Internship report on:

Credit Risk Management Practices In Jamuna Bank

Bangladesh.
A Study on Dewanhat Branch
1
Internship report on:
Credit Risk Management Practices In Jamuna Bank
Bangladesh.
A Study on Dewanhat Branch
(
2
Letter of Transmittal
Date: July06, 2014
To
The supervisor
Faculty of usiness !tu"ies
#remier $niversity
%hitta&on&, an&la"esh
Dear !ir,
!u'mittin& the internship report title" (%re"it )is* +ana&ement ,nalysis of !outheast
an* Lt"-. to you, it/s a &reat pleasure- The report provi"es the scope an" &ives the
opportunity of learn "ifferent tren"s an" aspects of a repute" or&ani0ation- 1 have alrea"y
ac2uire" *no3le"&e re&ar"in& corporative culture an" 1 have trie" to e4plain the
*no3le"&e 'y 3or*in& in !outheast an* Lt"-
1 have also pic*e" up valua'le e4perience in the last three months5 1 3oul" li*e to than*
you for assistin& me a throu&hout an" the #remier $niversity, an&la"esh for &ivin& the
opportunity to "o my internship- 1 'elieve you 3ill have a positive vie3 point on me as my
analysis is &enuine an" honest- 1 shall 'e than*ful if you *in"ly approve my effort-
!incerely yours,
66666666
7ame:
1D:
8
Faculty of usiness !tu"ies
#remier $niversity,
%hitta&on&,an&la"esh
Acknowledgments
4
The path to3ar" completion of an internship is har" an" often times can seem 2uite
"ifficult- Than*s an" all praises to ,lmi&hty ,llah that 'y his 'lessin& 1 complete" my
report on 9%re"it )is* +ana&ement ,nalysis of !outheast an* Lt"-/ 1 3as complete" my
internship form !outheast an* Lt"- Ju'ilee roa", ranch- :et it has 'een an enrichin& an"
re3ar"in& e4perience for me 'oth professionally as 3ell as personally- 1 3oul" li*e to
e4press my than*s an" appreciation to the many that have encoura&e" an" lifte" my
feelin&s alon& the 3ay-
1 3ant to convey my heartfelt respect an" cor"ial than*s to my superisor to &ive an
opportunity to carry out my internship an" 1 also li*e to than* for his &enerous cooperation
an" constant &ui"ance that ma"e me really confi"ent a'out the "esire" outcome of my
internship pro;ect-
<2ually 1 3oul" li*e to e4press my sincere &ratitu"e an" in"e'te"ness to the authority of
the $niversity for their *in" co=operation
>
!"ecutie Summary
an*s are e4pose" to five core ris*s throu&h their operation, 3hich are=cre"it ris*,
asset?lia'ility ris*, forei&n e4chan&e ris*, internal control @ compliance ris*, an" money
laun"erin& ris*- ,mon& these ris*s mana&ement of cre"it ris* &ets most attention- %re"it ris*
arises "ue to the possi'ility that the 'orro3er may fail to repay the loan- Follo3in& the recent
&lo'al financial crisis, 3hich ori&inate" from poor mana&ement of cre"it ris*, cre"it ris* is
the most "iscusse" topic in 'an*in& in"ustry-
%re"it ris* is one of the most vital ris*s for any commercial 'an*- %re"it ris* arises from non
performance 'y a 'orro3er- 1t may arise from either an ina'ility or an un3illin&ness to
perform in the pre=commitment contracte" manner- The real ris* from cre"it is the "eviation
of portfolio performance from its e4pecte" value- The cre"it ris* of a 'an* is also effect the
'oo* value of a 'an*- The more cre"it of a particular is in ris*, the more pro'a'ility of a 'an*
to 'e insolvent- Therefore, the status of "epositor in the 'an* is at ris* an" pro'a'ility of
incurrin& loss from their "eposite" value-
Jamuna an* Limite" is a thir" &eneration 'an* in the private sector 'an*in& of an&la"esh-
JL has alrea"y achieve" tremen"ous pro&ress 3ithin only 0A (nineB years- 7o3 JL is
offerin& a'out to all mo"ern an*in& services 3ith mo"ern technolo&ies-
This report focuses on cre"it ris* mana&ement of Jamuna an* Limite"- 1n this report
mana&ement of cre"it ris* is critical component of a comprehensive approach to ris*
mana&ement an" essential to lon&=term success of any 'an*in& or&ani0ation-
This report has 'een "ivi"e" into five parts an" name" as si4 chapters- %hapter one comprises
of the 'ac*&roun" of the report, the pro'lem statement, o';ectives an" limitations of stu"y-
%hapter t3o comprises of research metho"olo&y- 1n this chapter, the sources of "ata
collection are "iscusse" 'riefly- ase" on "ata collection the area is cove=e" re&ar"in& the
report- Then the sample si0e is fi4e" an" various soil 3ares are use" to analy0e the collecte"
"ata from "ifferent sources-
%hapter three is comprise" of the profile of Jamuna an* Limite"- 1n this chapter the "etails
of Jamuna an* Limite" are presente" in an or&ani0e" manner, thus one can un"erstan" the
activities of Jamuna an* Limite"-
The fourth chapter comprises of cre"it ris* mana&ement- Cere the ris*s of cre"it arc
"iscusse" in a "etail manner-
6
The fifth chapter is the analysis an" fin"in& of the report an" si4th chapter comprises of
conclusion in accor"ance 3ith the analysis an" further recommen"ations have 'een ma"e to
miti&ate cre"it ris* of Jamuna an* Limite"-
Chapter: 1
Introduction
D
Introduction
an&la"esh is a ne3 comer in the 3orl" of mo"erni0e" 'an*in& sector- #u'lic sector 3as the
"ominant player in the mar*et after li'erali0ation- ,ll financial activities 3ere occupie" 'y
the pu'lic sector, 3here insurance 3as the only privati0e" sector, Eovernment allo3e" the
private sector to enter the 'an*in& in"ustry- The other se&ment of the financial sector is
represente" 'y a'out t3o "o0en insurance companies, si4 none='an*in& financial institutions,
fe3 leasin& companies @ t3enty ne3ly permitte" merchant 'an*s- Jamuna an* LTD- 1s one
of the fe3 'an*s permitte" 'y the an&la"esh 'an* in the late 1AA1-!ome other 'an*
permitte" earlier- This 'an* *no3n as thir" &eneration 'an* an" fortunate to remain immune
from the 'a" loan culture- Co3ever, the performance of this 'an* is not same- The Jamuna
an* LTD- )emaine" as one of the top performers amon& them-
Background of the Report:
an* is the most important financial institution in the economy- 1t plays vital role in the
economy 'y provi"in& means of payment an" in mo'ili0in& resources- The economic
"evelopment of a country "epen"s on the "evelopment of 'an*in& sector to a &reat e4tent-
The "epen"ence of 'an*in& sector in mo"ern economy is increasin& "ay 'y "ay 'ecause this
sector ultimately contri'utes to run the 3heel of "evelopment in a more "ynamic 3ay-
To"ay/s mo"ern 'an*s are not only provi"es tra"itional 'an*in&, rather 'an*s are e4pan"in&
the menu of financial services, 'an*s are ma*in& the untoucha'le service toucha'le for their
customers- The chan&in& an" e4pan"in& role of 'an*in& has ma"e the 'an*in& 'usiness more
comple4 an" competitive- For survival an" &ro3th of this 'usiness "eman"s creativity,
speciali0ation an" *no3le"&e an" a"option of ne3 technolo&y are use"- ut technolo&y,
creativity, speciali0ation all these cannot support a 'an* to survive unless the services are
mar*ete" in the ri&ht trac*- For this 'an*s nee" e4perts 3ho 3ill a'le to run the 'usiness even
in a&ainst the 3in"-
an*s provi"e important capital in the form of loan an" a"vances 3hich are su';ect to non
repayment 3hich is terme" as cre"it ris*, the chance that a loan 3ill not 'e repai" timely-
