors. The Risk Manager/ RM is the owner of the customer relationship and must be held responsible to ensure the accuracy of the entire credit application / proposal submitted for approval. The Credit Risk manager/ RMS must be familiar with Bank’s lending Guidelines and should conduct due diligence on new borrowers, principle and guarantors in line with policy guidelines. Credit Appraisal should summarize the results of Credit Risk Mangers /RMs risk: •
Amount and type of loan(s) proposed.
Purpose of Loan(s).
Results of Financial analysis.
Loan structure (Tenor, Covenants, Repayment schedule, Interest).
KYC Concepts: •
The Credit Managers / RM must know their customers and conduct due diligence on new borrowers, principals and guarantors to ensure such parties are in fact who they represent themselves to be i.e., know your Customer (KYC).
The Banker-Customer relationship would be established first through opening of CD/ STD/ SB accounts. Proper introduction, photographs of the account holders / signatories, passport, Trade License, Memorandum and Articles of the Company, certificate of commencement of business, list of Directors, resolution, etc. i.e all the required papers as per Bank’s policy and regulatory requirements are to be obtained at the time opening of the account. A declaration regarding approximate transaction to the account is to be obtained during opening of account. Information regarding business pattern, nature of business, volume of business, etc. to be ascertained. Any suspicious transaction must be timely addressed and brought down to the notice of Head office/ Bangladesh Bank as required and also appropriate corrective measures to be taken as per the direction of Bank Management/ Bangladesh Bank.
5.5.2 Function of Credit Risk Grading:
Well-managed credit risk grading systems promote bank safety and soundness by facilitating informed decision-making. Grading systems measure credit risk and management and examiners to monitor changes and trend in risk levels. The process also allows bank management to manage risk to optimize returns. Use of Credit Risk Grading: •
The Credit Risk Grading matrix allows application of uniform standards to credits to ensure a common standardized approach to assess the quality of individual obligor, credit portfolio of a unit, line of business, the branch or the Bank as a whole.
As evident, the CRG outputs would be relevant for individual credit selection, wherein borrower or a particular exposure/ facility is rated. The other decision would be related to pricing (creditspread) and specific features of the credit facility. These would largely constitute obligor level analysis.
Risk grading would also be relevant for surveillance and monitoring, internal MIS and assessing the aggregate risk profile of a bank. It is also relevant for portfolio level analysis.
Credit risk grading is the basic module for developing a Credit risk management system.
Number and Short Name of Grades Used In the CRG: The CRG scale consists of 8 categories with Short name and Numbers are Provided as follows: Grading Superior Good Acceptable
Short Name SUP GD ACCPT
Number 1 2 3
Marginal / Watch list Special Mention Sub standard Doubtful Bad & Loss
MG/WL SM SS DF BL
4 5 6 7 8
Credit Risk Grading Definition: A clear definition category of Credit Risk Grading is given as follows: •
Superior- (SUP)-1 •
Credit facilities, which are fully secured i.e. fully cash covered.
Credit facilities fully covered by government guarantee.
Credit facilities covered by the guarantee of a top tier international Bank.
Strong repayment capacity of the borrower.
The borrower has excellent liquidity and low leverage.
The company demonstrates consistently strong earnings and cash flow.
Borrower has well established, strong market share.
Very good management skill & expertise.
All security documentation should be in place.
Credit facilities fully covered by the guarantee of a top tier local Bank.
Aggregate Score of 85 or greater based on the Risk Grade Score Sheet.
Acceptable –(ACCPT)-3 •
These borrowers are not strong as good grade borrowers, but still demonstrate consistent earnings, cash flow and have a good track record.
Borrowers have adequate liquidity, cash flow and earnings.
Credit in this grade would normally be secured by acceptable collateral (1 st charge over inventory/ receivables/ equipment/ property).
Acceptable parent/sister company guarantee.
Aggregate Score of 75-84 based on the Risk Grade Score Sheet.
Marginal / Watch list-(MG/WL)-4 •
This grade warrants greater attention due condition affecting the borrower, the industry or the economic environment.
These borrowers have an above average risk due to strained liquidity, higher than normal leverage, thin cash flow and /or inconsistent earnings.
Weaker business credit & early warning signals of emerging business credit detected.
The borrower incurs a loss.
Loan repayments routinely fall past due.
Account conduct is poor, or other untoward factors are present.
Credit requires attention.