Cence the main concern of the 'an*s is cre"it ris* an" its mana&ement as cre"it or loans an"
a"vances are the main source of income for them-
The report is an attempt to provi"e an orientation to real life scenario 3herein one can
o'serve an" evaluate the uses an" applica'ility of theoretical concepts that 3ere tau&ht in
+, pro&ram- ,s a partial fulfillment of +aster of usiness ,"ministration (+,B #ro&ram
of #remier $niversity, every stu"ent has to un"er&o an internship report pro&ram- The author
of the stu"y is the stu"ent of this $niversity5 a 3ell repute" private sector commercial 'an*
has 'een assi&ne" to prepare a pro;ect paper on (%re"it )is* +ana&ement of Jamuna an*
Limite" <ventually a report 3ith proper analysis an" possi'le solutions of the or&ani0ation
here'y su'mitte" to honora'le %ourse %oor"inator of the $niversity-
Objectives of the Study:
F
General Objective
To fulfill the re2uirement of +, "e&ree-
To overvie3 the overall cre"it ris*s mana&ement of Jamuna an* Limite"-
Specific Objective
To e4amine cre"it operation system of Jamuna an* Limite"-
To stu"y the cre"it appraisal proce"ures of Jamuna an* Limite"-
To analy0e the asset 2uality of Jamuna an* Limite"-
To i"entify the control mechanisms follo3e" 'y JL for len"in& an" assessment of
cre"it ris*-
To compare profita'ility an" &ro3th of Jamuna an* Limite" in "ifferent years-
To recommen" some su&&estions for sustaina'le "evelopment of Jamuna an*
Limite"
Methodoogy
Sources o# data$
oth #rimary an" !econ"ary "ata have 'een use" in preparin& this report- The "etails of the
sources of "ata are as follo3s:
Primary Sources$
G #ractical 3or* e4posure 3ith Jamuna an* Limite"
G Face to face conversation ? 1ntervie3 3ith the an* Hfficials
G H'servations
Secondary% Sources$
G ,nnual )eport of Jamuna an* Limite"
G %re"it Hperational +anual
G Trainin& materials of the an*
G #erio"icals pu'lishe" 'y an&la"esh an*
G #olicy Eui"elines an" relate" circulars of an&la"esh an*
A
G Iarious 'oo*s, ;ournals, articles etc, Je' !ites-
!i"itations of the Study
Thou&h 1 trie" my level 'est to pro"uce a comprehensive an" 3ell=or&ani0e" report on the
%re"it )is* +ana&ement practices of Jamuna an* Lt"-, some limitations 3ere yet present
there:
, perio" of Three months 3as not sufficient to collect an" un"erstan" the insi&hts of
the overall cre"it ris* mana&ement practices of the 'an*-
)ecent "ata an" information on "ifferent activities of JL 3as unavaila'le-
%onfi"ential matter: 1t is not possi'le to &et all sorts of information "ue to official
confi"entiality-
<n&a&e" in 3or*: <very man of the 'ranch 3as so 'usy in their 3or*, so they
3ere not a'le to provi"e sufficient care to ma*e the interneeKs clear a'out "ifferent
topics-
Lac* of practical *no3le"&e: For the lac* of practical *no3le"&e, some short
comin& may 'e availa'le in the report- ecause in some cases 1 coul" not
practically involve" 'ecause of 'an*Ks limitation an" ris*iness-
%re"it mana&ement is too 'i& to cover: %re"it mana&ement is a too 'i& to cover
3holly in this limite" scope- 1t re2uire" hu&e time an" hu&e space to cover- !o, 1
have covere" only some important topics of cre"it mana&ement-
10
#hapter: $
%heoretica Aspects
&eriew
11
The 3or" cre"it comes from the Latin 3or" (%re"o. meanin& (1 'elieve.- 1t is a len"er/s trust
in a person/s? firm/s? or company/s a'ility or potential a'ility an" intention to repay- 1n other
3or"s, cre"it is the a'ility to comman" &oo"s or services of another in return for promise to
pay such &oo"s or services at some specifie" time in the future- %re"it ris* mana&ement is a
"ynamic fiel" 3here a certain stan"ar" of lon&=ran&e plannin& is nee"e" to allocate the fun"
in "iverse fiel" an" to minimi0e the ris* an" ma4imi0in& the return on the investe" fun"-
%ontinuous supervision, monitorin& an" follo3=up are hi&hly re2uire" for ensurin& the timely
repayment an" minimi0in& the pro'a'ility of "efault- ,ctually the cre"it portfolio is not only
constitute" the 'an*/s asset structure 'ut also a vital factor of the 'an*/s success- The overall
success in cre"it ris* an" its mana&ement "epen"s on the 'an*s cre"it policy, portfolio of
cre"it, monitorin&, supervision an" follo3=up of the loan an" a"vance- Therefore, 3hile
analy0in& the cre"it ris* mana&ement of JL, it is re2uire" to analy0e its cre"it policy, cre"it
proce"ure an" 2uality of cre"it portfolio-
%re"it is the institutional arran&ement of len"in& fun"s mainly to the tra"ers an" in"ustrial
entrepreneurs 'y the 'an*in& company- The ma;or portion of 'an*/s fun"s is employe" 'y
various 3ays of loans an" a"vances, 3hich is the most profita'le employment of its fun"s-
The ma;or part of 'an* income is earne" from interest an" "iscount on the fun"s so lent- The
;o' in this "epartment starts from the application ma"e 'y the client5 approve the same, 3hich
is "is'urse" to customers-
PR&C!SS &' CR!DI( MA)A*!M!)(

12
%re"it +ana&ement #olicy for any commercial 'an* must have 'een prepare" in accor"ance
3ith the #olicy Eui"elines of an&la"esh an*/s Focus Eroup on %re"it an" )is*
+ana&ement 3ith some chan&es to meet particular 'an*/s internal nee"s-
%re"it mana&ement must 'e or&ani0e" in such a process that the 'an* can minimi0e its losses
for payment of e4pecte" "ivi"en" to the sharehol"ers- The purpose of this process is to
provi"e "irectional &ui"elines that 3ill improve the ris* mana&ement culture, esta'lish
minimum stan"ar"s for se&re&ation of "uties an" responsi'ilities, an" assist in the on&oin&
improvement of concerne" 'an*-
The &ui"elines for cre"it mana&ement may 'e or&ani0e" into the follo3in& sections:
Policy guidelines$
a. +ending guidelines$ The len"in& &ui"elines inclu"e the follo3in&:
1n"ustry an" usiness !e&ment Focus
Types of loan facilities
!in&le 'orro3ers? &roup limits? syn"ication
Len"in& caps
Discoura&e" 'usiness types
,s a minimum, the follo3in&s are "iscoura&e":
+ilitary e2uipment? 3eapons finance
Ci&hly levera&e" transactions
Finance of speculative investments
Lo&&in&, mineral e4traction? minin&, or other activity that is
ethically or environmentally sensitive
Len"in& to companies liste" on %1 'lac* list or *no3n
%ounter parties in countries su';ect to $7 sanctions
Len"in& to hol"in& companies-
,. Credit Assessment and Risk *rading$

, thorou&h cre"it an" ris* assessment shoul" 'e con"ucte" prior to the &rantin& of loans, an"
at least annually thereafter for all facilities-
%re"it ,pplications shoul" summaries the results of the ris* assessment an" inclu"e, as a
minimum, the follo3in& "etails:
<nvironment or social ris* inputs
,mount an" type of loan (sB propose"
#urpose of loans
Loan structure (tenor, covenants, repayment sche"ule, interestB
!ecurity arran&ement
18
,ny other ris* or issue
)is* tri&&ers an" action plan=con"ition pru"ent, etc-
)is* is &ra"e" as per Len"in& )is* ,nalysis (L),B, an&la"esh an*/s Eui"elines of
classification of loans an" a"vances-
c. Approal Authority$
,pproval authority may 'e as the follo3in&:
%re"it approval authority has 'een "ele&ate" to ranch +ana&er, %re"it
%ommittee 'y the +D? oar"
Dele&ate" approval authorities shall 'e revie3e" annually 'y +D? oar"-
MD% Board$
n ,pprovals must 'e evi"ence" in 3ritin&- ,pproval recor"s must 'e *ept on file 3ith
cre"it application
n The a&&re&ate e4posure to any 'orro3er or 'orro3in& &roup must 'e use" to "etermine the
approval authority re2uire"-
n ,ny cre"it proposal that "oes not comply 3ith Len"in& Eui"elines, re&ar"less of amount,
shoul" 'e referre" to Cea" Hffice for approval-
d. Segregation o# Duties$
an*s shoul" aim at se&re&atin& the follo3in& len"in& function:
%re"it approval? ris* mana&ement
)elationship mana&ement? mar*etin&
%re"it a"ministration
e. Internal Control and Compliance$
an*s must have a se&re&ate" internal au"it? control "epartment char&e" 3ith con"uctin&
au"its of all 'ranches-
Program guidelines$
a- Approval process: The follo3in& "ia&ram illustrates an e4ample of the approval process:
1- b. Credit administration: The cre"it a"ministration function is critical in ensurin&
that proper "ocumentation an" approvals are in place prior to the "is'ursement of loan
facilities-
2- c. Credit monitoring: To minimi0e" cre"it losses, monitorin& proce"ures an"
systems shoul" 'e in place that provi"es an early in"ication of the "eterioratin&
financial health of 'orro3er-
14
8- d. Credit recover: The recovery unit of 'ranch shoul" "irectly mana&e accounts
3ith sustaine" "eterioration (a ris* ratin& of su'=stan"ar" or 3orseB- The primary
functions of recovery unit are:
Determine account action plan? recovery strate&y
#ursue all options to ma4imi0e recovery, inclu"in& placin& customers into
receivership or li2ui"ation as appropriate-
<nsure a"e2uate an" timely loan loss provisions are ma"e 'ase" on actual an"
e4pecte" losses-
(&&+S &' CR!DI( MA)A*!M!)(
For cre"it mana&ement, a firm may use tools availa'le to them- !uch tools inclu"e %re"it
)is* Era"in& (%)EB an" Financial !prea" !heet (F!!B- %re"it ris* &ra"in& is an important
for cre"it ris* mana&ement as it helps the 'an*s an" financial institutions to un"erstan"
various "imensions of ris* involve" in "ifferent cre"it transactions- The a&&re&ation of such
&ra"in& across the 'orro3ers, activities an" the lines of 'usiness can provi"e 'etter
assessment of the 2uality of cre"it portfolio of a 'an* or 'ranch-
The Len"in& )is* ,nalysis (L),B manual intro"uce" in 1AA8 'y the an&la"esh an* has
'een in practice for man"atory use 'y the 'an*s an" financial institutions for loan si0e of
DT 1-00 crore an" a'ove- Co3ever, the L), manual suffers from a lot of su';ectivity,
sometimes creatin& confusion to the len"in& 'an*ers in terms of selection of cre"it proposals
on the 'asis of ris* e4posure- +ean3hile in 2008 en", an&la"esh an* provi"e" &ui"elines
for cre"it ris* mana&ement of 'an*s 3herein it recommen"e", interalia- the intro"uction of
)is* Era"e !core %ar" for ris* assessment of cre"it proposals-
an&la"esh an* e4pects all commercial 'an*s to have a 3ell "efine" cre"it ris*
mana&ement system 3hich "elivers accurate an" timely &ra"in&- 1n practice, a 'an*/s cre"it
ris* &ra"in& system shoul" reflect the comple4ity of its len"in& activities an" the overall level
of ris* involve"-
Definition of %re"it )is* Era"in& (%)EB
The %re"it )is* Era"in& (%)EB is a collective "efinition 'ase" on the pre= specifie"
scale an" reflects the un"erlyin& cre"it=ris* for a &iven e4posure-
, %re"it )is* Era"in& "eploys a num'er? alpha'et? sym'ol as a primary summary
in"icator of ris*s associate" 3ith a cre"it e4posure-
%re"it )is* Era"in& is the 'asic mo"ule for "evelopin& a %re"it )is* +ana&ement
system-
Functions of %re"it )is* Era"in&
Jell=mana&e" cre"it ris* &ra"in& systems promote 'an* safety an" soun"ness 'y facilitatin&
informe" "ecision=ma*in&- Era"in& systems measure cre"it ris* an" "ifferentiate in"ivi"ual
cre"its an" &roups of cre"its 'y the ris* they pose- This allo3s 'an* mana&ement an"
1>
e4aminers to monitor chan&es an" tren"s in ris* levels- The process also allo3s 'an*
mana&ement to mana&e ris* to optimi0e returns-
$se of %re"it )is* Era"in&
The %re"it )is* Era"in
&
matri4 allo3s application of uniform stan"ar"s to cre"its to
ensure a common stan"ar"i0e" approach to assess the 2uality of in"ivi"ual o'li&or,
cre"it portfolio of a nit, line of 'usiness, the 'ranch or the 'an* as a 3hole-
,s evi"ent, the %)E outputs 3oul" 'e relevant for in"ivi"ual cre"it selection,
3herein a 'orro3er or a particular e4posure? facility is rate"- The other "ecisions
3oul" 'e relate" to pricin& (cre"it=sprea"B an" specific features of cre"it facility-
These 3oul" lar&ely constitute o'li&or level analysis-
)is* &ra"in& also 'e relevant for surveillance an" monitorin&, internal +1! an"
assessin& the a&&re&ate ris* portfolio level analysis-
Financial !prea" !heet in %re"it +ana&ement
1- Financial !prea" !heet provi"es a 2uic* metho" of assessin& 'usiness tren"s an"
efficiency
,ssess the 'orro3ers a'ility to repay
)ealistically sho3 'usiness tren"s
,llo3 comparisons to 'e ma"e 3ithin in"ustry
2- orro3ers that provi"e Financial !prea" !heets are more li*ely to 'e &oo" 'orro3ers
,t t3o of the client 'an*s the F!)# consultants coul" not fin" 10 'a" loans 3ith 8
consecutive years of financial statements availa'le-
Hut of 2> &oo" loans revie3e" 'y the F!)# consultants, at t3o of the client 'an*s, 8
consecutive years of financial statements 3ere availa'le on all of them-
The 3illin&ness of the customer to provi"e "etaile" financial information an" to
ans3er 2uestion re&ar"in& that information, is in"ication of the cooperation the 'an*
3ill receive in the future-

1- , Financial !prea" !heet is an important tool in a "iscipline of or&ani0e" approach to
cre"it analysis-
2- The historic financial reports of a company area primary in"icator of its future
financial position- !prea" sheets allo3 proper analysis of financial statements-
16
'unctions o# Credit Risk *rading$
Jell=mana&e" cre"it ris* &ra"in& systems promote 'an* safety an" soun"ness 'y
facilitatin& informe" "ecision=ma*in&- Era"in& systems measure cre"it ris* an"
"ifferentiate in"ivi"ual cre"its an" &roups of cre"its 'y the ris* they pose- This
allo3s 'an* mana&ement an" e4aminers to monitor chan&es an" tren"s in ris*
levels- The process also allo3s 'an* mana&ement to mana&e ris* to optimi0e
returns-
-se o# Credit Risk *rading$
The %re"it )is* Era"in& matri4 allo3s application of uniform stan"ar"s to cre"its
to ensure a common stan"ar"i0e" approach to assess the 2uality of in"ivi"ual
o'li&or, cre"it portfolio of a unit, line of 'usiness, the 'ranch or the an* as a
3hole-
,s evi"ent, the %)E outputs 3oul" 'e relevant for in"ivi"ual cre"it selection,
3herein either a 'orro3er or a particular e4posure?facility is rate"- The other
"ecisions 3oul" 'e relate" to pricin& (cre"it=sprea"B an" specific features of the
cre"it facility- These 3oul" lar&ely constitute o'li&or level analysis-
)is* &ra"in& 3oul" also 'e relevant for surveillance an" monitorin&, internal +1!
an" assessin& the a&&re&ate ris* profile of a an*- 1t is also relevant for portfolio
level analysis-
)um,er and Short )ame o# *rades used in the CR*$
The propose" %)E scale consists of F cate&ories 3ith !hort names an" 7um'ers
are provi"e" as follo3s:
*RADI)* S.&R( )AM! )-MB!R
!uperior !$# 1
Eoo" ED 2
,ccepta'le ,%%#T 8
+ar&inal?Jatch list +E?JL 4
!pecial +ention !+ >
!u' stan"ar" !! 6
Dou'tful DF D
a" @ Loss L F
1D
Credit Risk *rading De#initions$
, clear "efinition of the "ifferent cate&ories of %re"it )is* Era"in& is &iven as follo3s:
Superior / 0S-P1 / 2
%re"it facilities, 3hich are fully secure" i-e- fully cash covere"-
%re"it facilities fully covere" 'y &overnment &uarantee-
%re"it facilities fully covere" 'y the &uarantee of a top tier international an*-
*ood / 0*D1 / 3
!tron& repayment capacity of the 'orro3er
The 'orro3er has e4cellent li2ui"ity an" lo3 levera&e-
The company "emonstrates consistently stron& earnin&s an" cash flo3-
orro3er has 3ell esta'lishe", stron& mar*et share-
Iery &oo" mana&ement s*ill @ e4pertise-
,ll security "ocumentation shoul" 'e in place-
%re"it facilities fully covere" 'y the &uarantee of a top tier local an*-
,&&re&ate !core of F> or &reater 'ase" on the )is* Era"e !core !heet
Accepta,le / 0ACCP(1 / 4
These 'orro3ers are not as stron& as EHHD Era"e 'orro3ers, 'ut still
"emonstrate consistent earnin&s, cash flo3 an" have a &oo" trac* recor"-
orro3ers have a"e2uate li2ui"ity, cash flo3 an" earnin&s-
%re"it in this &ra"e 3oul" normally 'e secure" 'y accepta'le collateral (1st
char&e over inventory ? receiva'les ? e2uipment ? propertyB-
,ccepta'le mana&ement
,ccepta'le parent?sister company &uarantee
,&&re&ate !core of D>=F4 'ase" on the )is* Era"e !core !heet

Marginal%5atch list / 0M*%5+1 / 6
This &ra"e 3arrants &reater attention "ue to con"itions affectin& the 'orro3er,
the in"ustry or the economic environment-
1F
These 'orro3ers have an a'ove avera&e ris* "ue to straine" li2ui"ity, hi&her
than normal levera&e, thin cash flo3 an"?or inconsistent earnin&s-
Jea*er 'usiness cre"it @ early 3arnin& si&nals of emer&in& 'usiness cre"it
"etecte"-
The 'orro3er incurs a loss
Loan repayments routinely fall past "ue
,ccount con"uct is poor, or other unto3ar" factors are present-
%re"it re2uires attention
,&&re&ate !core of 6>=D4 'ase" on the )is* Era"e !core !heet
Special Mention / 0SM1 / 7
This &ra"e has potential 3ea*nesses that "eserve mana&ement/s close
attention- 1f left uncorrecte", these 3ea*nesses may result in a "eterioration of
the repayment prospects of the 'orro3er-
!evere mana&ement pro'lems e4ist-
Facilities shoul" 'e "o3n&ra"e" to this &ra"e if sustaine" "eterioration in
financial con"ition is note" (consecutive losses, ne&ative net 3orth, e4cessive
levera&eB,
,n ,&&re&ate !core of >>=64 'ase" on the )is* Era"e !core !heet-
Su,standard / 0SS1 / 8
Financial con"ition is 3ea* an" capacity or inclination to repay is in "ou't-
These 3ea*nesses ;eopar"i0e the full settlement of loans-
an&la"esh an* criteria for su'=stan"ar" cre"it shall apply-
,n ,&&re&ate !core of 4>=>4 'ase" on the )is* Era"e !core !heet-
Dou,t#ul / 0D'1 / 9
Full repayment of principal an" interest is unli*ely an" the possi'ility of loss
is e4tremely hi&h-
Co3ever, "ue to specifically i"entifia'le pen"in& factors, such as liti&ation,
li2ui"ation proce"ures or capital in;ection, the asset is not yet classifie" as a"
@ Loss-
an&la"esh an* criteria for "ou'tful cre"it shall apply-
,n ,&&re&ate !core of 8>=44 'ase" on the )is* Era"e !core !heet-
1A
Bad : +oss / 0B+1 / ;
%re"it of this &ra"e has lon& outstan"in& 3ith no pro&ress in o'tainin&
repayment or on the ver&e of 3in" up?li2ui"ation-
#rospect of recovery is poor an" le&al options have 'een pursue"-
#rocee"s e4pecte" from the li2ui"ation or reali0ation of security may 'e
a3aite"- The continuance of the loan as a 'an*a'le asset is not 3arrante", an"
the anticipate" loss shoul" have 'een provi"e" for-
This classification reflects that it is not practical or "esira'le to "efer 3ritin&
off this 'asically valueless asset even thou&h partial recovery may 'e affecte"
in the future- an&la"esh an* &ui"elines for timely 3rite off of 'a" loans
must 'e a"here" to- Le&al proce"ures?suit initiate"-
an&la"esh an* criteria for 'a" @ loss cre"it shall apply-
,n ,&&re&ate !core of less than 8> 'ase" on the )is* Era"e !core !heet-
Basis #or +oan Classi#ication$

0A1 &,<ectie Criteria$
,ny %ontinuous Loan if not repai"?rene3e" 3ithin the fi4e" e4piry "ate for
repayment 3ill 'e treate" as irre&ular ;ust from the follo3in& "ay of the e4piry
"ate- This loan 3ill 'e classifie" as !u'=stan"ar" if it is *ept irre&ular for 6
months or 'eyon" 'ut less than A months, as LDou'tfulK if for A months or 'eyon"
'ut less than 12 months an" as La" @ LossK if for 12 months or 'eyon"-
,ny Deman" Loan 3ill 'e consi"ere" as !u'=stan"ar" if it remains unpai" for 6
months or 'eyon" 'ut not less then A months from the "ate of claim 'y the 'an* or
from the "ate of force" creation of the loan5 li*e3ise the loan 3ill 'e consi"ere"
as 9Dou'tfulK an" 9a" @ Loss/ if remains unpai" for A months or 'eyon" 'ut less
than 12 months an" for 12 months an" 'eyon" respectively-
20
1n case any installment(sB or part of installment(sB of a Fi4e" Term Loan is not
repai" 3ithin the "ue "ate, the amount of unpai" installment(sB 3ill 'e terme" as
L"efaulte" installmentK-
In case o# 'i"ed (erm +oans= which are repaya,le within ma"imum 7 0#ie1 years
o# time$ /
1f the amount of L"efaulte" installmentK is e2ual to or more than the amount of
installment(sB "ue 3ithin 6 months, the entire loan 3ill 'e classifie" as 9!u'=
stan"ar"/-
1f the amount of K"efaulte" installmentK is e2ual to or more than the amount of
installment(sB "ue 3ithin 12 months, the entire loan 3ill 'e classifie" as 9Dou'tful/-
1f the amount of K"efaulte" installmentK is e2ual to or more than the amount of
installment(sB "ue 3ithin 1F months, the entire loan 3ill 'e classifie" as 9a" @
Loss/-
In case o# 'i"ed (erm +oans= which are repaya,le in more than 7 0#ie1 years o#
time$ /
1f the amount of 9"efaulte" installmentK is e2ual to or more than the amount of
installment(sB "ue 3ithin 12 months, the entire loan 3ill 'e classifie" as K!u'=
stan"ar"-K
1f the amount of 9"efaulte" installmentK is e2ual to or more than the amount of
installment(sB "ue 3ithin 1F months, the entire loan 3ill 'e classifie" as KDou'tfulK-
1f the amount of K"efaulte" installment Kis e2ual to or more than the amount of
installment(sB "ue 3ithin 24 months, the entire loan 3ill 'e classifie" as Ka" @ LossK-
!"planation$
21
1f any Fi4e" Term Loan is repaya'le at monthly installment, the amount of installment(sB
"ue 3ithin 6 months 3ill 'e e2ual to the amount of summation of 6 monthly installments-
!imilarly, if repaya'le at 2uarterly installment, the amount of installment(sB "ue 3ithin 6
months 3ill 'e e2ual to the amount of summation of 2 2uarterly installments-
0B1 >ualitatie Judgment$
1f any uncertainty or "ou't arises in respect of recovery of any %ontinuous Loan,
Deman" Loan or Fi4e" Term Loan, the same 3ill have to 'e classifie" on the 'asis of
2ualitative ;u"&ment 'e it classifia'le or not on the 'asis of o';ective criteria-
1f any situational chan&es occur in the stipulations in terms of 3hich the loan 3as
e4ten"e" or if the capital of the 'orro3er is impaire" "ue to a"verse con"itions or if
the value of the securities "ecreases or if the recovery of the loan 'ecomes uncertain
"ue to any other unfavora'le situation, the loan 3ill have to 'e classifie" on the 'asis