Aggregate Score of 65-74 based on the Risk Grade Score Sheet.
This grade has potential weaknesses that deserve management’s close attention. If left uncorrected, this weakness may result in deterioration of the repayment prospects of the borrower.
Severe management problems exist.
Facilities should be downgraded to this grade if sustained deterioration in financial condition is noted ( consecutive losses, negative net worth, excessive leverage),
An Aggregate Score of 55-64 based on the Risk Grade Score Sheet.
Substandard-(SS) -6 •
Financial condition is weak and capacity or inclination to repay is in doubt.
These weaknesses jeopardize the full settlement of loans.
Bangladesh Bank criteria for sub-standard credit shall apply.
An Aggregate Score of 45-54 based on the Risk grade Score Sheet.
Doubtful-(DF) -7 • Full repayment of principal and interest is unlikely and the possibility of loss is extremely high. • However, due to specifically identifiable pending factors, such as litigation, liquidation procedures or capital injection, the asset is not yet classified as Bad & Loss. • Bangladesh Bank criteria for doubtful credit shall apply. • An Aggregate Score of 35-44 based on the Risk Grade Score Sheet.
Bad & Loss-(BL)-8 •
Credit of this grade has long outstanding with no progress in obtaining repayment or on the verge of wind up/liquidation.
Prospect of recovery is poor and legal option have been pursued.
Proceeds expected from the liquidation or realization of security may be awaited. The continuance of the loan as a bankable asset is not warranted and the anticipated loss should have been provided for.
This classification reflects that it is not practical or desirable to defer writing off this basically valueless asset even though partial recovery may be affected in the future. Bangladesh Bank guidelines for timely write off of bad loans must be adhered to. Legal procedures/ suit initiated.
Bangladesh Bank criteria for bad & loss credit shall apply.
An Aggregate Score of less than 35 based on the Risk Grade Score Sheet.
5.5.3 How to Compute Credit Risk Grading: The Following step-wise activates outline the detail process for arriving at credit risk grading. Step 1: Identify all the principle Risk Components Credit risk for counterparty arises from an aggregation of the following: •
Business / Industry Risk
Step 2: Allocate weight ages to principal Risk Components: According to the importance of risk profile, the following weight ages are proposed for corresponding principal risk. Principal Risk Components:
Business / Industry Risk
Steps 3: Establish the Key Parameters Principal Risk Components:
Leverage, Liquidity, Profitability & Coverage ratio
Business / Industry Risk:
Size of Business, Age of Business, Business Outlook, Industry Growth, Competition & Barriers To Business.
Experience, Succession & Team Work.
Security Coverage, Collateral Coverage and Support.
Relationship Risk :
Account Conduct, Utilization of Limit, Compliance of covenants/ conditions & Personal Deposit.
Steps 4: Assign weight ages to each of key parameters Principal Risk Components: •
Business / Industry Risk
18% Size of Business
Age of Business
Entry/ Exit Barriers
10% Security Coverage
10% Account Conduct
Utilization of Limit
Compliance of covenants/ Conditions
Step 5: Arrive at the Credit Grading based total score obtained The following is to the proposed Credit Risk Grade matrix based on the total score obtained by an obligor:
Risk Grading Superior
Short Name SUP
Score 100 % Cash covered Government guarantee
2 3 4 5 6 7 8
Good Acceptable Marginal / Watch list Special Mention Sub standard Doubtful Bad & Loss
GD ACCPT MG/WL SM SS DF BL
International Bank guarantees 85 + 75-84 65-74 55-64 45-54 35-44 <35
5.5.4 Credit Risk Grading of Jamuna Bank: Number 1 2 3
Risk Grading Superior Good Satisfactory
Short Name SUP GD SAT
Score Fully Cash Covered 85 + 80-84
4 5 6 7 8 9 10 11
Acceptable Fair Watch Marginal Special Mention Sub standard Doubtful Bad & Loss
ACCPT FA WA MG SM SS DF BL
75-79 70-74 65-64 60-74 55-59 45-54 35-44 <35
Credit Risk Grading Review: Credit Risk Grading for each borrower should be assigned at the inception of lending and should be periodically updated. Frequencies of the review of the credit risk grading are mentioned below: Number 1 2 3 4 5 6 7 8
Risk Grading Superior Good Acceptable Marginal /Watch list Special Mention Sub-standard Doubtful Bad & Loss
5.5.5 Collateral Security:
Short Name SUP GD ACCPT MG /WA SM SS DF BL
Review frequency (at least) Annually Annually Annually Half Yearly Quarterly Quarterly Quarterly Quarterly