of 2ualitative ;u"&ment-
esi"es, if any loan is illo&ically or repeate"ly re=sche"ule" or the norms of re=
sche"ulin& are violate" or instances of (propensity toB fre2uently e4cee"in& the loan=
limit are notice" or le&al action is lo"&e" for recovery of the loan or the loan is
e4ten"e" 3ithout the approval of the proper authority, it 3ill have to 'e classifie" on
the 'asis of 2ualitative ;u"&ment -
Despite the pro'a'ility of any loanKs 'ein& affecte" "ue to the reasons state" a'ove or
for any other reasons, if there e4ists any hope for chan&e of the e4istin& con"ition 'y
resortin& to proper steps, the loan, on the 'asis of 2ualitative ;u"&ment, 3ill 'e
classifie" as K!u'=stan"ar"K- ut even if after resortin& to proper steps, there e4ists no
certainty of total recovery of the loan, it 3ill 'e classifie" as 9Dou'tfulK an" even after
e4ertin& the all=out effort, there e4ists no chance of recovery, it 3ill 'e classifie" as K
a" @ LossK on the 'asis of 2ualitative ;u"&ment-
The concerne" 'an* 3ill classify on the 'asis of 2ualitative ;u"&ment an" can
"eclassify the loans if 2ualitative improvement "oes occur-
22
ut if any loan is classifie" 'y the 1nspection Team of an&la"esh an*, the same can
'e "eclassifie" 3ith the approval of the oar" of Directors of the 'an*- Co3ever,
'efore placin& such case to the oar", the %<H an" concerne" 'ranch mana&er shall
have to certify that the con"itions for "eclassification have 'een fulfille"-
)ote$
aB ,ny chan&e in classification criteria provi"e" 'y the an&la"esh an* shall
superse"e this &ra"in& system for classifie" accounts-
'B ,n account may also 'e classifie" 'ase" on 2ualitative ;u"&ment in line 3ith
an&la"esh an* &ui"elines-
cB , particular 'an* may have classification criteria stricter than an&la"esh an*
&ui"elines-
.ow to Compute Credit Risk *rading$
The follo3in& step=3ise activities outline the "etail process for arrivin& at cre"it ris*
&ra"in&-
Step I $ Identi#y all the Principal Risk Components
%re"it ris* for counter party arises from an a&&re&ation of the follo3in&:
Financial )is*
usiness?1n"ustry )is*
+ana&ement )is*
!ecurity )is*
)elationship )is*
<ach of the a'ove mentione" *ey ris* areas re2uire to 'e evaluate" an" a&&re&ate" to
arrive at an overall ris* &ra"in& measure-
aB !aluation o# 'inancial Risk :
)is* that counterparties 3ill fail to meet o'li&ation "ue to financial "istress- This
typically entails analysis of financials i-e- analysis of levera&e, li2ui"ity,
profita'ility @ interest covera&e ratios- To conclu"e, this capitali0es on the ris* of
hi&h levera&e, poor li2ui"ity, lo3 profita'ility @ insufficient cash flo3-
28
'B !aluation o# Business%Industry Risk :
)is* that a"verse in"ustry situation or unfavora'le 'usiness con"ition 3ill impact
'orro3ers/ capacity to meet o'li&ation- The evaluation of this cate&ory of ris*
loo*s at parameters such as 'usiness outloo*, si0e of 'usiness, in"ustry &ro3th,
mar*et competition @ 'arriers to entry?e4it- To conclu"e, this capitali0es on the
ris* of failure "ue to lo3 mar*et share @ poor in"ustry &ro3th-
cB !aluation o# Management Risk$
)is* that counterparties may "efault as a result of poor mana&erial a'ility
inclu"in& e4perience of the mana&ement, its succession plan an" team 3or*-
"B !aluation o# Security Risk$
)is* that the 'an* mi&ht 'e e4pose" "ue to poor 2uality or stren&th of the security
in case of "efault- This may entail stren&th of security @ collateral, location of
collateral an" support-
eB !aluation o# Relationship Risk$
These ris* areas cover evaluation of limits utili0ation, account performance,
con"itions?covenants compliance 'y the 'orro3er an" "eposit relationship-
24
2>
CREDIT RISK
Financial Risk Management Risk
Business/Industry
Risk
Relationship Risk Security Risk
Leverage
Liquidity
Proftaility
!overage
"#perience
Succession
$eam %ork
Business &utlook
Si'e o( Business
Industry )ro*th
Market
!ompetition
Barriers to
Business
+ccount !onduct
,tili'ation o( Limit
!ompliance o(
!ovenants/!onditi
on
Personal -eposits
Security
!overage
!ollateral
!overage
Support
+ge o( Business
Step II$ Allocate weightages to Principal Risk Components
,ccor"in& to the importance of ris* profile, the follo3in& 3ei&hta&es are
propose" for correspon"in& principal ris*s-
Principal Risk Components$ 5eight$
Financial )is* >0M
usiness?1n"ustry )is* 1FM
+ana&ement )is* 12M
!ecurity )is* 10M
)elationship )is* 10M
Step III$ !sta,lish the ?ey Parameters.
Principal Risk
Components
?ey Parameters
Financial )is* Levera&e, Li2ui"ity, #rofita'ility @ %overa&e ratio-
usiness?1n"ustry )is* !i0e of usiness, ,&e of usiness, usiness Hutloo*, 1n"ustry
Ero3th, %ompetition @ arriers to usiness
+ana&ement )is* <4perience, !uccession @ Team Jor*-
!ecurity )is* !ecurity %overa&e, %ollateral %overa&e an" !upport-
)elationship )is* ,ccount %on"uct ,$tili0ation of Limit, %ompliance of
covenants?con"itions @ #ersonal Deposit-
Step I@$ Assign weightages to each o# the key parameters.
26
Step/@$ Input data to arrie at the score on the key parameters.
,fter the ris* i"entification @ 3ei&ht a&e assi&nment process (as mentione"
a'oveB, the ne4t steps 3ill 'e to input actual parameter in the score sheet to
arrive at the scores correspon"in& to the actual parameters-
Principal Risk
Components
?ey Parameters 5eight
A2. 'inancial Risk 7AB
Levera&e 1>M
Li2ui"ity 1>M
#rofita'ility 1>M
%overa&e >M
A3. Business%Industry 2;B
!i0e of usiness >M
,&e of usiness 8M
usiness Hutloo* 8M
1n"ustry Ero3th 8M
+ar*et %ompetition 2M
<ntry?<4it arriers 2M
A4. Management Risk 23B
<4perience >M
!uccession 4M
Team Jor* 8M
A6. Security Risk 2AB
!ecurity %overa&e 4M
%ollateral %overa&e 4M
!upport 2M
A7. Relationship Risk 2AB
,ccount %on"uct >M
$tili0ation of Limit 2M
%ompliance of
%ovenants ?
%on"ition
2M
#ersonal Deposit 1M
2D
Step @I$ Arrie at the Credit Risk *rading ,ased on total score o,tained.
The follo3in& is the propose" %re"it )is* Era"e matri4 'ase" on the total score
o'taine" 'y an o'li&or-
)um,er Risk *rading Short
)ame
Score
1 !uperior !$# 100M cash covere"
Eovernment &uarantee
1nternational an*
&uarantees
2 Eoo" ED F>N
8 ,ccepta'le ,%%#T D>=F4
4 +ar&inal?Jatch list +E?JL 6>=D4
> !pecial +ention !+ >>=64
6 !u'=stan"ar" !! 4>=>4
D Dou'tful DF 8>=44
F a" @ Loss L O8>
Credit Risk *rading Process$
%re"it )is* Era"in& shoul" 'e complete" 'y a an* for all e4posures
(irrespective of amountB other than those covere" un"er %onsumer an" !mall
<nterprises Financin& #ru"ential Eui"elines an" also un"er The !hort=Term
,&ricultural an" +icro = %re"it-
For !uperior )is* Era"in& (!$#=1B the score sheet is not applica'le- This 3ill
'e &ui"e" 'y the criterion mentione" for superior &ra"e account i-e- 100M
cash covere", covere" 'y &overnment @ 'an* &uarantee-
%re"it ris* &ra"in& matri4 3oul" 'e useful in analy0in& cre"it proposal, ne3 or
rene3al for re&ular limits or specific transactions, if 'asic information on a
'orro3in& client to "etermine the "e&ree of each factor is aB rea"ily availa'le,
'B current, cB "epen"a'le, an" "B parameters?ris* factors are assesse"
;u"iciously an" o';ectively- The )elationship +ana&er as per shoul" collect
re2uire" information-
2F
)elationship mana&er shoul" ensure to correctly fill up the in or"er to arrive at a
realistic earnin& status for the 'orro3er-
)is* factors are to 'e evaluate" an" 3ei&hte" very carefully, on the 'asis of
most up=to="ate an" relia'le "ata an" complete o';ectivity must 'e ensure" to
assi&n the correct &ra"in&- ,ctual parameter shoul" 'e inputte" in the Credit
Risk *rading Score.