The major functional of the risk managers are to minimize the risk on credit ensure the loan security. Banks accepts two types of facilitya) Primary security - Hypothecation of stocks in trade, Hypothecations of Machineries and equipments etc. b) Collateral security - Land, Building, Ornaments etc. Based on primary security the risk managers recommend for approval of loan. Collateral Security is the secondary security components, loan does not depend on collateral security; it does strengthen the loan security. 5.5.6 Analyzing Financial Spread Sheet: Analyze of financial spreadsheet of a firm / organization for lending is the second major credit risk management system. A Financial Spread Sheet (FSS) has been development by Jamuna Bank which may be used while analyzing the credit risk elements of a credit proposal from financial point of view. The FSS is well designed and programmed software having two parts. Input and Output Sheets. The financial numbers of borrowers need to be inputted in the input Sheets which will then automatically generate the Output Sheets. Various financial ratios are calculated by this software which is given on: Profitability Ratios : Gross Margin Operating Margin Net Margin Return on Equity Return on Paid up Capital Return on Assets (Geared) Return on Assets (Unguarded) Earning Retention Rate Operating Efficiency Ratios : Total Asset Turnover Inventory Turnover Equity Turnover Liquidity Ratios : Stock Turn Over Days Debtors Days on Hand Creditors Days on Hand Cash Cycle Period Current Ratio Quick Ratio Debtors Turnover Net Working Assets to Net Sales Total Short Term Debt Coverage Debt Management Ratios: Leverage Ratio
NPBIT: Interest Net cash after On : Interest Interest on Avg. Financial Debt (%) Debt Ratio Interest Coverage Debt/Lease Service Coverage Growth Ratios Sales Growth Net Profit Growth Total Asset Growth Total Liabilities Growth Gross Profit Growth Sustainable Growth Safety Margin Other Ratios 5.5.6 Findings: From this analysis I got a lot of findings of JBL. These findings are examined to prescribe a set of specific recommendations to improve the overall service quality according to customers expectations and also to solve the existing problems in the whole organizational level. I have the following findings by the analysis: a. Credit Policy: The JBL has introduced a credit policy and credit instruction manual which encompasses all credit risk components as well as mitigate factor of the probable risk . Risk managers have strictly follows the credit policy accordingly to on lending. But the management and the board of the bank have the authority for exceptional credit approval. b. Credit Risk Grading: At the time of risk assessment the risk management are used to obtain an integrated CRG for all corporate and small and medium (SME) customers. c. Insufficient time for risk assessment: The risk management have often insufficient time for credit risk management. Huge workload and hurries for loan approval prevent them from through assessment. So, it is very troublesome to manage the risk in a prudent manner for the risk managers. d. Lack of Training: Training of the risk managers is extremely essential for better risk management. Most of the banks have not any regular training program. Lacks of proper training on credit risk management risk managers often dose the mistakes on credit risk management.
e. Few numbers of tools and techniques for Risk Management: Banks has a few numbers of tools and techniques for credit risk assessment i.e. CRS, FSS, CIB which are not sufficient for all kinds of risk management. f.
Illegal pressure from Political persons, Directors and Management of the Bank: The banks in Bangladesh has faces a lot of illegal pressure from Political persons, Directors and Management of the Bank for approval of loan. In that cases risk managers are bound to approve the loan without any assessment and rationality.
g. Lack of Co-ordination with other related Division: Jamuna Bank has maintains a few coordinations with the related division and departments. Lack of co-ordination caused a lot of suffer of the risk managers as well as the customers. h. Lack of information in the credit proposal: Risk Managers often could not found all necessary documents and information for credit risk assessment. Thatâ€™s why risk managers use their assumption on risk management. Data collection checklist is not duly filled by the Relationship Managers. i.
Problems of Financial Analysis: most of the borrower has not audited financials. They provide financial statements which doses not follow the rules of accounting. On the other hand credit proposal has not provided a financial summary. Risk Managers has to go through the financial statement for pick up the necessary ratio. So it is very time consuming.
Limited Security Coverage: Customers has offered limited collateral securities against credit facility. So there is a significant risk for loan defalcation. Bank will may loose In case of defalcation.
k. Limited Insurance Coverage: An insurance coverage should obtain for both funded and non funded credit facility. But reality is very few borrowers confirm their insurance coverage. So Bank has no security in case of any uncertainty like fire, strike, riot etc. l.
Name lending: Some credit proposals unduly influenced by over reliance on the sponsoring principalâ€™s reputation, reported independent means, or perceived willingness to inject funds into various business enterprises in case of need. It is a major risk for the bank. Credit facility should be based on proper assessment.
m. Lack of Customer Banker relationship: Due to centralization of banking systems Jamuna bank has maintain a very week relationship with the valued customer. The customers are very dissatisfied with this worst situation. n. Lack of follow-up and monitoring: Credit quality depends on close follow â€“up and monitoring of loans. The follow-up and monitoring of loans is not strong here. As a result Special Mention Accounts and deteriorating credit are increasing day by day.
5.6 Questionnaire Analysis: Aspects relating to reliability dimension of service quality were asked in 12 different questions. Those questions are collected from the Servaqual Parasurance and Zeithnal whose are express best questionnaire for Satisfaction Customer. Here the sample size is 35. After conducting the survey I have got the findings. Those important findings are analyzed bellow: Q-01: The Bankers can understand and solve customers problem properly and accurately The Bankers can understand and solve problem properly and accurately
Prime Bank will have Modern looking equipment 0% 9% 11%
SD D N
Here, found that, 0% of total Sample Size is strongly Disagree, 9% is Disagree, 11% is Neither Agree nor Disagree or Neutral, 29% is Agree and 51% is Strongly Agree. So from that this is understandable that the bankers of JBL can understand and solve problems of the customers properly and accurately.
Q-02: The Bankers can solve the problems of the customers quickly and promptly Personnel Bank Willof be in quickly and The Bankersat canPrime solve the problems theneat customers appearance promptly 0%
D N A SA
Here, found that, 0% of total Sample Size is strongly Disagree,14% is Disagree, 14% is Neither Agree nor Disagree or Neutral, 34% is Agree and 41% is Strongly Agree. So from that this is understandable that the bankers of JBL are able to solve the problem of customers very sufficiently. Q-03: The Bankers are very friendly and helpful to the customers
The Bankers very friendly to the customers When Prime BankarePromise to and do helpful something by a Certain time they will do so
26% SD D N 29%
From the Survey We found that, 0% of total Sample Size is strongly Disagree,14% is Disagree, 29% is Neither Agree nor Disagree or Neutral, 31% is Agree and 26% is Strongly Agree. So from the survey we are understood that Customers are satisfied about commitment of the employee of Jamuna Bank Limited.
Q-04: The Bank has a wide spread Service facility and Link The Bank has a wide spread Service facility and Link a When a Client has a problem, Prime Bank will show sincere interest in solving it 0% 0% 0% SD 43% 57%
D N A SA
This is very important question for Customer satisfaction. Here, We found that, 0% of total Sample Size is strongly Disagree,0% is Disagree, 0% is Neither Agree nor Disagree or Neutral, 43% is Agree
and 57% is Strongly Agree. So from the survey we are understood that every Customer of the Jamuna Bank limited are satisfied about the service of the bank. Q-05: The documentation of the Jamuna bank limited is good enough Prime The Bank will Insistofon records. documentation theerror-free Jamuna bank limited is good enough
14% SD D N
Here, found that, 0% of total Sample Size is strongly Disagree,14% is Disagree, 43% is Neither Agree nor Disagree or Neutral, 29% is Agree and 14% is Strongly Agree. So from the survey we are understood that most of the Customers are not express their opinion about error-free document of Jamuna Bank employees.