%re"it ris* &ra"in& e4ercise shoul" 'e ori&inate" 'y )elationship +ana&er an"
shoul" 'e an on=&oin& an" continuous process- )elationship +ana&er shall
complete the %re"it )is* Era"in& !core !heet an" shall arrive at a ris*
&ra"in& in consultation 3ith a !enior )elationship +ana&er an" "ocument it
as per Credit Risk *rading 3hich shall then 'e concurre" 'y the %re"it
Hfficer in consultation 3ith a !enior %re"it Hfficer-
,ll cre"it proposals 3hether ne3, rene3al or specific facility shoul" consist of
aB Data %ollection %hec*list, 'B Limit $tili0ation Form cB %re"it )is* Era"in&
!core !heet, an" "B %re"it )is* Era"in& Form-
The cre"it officers then 3oul" pass the approve" %re"it )is* Era"in& Form to
%re"it ,"ministration Department an" %orporate an*in&?Line of
usiness?)ecovery $nit for up"atin& their +1!?recor"-
e any su'se2uent chan&e?revision i-e- up&ra"e or "o3n&ra"e in cre"it ris* &ra"e-
2A
Chapter$ 4
Practical Aspects
.istory : Background o# Jamuna Bank +(D$
80
Jamuna an* Lt"- (JLB is a an*in& %ompany re&istere" un"er the an* %ompanies
,ct, 1AA1 an" incorporate" as #u'lic %ompany limite" 'y !hares un"er the %ompanies
,ct, 1AA4 inan&la"esh- The an* starre" its operation from 8
r"
June 2001 as a
sche"ule" an*-
JL came into 'ein& as a hi&hly capitali0e" ne3 &eneration an* starte" its operations
3ith an ,uthori0e" %apital an" #ai"=up %apital of T*- l600-00 million an" T*-8A0,00
million respectively-
JL, the only en&ali name" private commercial 'an* 3as esta'lishe" 'y a &roup of
3inin& local entrepreneurs conceivin& an i"ea of creatin& a mo"el 'an*in& institution
3ith "ifferent outloo* to offer the value" customers, a comprehensive ran&e of financial
services an" innovative pro"ucts for sustaina'le mutual &ro3th an" prosperity- The
sponsors are repute" personalities in the file" of tra"e, commerce an" in"ustries-
The an* is 'ein& mana&e" an" operate" 'y a &roup of hi&hly e"ucate" an" professional
team 3ith "iversifie" e4periences in finance an" 'an*in&- , team of hi&hly 2ualifie" an"
e4perience" professionals hea"e" 'y the +ana&in& Director of the an* 3ho has vast
'an*in& e4perience operates 'an* an" at the top there is an efficient oar", of -Directors
for ma*in& policies- <arnest an" pru"ent involvement of the 'est mana&ement team in all
tires of the 8an* has 'rou&ht the 'est out of the an*- The +ana&ement of the 'an*
constantly focuses on un"erstan"in& an" anticipatin& customer/s nee"s-
The scenario of 'an*in& 'usiness is chan&in&, "ay 'y "ay, so the 'an*/s responsi'ility is
to "evise strate&y an" ne3 pro"ucts to cope 3ith the chan&in& environment- JL has
alrea"y achieve" tremen"ous pro&ress 3ithin only !even years- The 'an* has alrea"y
ran*e" at top of the 2uality service provi"ers @ is *no3n for its reputation-
JL is no3 tryin& to 3i"en its periphery 'y tar&etin& all the potential sectors- Jith an
e4tensive ran&e of financial pro"ucts an" services "ay 'y "ay tine 'an* is committe" to
provi"e hi&h "uality financial services?pro"ucts to contri'ute to the &ro3th of ED# of the
country throu&h stimulatin& tra"e @ commerce, acceleratin& the pace of 1n"ustriali0ation,
'oostin& up e4port, creatin& employment opportunity for the e"ucate" youth, poverty
alleviation, raisin& stan"ar" of livin& of limite" income &roup an" over all sustaina'le
socio=economic "evelopment of the country-
To *eep pace 3ith time an" in harmony 3ith national an" international economic
activities an" for ren"erin& all mo"ern services, JL, as a financial institution automate"
all its 'ranches 3ith computer net3or* in accor"ance 3ill the competitive commercial
"eman" of time- +oreover, consi"erin& is forthcomin& future the infrastructure of the
an* has 'een rearran&in&-
!ince its inception the an*/s footprint has &ro3n to 41(orty oneB 'ranches across the
country an" the customer 'ase has e4pan"e" to D6,04D an" D,A24 'orro3ers as on 80
th
,pril, 200A- The e4pectation of all class 'usinessman, entrepreneurs an" &eneral pu'lic is
81
much more to JL Peepin& the tar&et in min" the 'an* has ta*en preparation to open ne3
'ranches in comin& months of 200A-
JL un"erta*es all types of 'an*in& transactions to support the "evelopment of try "e an"
commerce of the country- The JL/s services also availa'le for the entrepreneurs to set up
ne3 ventures an" +)< of in"ustrial units-
7o3 JL is on line to esta'lish tra"e an" columniation 3ith the #rime 1mitational
'an*in& companies of the 3orl"- ,s a result JL 3ill 'e a'le to 'uil" a stron& root in
international 9'an*in& hori0on- an* has 'een "ra3in& arran&ement 3ith 3ell conversant
money transfer serve a&ency Eram.- 1t has a full time arran&ement for spee"y transfer of
money all over the 3orl"-
an*in& is not only a profit=oriente" commercial institution 'ut it has a pu'lic 'ase an"
social commitment- ,"mittin& this true JL is &oin& on 3ith its "iversifie" 'an*in&
activities- JL offers "ifferent types of %orporate an" #ersonal an*in& !ervices
involvin& all se&ments of the society 3ithin the purvie3 of rules an" re&ulations lai"
"o3n 'y the %entral an* an" other re&ulatory authorities- JL intro"uceQ "ifferent types
of !avin&s !chemes, %onsumer/s %re"it !cheme, Cousin& Loan, "ifferent types of !+<
Loan facilities to com'ine the people of lo3er an" mi""le=income &roup-
,s re&ar"s mo'ili0ation of the an*/s "eposit, utmost importance is attache" for
mo'ili0ation of sta'le, lo3 an" no=cost "eposit so that proper li2ui"ity coul" 'e
maintaine" an" ma4imum "eployment of fun" coul" 'e ma"e avoi"in& mismatchin& of
fun"-
Corporate @ision$
To 'ecome a lea"in& 'an*in& institution an" to play a pivotal role in the "evelopment of
the country throu&h 'est application of mo"em information technolo&y in 'usiness
activities, offerin& hi&h stan"ar" clientele services an" proper coor"ination of hi&h
2uality assets is the core of the vision-
Corporate Mission$
The an* is committe" to satisfyin& "iverse nee"s of its customers throu&h an array of
pro"ucts at a competitive price 'y usin& appropriate technolo&y an" provi"in& timely
service so sustaina'le &ro3th, reasona'le return an" contri'ution to "ie "evelopment of
the country ensure" 3ith a motivate" an" professional 3or*=force potential- Jith a vie3
to achievin& commercial o';ectives of the an*, the sincere an" all out efforts stay put
una'ate"- )especte" clients an" sharehol"ers are attracte" to it for its transparency,
accounta'ility, social commitments an" hi&h 2uality of clientele services-
&,<ecties o# JB+$
The follo3in& o';ectives are set for JL:
82
G To earn an" maintain %,+<L )arin& (!tron&/-
G To esta'lish relationship 'an*in& an" improve service 2uality throu&h "evelopment
of !trate&ic +ar*etin& #lans-
G To remain one of the 'est 'an*s in an&la"esh in terms of profita'ility an" assets
2uality-
G To intro"uce fully automate" systems throu&h inte&ration of information technolo&y-
G To ensure an a"e2uate rate of return on investment-
G To *eep ris* position at an accepta'le rarer (inclu"in& any off 'alance sheet ris*B-
G To maintain a"e2uate li2ui"ity to meet maturin& o'li&ations an" commitment-
G To maintain a healthy &ro3th of 'usiness 3ith "esire" ima&e-
G To maintain a"e2uate control systems an" transparency in proce"ures-
G To "evelop an" retain a 2uality 3or*=force throu&h an effective human
+ana&ement !ystem-
G To ensure optimum utili0ation of all availa'le resources-
5
G To pursue an effective system of mana&ement 'y ensurin& compliance to ethical
norms, transparency an" accounta'ility at all levels sources
Strategies o# JB+$
(he strategies o# JB+ are as #ollows$
G To raise the #ai"=up %apital an" !tatutory )eserve Fun" i-e- )e&ulator %apital up to
T*-2000-00 million 'y June, 2014
G To mana&e an" operate the an* in the most efficient manner to enhance financial
performance an" to control cost of fun"-
G To strive for customer satisfaction throu&h 2uality control an" "elivery of timely
services-