Q-06: The ATM has increased the service level of this Bank to a great extent Personnel in Prime Bankthe Will givelevel prompt The ATM has increased service of this service Bank to a great extent to Clients. 0% 26%
9% SD D 31%
N A SA
Here, found that, 0% of total Sample Size is strongly Disagree, 9% is Disagree, 31% is Neither Agree nor Disagree or Neutral, 34% is Agree and 26% is Strongly Agree. So from the survey this is
understandable that the ATM has increased the service level to the customers of the Jamuna Bank limited. Q-07: Customers can receive Service from very close to your house or Business outlet Personnel Prime will always betowilling to or Business Customersincan receiveBank Service from very close your house outlet help Clients. 6%
11% SD D
N A SA
This is very important question for Customers of Jamuna bank limited. Here, We found that, 6% of total Sample Size is strongly Disagree,11% is Disagree, 17% is Neither Agree nor Disagree or Neutral, 23% is Agree and 43% is Strongly Agree. So customers of the Jamuna bank limited can receive service from very close to their house or business. . Q-08: The Phone Link has increased the service level of JBL to a great extent Personnel in Prime Bank will never belevel tooof busy toa great extent The Phone Link has increased the service JBL to respond to Clients' requests. 9% 6%
N A SA
Here, found that, 9% of total Sample Size is strongly Disagree,6% is Disagree, 20% is Neither Agree nor Disagree or Neutral, 34% is Agree and 31% is Strongly Agree. So we are understood that most of the proportions of the Customers are satisfied about the technology uses by the employee of Jamuna Bank limited for Solution Clients problem.
Q-09: The Bankers provide sufficient information about their Products and Services necessary to customers Prime Banks haveinformation operatingabout hours The Bankers providewill sufficient their Products and Services convenient necessary to customers to all their clients.
0% 26% SD D N A
Here, found that, 0% of total Sample Size is strongly Disagree, 26% is Disagree, 29% is Neither Agree nor Disagree or Neutral, 29% is Agree and 31% is Strongly Agree. So we are understood that employees of Jamuna bank limited has provide sufficient information about their service and product to their customers.
Q-10: The interest rate of JBL is reasonable for the customer The interest rate of JBLwho is reasonable for the customer Prime Banks will have staff give Clients personal attention.
SD D N A
Here, found that, 6% of total Sample Size is strongly Disagree,20% is Disagree, 26% is Neither Agree nor Disagree or Neutral, 28% is Agree and 20% is Strongly Agree. From the survey we are understood that the interest rate of Jamuna bank limited is reasonable for the customers. Q-11: The service Charge of JBL is reasonable for customers
Prime Banks will have the Clients' best interests The service Charge of JBL is reasonable for customers at heart. 3%
11% SD 14%
A SA 20%
Here, I found that, 3% of total Sample Size is strongly Disagree,11% is Disagree, 14% is Neither Agree nor Disagree or Neutral, 20% is Agree and 52% is Strongly Agree. So form the survey this is simply understandable that the service charge of Jamuna bank limited is reasonable for customers.
Q-12: Customers are highly satisfied with the overall service level of the Bank The personnel of highly Primesatisfied Banks will Customers are with theunderstand overall service the level of the Bank specific needs of their Clients. 0%
SD D 20%
N A SA
Here, found that, 0% of total Sample Size is strongly Disagree, 14% is Disagree, 20% is Neither Agree nor Disagree or Neutral, 37% is Agree and 29% is Strongly Agree. So from the survey this is
understandable that most of the customers of Jamuna bank limited are highly satisfied with the overall service level of the bank. Summery Questionnaire Analysis: The overall results of the survey were average if the total scenario is considered for an average bank. But in terms of JBL, which is a world-class service provider worldwide, the results were highly dissatisfactory. Only 31% of the respondents were highly satisfied and were loyal to the bank. In total, 32% of the respondents were found to be satisfied with the services of the bank. The rest of the respondents were found on the neutral and highly dissatisfied with the bank. This number represents the customers that perceived the bank as inferior. The result showed that a high degree of correlation exists between problem resolution and satisfaction. Based on the above results, it can be said that JBL should reconsider its service strategies in Bangladesh and design products and services that better satisfy customer needs and requirements. Bank should be more tactful in dealing with the customers and launch new products that fully meet customer expectations.
CHAPTER SIX Recommendations and Conclusion
6.1 Recommendation: For effective Credit Risk Management in the Internship report I have a sort of recommends for the Jamuna Bank Limited where I did my Internship program of 3 months duration. I also get some finding and on those finding I has given some recommendation of the banks like Jamuna Bank Limited & Southeast Bank Limited is as follows: a) Introduce an easy Understandable Credit Policy: The Credit of the is Very Complicated. It should be easy understandable and user friendly. So that all the credit concerns can
understand the instruction and it meticulously at the time of credit risk management in the Jamuna Bank limited. b) Improvement of Credit Risk Grading Systems: An industry wise integrated Credit Risk Grading system should be development. So that risk can measure for different industry of business. It also must be improved in the Jamuna Bank Limited. c) Sufficient Workforce & allocate a standard Risk Assessment time: Sufficient risk managers should recruit in Credit Risk Management Division and a standard time should allocate for a credit proposal analysis in Jamuna Bank ltd. So that, Risk Managers could go through the credit proposal for risk managers and have sufficient time for better analysis and assessment. d) Credit Report: In Jamuna Bank Limited Credit report should obtain for all sort of credit proposal. Single credit proposal should not approve without having Clean CIB report from Bangladesh Bank. e) Development & Training: Training is the key factor development of the risk managerâ€™s skills. So the Jamuna Bank Limited should have a regular training and development program so that risk managers do know every risk matter and assessment techniques. f) Development of tools and Techniques for Credit Risk Management: Banks has a few numbers of tools and techniques for credit risk assessment i.e. CRG, FSS, CIB which are not sufficient for all kinds of risk management, So new and effective credit risk management tools and techniques should be introduced by the help of IT Division. g) Reduce of Political pressure & influence of the Directors and Management: It is unavoidable of Political pressure & influence of the Directors and Management. So some techniques should introduce in Jamuna Bank so that those pressure and influence should reduce. h) Build Co-ordination with others related Division: Banks moves by a team effort. So strong co-ordination with the related divisions and departments is very important in Jamuna Bank Limited.
Adequate information & Documents: Adequate information and documents should prove in the credit proposal so that Risk Managers of Jamuna Bank can make their decision with a very minimum time.
j) Strong Security Coverage: Adequate collateral security should obtain by the borrower as security. So that in case of bank may save from financial losses. k) Adherence to lending Guidelines: The Credit Application/ Appraisals must be prepared in line with Bank’s lending guidelines. It must be clearly stated whether or not the application/ proposal is in compliance with Bank’s Credit Policy lending guidelines for the Jamuna Bank Limited. l)
Supplier-Buyer Analysis: Any customer or supplier concentration shall be addressed, as these could have a significant impact on the future viability of the borrower.
m) Analysis of Market Risk: The sufficient market data is to be obtained to identify clients/borrowers’ market share in the industry/ demand-supply gap in the market. n) Develop Customer Banker relationship: Today is the time for relationship banking for better performance customer satisfaction is very much important. So, Bank should develop the relationship with the customer. o) Approval Authority: Approval authority should be delegated to individual executives rather than Executive Committee/ Board to ensure accountability. This system will not only ensure accountability of individual executives but also expedite approval process. p) Loan Appraisal Process: JBL Bank is centralized bank. Decentralization of Credit Management and approval authority may enhance the efficiency and effectiveness of loan appraisal process. q) Risk Minimization: In Bank Borrower selection should be more stringent to minimize risk associated with lending. r) Credit product: Credit Product should be increase and categorized in NCC Bank. s) Term & Condition: Terms and condition of credit should be more flexible & easy in JBL Bank.
t) Marketing Credit Products: In Jamuna Bank marketing of credit products should be increase. u) Divisional Activates:
Divisional activates should be more organize in JBL Bank.
v) Name Lending: Credit proposals shall not be unduly influenced by an over reliance on the sponsoring principal’s reputation, reported independent means, or their perceived willingness to inject funds into various business enterprises in case of need. These situations shall be discouraged and treated with great caution. Rather, credit proposals and the granting of loans will be based on caution. w) Industry Analysis (Business and Industry Risk): The key risk factors of the borrower’s industry shall be assessed. Any issues regarding the borrower’s position in the industry, overall industry concerns or completive forces ( demands supply gap) shall be addressed and the strengths and weakness(SWOT Analysis) of the borrower relative to its competition to be identified. For the above purpose the Credit Risk Managers/RM may obtain / collect data from the statistical year book/ economic trends of Bangladesh Bank/ Public report/ newspaper/ Journals etc. x) Adherence to lending Guidelines: The Credit Applications/Appraisal must be prepared in line with Bank’s lending guidelines.
6.2 Conclusion: Bangladesh Bank has introduce a good numbers of circulars, guidelines, tools and techniques for managing the credit risk in a prudent manner as well as to minimize the rate of default/nonperforming loans at a standard level. Banks have also some internal policy, guidelines, tools and techniques for better risk management. Despite a prudent credit approval process, loans may still become troubled.