G To i"entify customers/ cre"it an" other 'an*in& nee"s an" monitor their perception
to3ar"s our performance in meetin& those re2uirements-
G To revie3 an" up"ate policies, proce"ures an" practices to enhance the a'ility to
e4ten" 'etter service to customers-
88
G To train an" "evelop all employees an" provi"e them a"e2uate resources so that
customers/ nee"s can 'e reasona'ly a""resse"-
- G To cultivate a 3or*in& environment that fosters positive motivation for
improve" performance-
G To "iversify portfolio 'um in the retail an" 3holesale mar*et-
G To increase "irect contact 3ith customers in or"er to cultivate a closer relationship
'et3een the 'an* an" its customers-
Risk Assess"ent & Risk Manage"ent:
)is* assessment is the process of analy0in& potential=losses from a &iven ha0ar" usin& a
com'ination of *no3n information a'out the situation, *no3le"&e a'out the un"erlyirl&
process, an" ;u"&ment a'out the information that is not *no3n or 3ell un"erstoo"-
The process of com'inin& a ris* assessment 3ith "ecisions on ho3 to a""ress that calle"
ris* mana&ement- )is* +ana&ement part of a lar&er "ecision process that co insi"ers lent
in the technical an" social aspects of the ris* situation- )is* assessments are per primarily
for the purpose of provi"in& information an" insi&ht to those 3ho ma*e " a'out ho3 mat
ris* shoul" 'e mana&e"- Ju"&ment an" values enter to ris* assessor the conte4t of 3hat
techni2ues ore shoul" use to o';ectively "escri'e an" evaluate ris*, Ju"&ment an" values
enter into ris* mana&ement in the conte4t of 3hat is the most effective an" socially
accepta'le solution-
Overview of credit Risk Manage"ent:
,s an* "eals 3ith the money collecte" from the "epositors repaya'le on "eman"- !o, it
can not affor" to loc* up it fun" for lon& or uncertain perio"s- %onse2uently, an* must
safe&uar"s its "eposits throu&h effective mana&ement of all possi'le ris*s associate" 3ith
its cre"its-
Hne of the most si&nificant ris*s of a 'an* is e4pose" to is, 3hat is &enerally terme" as
!Credit "is#$% 3hich is the primary ris* in the 'a*in& system- !ince the lar&est slice of
income &enerate" 'y a 'an* an" a ma;or percenta&e of asset5 is su';ect to this ris*, it is
o'vious that pru"ent mana&ement of this ris* is fun"amental to the sustaina'ility of a
'an*- +ana&ement )is*s nee"s to 'e a ro'ust process that ena'les the an*s to
proactivel
1
? mana&e he cre"it portfolio in or"er to minimi0e losses an" earns an
accepta'le level of return for the !harehol"ers-
)is* is inherent in all aspects of commercial operation- Co3ever for an*s %re"it ris* is
the fun"amental to the sustaina'ility of a 'an*- Thus %re"it )is* is an essential factor that
nee"s to 'e mana&e"-
#redit Risk:
84
%re"it ris* is the possi'ility that a 'orro3er 3ill fail to meet its o'li&ation in accor"ance
3ith a&ree" terms- %re"it ris*, therefore, arises from the an*/s "ealin&s 3ith or len"in&
to corporate, in"ivi"ual an" other an*s or financial institutions-
To prevent e4cessive flo3 of cre"it an" proper use of it, 'an*s re2uire ta*in& on the
appropriate cre"it appraisal proce"ure to impose financial "iscipline on 'orro3ers- The
proce"ure that or&ani0e, control an" motivate the 'orro3ers 3ill taile" cre"it
mana&ement-
)is* is "efine" as the pro"uct of a ha0ar" (such as "ama&e costsB an" the pro'a'ility that
this ha0ar" occurs- 1n other 3or"s, (pro'a'ilityB 4 (ha0ar"B R ris*- The first t3o values
must 'e *no3n or at least estimate" in or"er to "efine ris*-
#redit Risk Manage"ent:
The value of cre"it transactions, an" proactively implements ris* miti&ation strate&ies-
+a;or %re"it ris* miti&ates are:
G 1mprove" collection rates-
G 1ncrease" pro"uct an" customer profita'ility
G )e"uce" net 'a" "e't an" operatin& costs
G <nhance" customer ma anemone processes
G Decrease" receiva'les carryin& costs
G 1mprove" 'ottom lines

Credit constitutes the major part of the Banks asset portfolio and managing credit risk is
by far the most important concern of the Bank. The failure of a commercial Bank is
usually associated with the problems in Credit portfolio and is less often the result of
shrinkage in the value of other assets. As such, Credit portfolio not only features
dominates in the assets structure of the Bank, it is critically important to the success of
the Bank as well.
anagement of Credit !isks needs to be robust process that enables Banks to
proactively manage credit portfolio in order to minimi"e losses and earns an acceptable
level of return. #iven the fast changing glob cockney and the increasing pressure of
jubilation, liberali"ation, consolidation and disintermediation, it is essential that Banks
8>
have robust Credit risk management polices and procedures their are sensitive and
response c to these changes.
$ince e%posure to credit risk continues lo be the leading source of problems in banks
world&wide, banks should be able to draw useful lessons from past e%periences. Banks
should now have a keen awareness of the need to identify' measure, monitor and control
credit risk.
To provide a board guideline for the anagement of Credit !isk towards achieving the
objectives of the Bank, for efficient and profitable deployment of its mobili"ed resources
and to administer the Credit portfolio in die most efficient wavy, a clearly defined, well
planned, comprehensive and appropriate Credit policy and Control #uidelines of the
Bank is a pre&re(uisite
)n the other hand, *B+ is a new generation ,unk. -t is committed to provide high (uality
financial services'products to contribute to the growth of #.../. of the country through
stimulating trade 0 commerce, accelerating the pace of industriali"ation, boosting up
e%port, creating employment opportunity for the educated youth, proverb alleviation,
raising standard of living of limited income group and over all sustainable socio&economic
development of the country.
-n achieving the aforesaid objective of the !ink, Credit )peration of the Bank is of
paramount importance. 1ence, *B+ has changed about as credit culture has been shifting
towards a more professional and standardi"ed Credit !isk anagement approach.
Core Risks of Banking:
The risks of banking are comple% and multi&dimensional. Banks are e%posed to a number
of risks of different types. !esultantly, managing risk is an art of identifying, measuring
and irrigating the risks.
-n view of the above, Bangladesh Bank as identified 234five5 core risk area relating to
banking business which are as follows 6
The Management of above Core Risks of Banking are described below:
* Credit Risk Management & -t has already been stated in this report that anagement
of Credit !isk is the most significant and key task of the bank. Credit !isk refers the
probability of loss arising from the failure of a counterparty' customer to perform as per
agreement with the Bank.* Financial Spread Sheet FSS!:
A 7inancial $pread $heet 47$$5 has been developed by Bangladesh 1ank which main&
be used by the Banks while analy"ing the credit risk elements of a credit proposal from
financial point&of view.
86
The 7$$ is well designed and programmed software having two parts. -nput and )utput
$heets. The financial numbers of borrowers need to be inputted in the -nput $heets which
will then automatically generate die )utput $heets.
Classification & Provisioning of loans & Advances.
-n order to strengthen credit discipline and improve the recovery positions of +oans and
Advances by the Banks, Bangladesh Bank vide BC. Circular 8o.,9' :;<; introduced a
new system covering loans and advance6 classification, the suspension of interest due
and the making of provisions against potential loan loss.
=ith a view to further strengthening credit discipline and bring classification and
provisioning regulation in line with international standard, a phase wise program for loan
classification and provisioning was undertaken by Bangladesh Bank through BC.