Risk is inherent in all aspects of a commercial operation; however, for Banks and financial institutions, credit risk is an essential factor that needs to be managed. Risk assessment systems, tools and techniques may help to reduce the risk and can help to develop the quality of credit. Every system has some positive sides as well as to develop the quality of credit. Every system has some positive sides as well as limitations and shortcomings. Therefore, organization goes on some limitation and scopes.
The Success of credit risk management has resulted from dedication, commitment, dynamic leadership, effective strategy, planning and decision making, motivation and controlling of bank’s management, In formulating a credit judgment and making quality credit Decisions, the lending officer must be equipped with all information needed to evaluate a borrower’s character, management competence, capacity, ability to provide collaterals and external conditions which may affect his ability in meeting financial obligations. So, it is obvious that prudent management of these risks is fundamental to the sustainability of a bank. The Internship report of mine encompasses with the existing credit risk management systems, tools and techniques and methodology of the Banks in Bangladesh. The report has taken an effort to identify the problems and limitation of credit risk management systems of Jamuna Bank Limited, Eventually, this report chalks out a sort of findings and recommendation for improvement of credit risk management systems so that bank may attain common standards for credit risk management that’s why classified/ non-performing loans in banking sector may diminish. Bibliography Books: •
How to Approach Banks; A Guide for Bangladesh Entrepreneurs
Bangladesh Bank; Guide lines for Foreign Exchange Transactions
PETER S. Rose & SYLVA C. Hudgins Bank Management & Financial Service. Edition 6. Mc Graw-Hill/Irwin.
Managing Core Risk in Banking - "Credit Risk Management" by Bangladesh Bank.
JBL Annual Report (2003 to 2009).
Operational manual of JBL
Different types of Brochures of JBL
Web side: •
(This Survey is being done on the satisfaction level of the Customers to the Consumer Banking Service of the Jamuna Bank Ltd. (JBL). All the information will be kept confidential and the secrecy of the respondent will be properly maintained.) Name:……………………………………
Average Monthly Income Level: Tk.……………………………. (Note: The answers will be made in a 5 points rating scale. Here, 5 points = strongly Agree
4 points = Agree
2 points = Disagree
1 points = Strongly Disagree
3 points = Neutral
1. The Bankers can understand and solve customers problem properly and accurately--o
(5) Strongly Agree
(1) Strongly Disagree
2. The Bankers can solve the problems of the customers quickly and promptly --o
(5) Strongly Agree
(1) Strongly Disagree
3. The Bankers are very friendly and helpful to the customers --o
(5) Strongly Agree
(1) Strongly Disagree
4. The Bank has a wide spread Service facility and Link --o
(5) Strongly Agree
(1) Strongly Disagree
5. The documentation of the Jamuna bank limited is good enough --o
(5) Strongly Agree
(1) Strongly Disagree
6. The ATM has increased the service level of this Bank to a great extent --o
(5) Strongly Agree
(1) Strongly Disagree
7. The Customers can receive Service from very close to your house or Business outlet -o
(1) Strongly Disagree
8. The Phone Link has increased the service level of JBL to a great extent --o
(5) Strongly Agree
(1) Strongly Disagree
9. The Bankers provide sufficient information about their Products and Services necessary to customers ---
(5) Strongly Agree
(1) Strongly Disagree
10. The interest rate of JBL is reasonable for the customer --o
(5) Strongly Agree
(1) Strongly Disagree
11. The service Charge of JBL is reasonable for customers --o
(5) Strongly Agree
(1) Strongly Disagree
12. Customers are highly satisfied with the overall service level of the Bank --o
(5) Strongly Agree
(1) Strongly Disagree
= Automated Teller Machine.
= Bangladesh Bank.
= Credit Information Bureau.
= Credit Risk Grading
= Credit Risk Management.
= Credit Value at Risk.
= Demand Draft.
= Finance and Administration Division.
= Financial Intermediaries.
= Force Sales Value.
= General Service Division.
= Head of Credit Risk.
= Human Resource Division.
= Inter Branch Credit Advice.
= Inter Branch Debit Advice.
= Jamuna Bank Limited.
= Jamuna Bank Current Account.
= Jamuna Bank Savings Account.
= Local Documentary Bill Purchase.
= Loan against Imported Merchandise.
= Non-Performing Loan.
= Pay Order.
= Point of Sale.
= Pre Shipment Inspection.
= Relationship Managers.
= Short Term Deposit.
= Society for Worldwide Inter bank Financial Telecommunication.