Circular o. :>2':;;9. Afterwards, a comprehensive circular, B!/. Circular 8o. :?':;;<
was issued with major amendments in previous circulars with a view to achieving a more
specified and simplified system of loan classification and provisioning.
+ater on, as part of the process i.e. regarding @die changes meanwhile Bangladesh Bank
hap already introduced A$pecial ention AccountB vide B!/. Circular 8o. 2>'>223 and
2;'>223 for the banks and raise early warning signals for accounts showing first signs of
weakness anC. making appropriate provisioning therein. As a farther move towards this
end, changes in the formats for classification and provisioning have been made vide
B!/. Circular 8o. 2<'>223. oreover, some changes have been made in the
provisioning re(uirement for Consumer 7inancing and $mall Dnterprise 7inancing.
eanwhile, in order enable the banks to have all e%isting instructions on the subject at
one place a aster Circular has been issued by Bangladesh Bank vide B!/. Circular
8o. 23'>22? by incorporating all instructions issued from time to time, which includes6 a
few new instructions as well.
Categories of +oans and Advances6
An" Contin#o#s $oan will be classified as:
E A$ub $tandard 4$$5B if it is past due' overdue for 2?4si%5 months but less than 2;
4nine5 months.
8D
E A.oubtful 4.75B if is past due' overdue for 2;4nine5 months but less than :> 4twelve5
months.
ABad 0 +oss 4$-,5B if t is past 'overdue for :>4twelve5 months or beyond
An" %emand $oan will be classified as
E A$ub $tandard 4$$5B if it remains past due' overdue for 2?4si%5 months our beyond but
not over ; 4nine5 months from the date of claim by the bank or from creation of the loan.
E A.oubted 4.75B if it remains &past due' overdue for 2; 4nine5 months or beyond but
not over :> 4twenty5 month, from the date of claim by the bank or from the date of
creation of &the loan.
E ABad 0 +oss 4B+5B it remains past due' overdue for :> 4twelve5 months or beyond
from the date of claim by the bank or from the date of creation of the loan.
E -n case of any installments or part of installment4s5 of 7i%ed Term +oan is not repaid
within the due date, the amount of the unpaid installment&is5 will be termed as A%efa#lted
&nstallmentA.
E -n case of 7i%ed Term which are repayable within ma%imum 234five5 years
-f the amount of A.efaulted -nstallmentB is e(ual to or more than the mount of installment
4s5 due within :> 4twelve5 months, the entire loan will be classified as A$ub $tandard.B
E -f the amount of B.efaulted -nstallmentB is e(ual to or more thenn the mount of
installment 4s5 within :<4eighteen5 months, the entire loan classified as A.oubtful
4.75B@.
E -f the amount of A.efaulted -nstallmentB is e(ual to or more than the amount of
installment 4s5 due within >9 4twenty four5 months, the entire loan will be classified as
ABad ' loss B$!()
&n case of fi*ed loans+ which are repa"able more than ,- five! "ears of time:
E -f the amount of A.efaulted installmentB is e(ual to or more then the amount of
installments due within ? 4si%5 months, the entire loan will be classified as AS#b Standard
SS!()
8F
E -f the amount of A.efaulted -nstallmentB is e(ual to or more than the amount of
installment due within :>4 twelve5 months, the entire loan will be classified as A %o#btf#l
%F!)(
E -f the amount of A.efaulted -nstallmentB is e(ual to or more than theF amount of
installment 4s5 due within :< 4eighteen5 months, the entire loan will be classified as
ABad 0 +ossB
.*planation:
-f any 7i%ed Term +oan is repayable on monthly installment basis, the amount of
installments due within 2? 4si%5 month will be e(ual to the sum of 2? 4si%5 monthly
installments. $imilarly, if the loan is repayable on (uarterly installment basis, the amount
of installments due within 2?4si%5 month will be e(ual to the sum of 2>4two5 (uarterly
installments.
The $tructure of Basel --.
The 7irst /illar
The first pillar deals with maintenance of regulatory capital calculated for three major
components of risk that a bank faces6 credit risk, operational risk and market risk. )ther fit
are not considered fully (uantifiable at this stage.
The credit risk component can be calculated in three different ways of varying degree of
sophistication, namely standardi"ed approach, 7oundation :!B and Advanced :!B,
stands for -nternal Rating/Based Approach, for operational risk, there are tree different
approaches G basic indicator approach or B-A,, standardi"ed approach or T$A, and
advanced measurement approach or AA for market risk the preferred approach is Ha!
4value at risk5
The Second 0illar
The second pillar deals with the regulatory response to the first pillar, giving regulators
much improved @tools over those available to them under Basel. -t also provides a
framework for dealing with all the other risks a bank may face, such as systemic risk,
pension risk, concentration risk, strategic risk, reputation. risk, li(uidity risk and legal risk,
which the accord combines under the title of residual riskily gives bank a power to review
their risk management system.
The third 0illar
The third pillar greatly increases the disclosures mat the bank must make. This is
designed to allow the market to have a bettor picture of the overall risk position of the
bank and to allow the counterparties of the bank to price and deal appropriately.
8A
The Basel && Accord foc#ses on the following three areas :
E inimum CapitaI !e(uirement 6
The committee recogni"es that to have a sound bank it is necessary to have a minimum
volume of capital matching the risk profile of the bank. The capital provides the bank with
safety cushion to absorb losses without compromising on its obligations. The minimum
ratio of regulatory capital with risk&weighted assetF should not be less than <J.
The committee recogni"e that beaks face three major kinds of risks 6
) Credit !isk
) )perational !isk 0 arket !isk.
Total risk&weighted assets are determined by multiplying the capital re(uirements for
market risk and operational risk by :>.32 and adding the resulting figures to the sum of
risk&weighted assets for credit risk.
S#pervisor" Review:
The committee has laid out key principles of supervisory review, risk management
guidance, supervisory transparency and accountability with respect to banking risks. -t
also includes guidance relating to treatment of interest rate risk in the banking book,
credit risk, enhanced cross&border communication are cooperation and securiti"ation
0#blic %iscloser:
The committee stresses on public disclosure as a means to improve on the market
discipline, The disclosure will be in the area of Capital $tructure, Capital Ade(uacy, !isk
D%posure and assessment in the areas of Credit !isk, arket !isk, )perational !isk,
-nterest !ate !isk, etc.
Basel && Accord ' Credit Risks:
The committee permits of bank a choice& between two broad methodologies for
calculating their capital re(uirements for Credit !isk.
)ne alternative will be to measure Credit !isk in a standardi"ed manner as provided
committee, supported by e%ternal credit assessments.
The alternative methodology allows banks to use their internal rating systems for credit
risk subject to the e%plicit approval of the suspension bank.
0rinciples for the Assessment of Bank) Management of Credit Risk:
Dstablishing an appropriate credit risk environment6
0rinciple1: The board of directors should have responsibility for approving and
periodically reviewing the credit risk strategy and significant credit risk policies of the
40
bank. The strategy should reflect the banks tolerance for risk and the level of profitability
the bank e%pects to achieve for incurring various credit risks.
E0rinciple 26 $enior management should have responsibility for implementing the credit
risk strategy approved by the board of directors and for developing for and procedures for
identifying, measuring, monitoring and controlling credit such policies and procedures
should address credit risk in all of tire banks act and at both the individual credit and
portfolio levels.
0rinciple 36 Banks should identify and manage credit risk inherent in all products
activities. Banks should ensure that the risks of products and activities new to them are
subject to ade(uate procedures and controls before being introduced or undertaken, and
approved in advance by the board of directors or its appropriate committee.
4perating #nder a so#nd credit granting process:
E 0rinciple 56 Banks must operas under sound, well&defined credit&granting criteria.
These criteria should include a thorough understanding of the borrower or counterparty,
as well as the purpose and structure of the credit, and its source of repayment.
6 0rinciple -6 Banks should establish, overall credit limits at the level of individual
borrowers and counterparties, and groups of connected counterparties that aggregate in
a comparable and meaningful manner different types of e%posures, both in the banking
and trading book and on and off the balance sheet.
E 0rinciple 76 Banks should have a clearly&established process in place for approving
new credits as well as the e%tension of e%isting credits.
E /rinciple K6 All e%tensions of credit must be made on an arms&length basis. -n
particular, credits to related companies Aand individuals must be monitored with particular
care are other appropriate steps taken to control or mitigate the risks of connected
lending.
41
Chapter: 4
Credit Operations in Jamuna Bank Ltd:
Credit 4perations in 8am#na Bank $td:
Credit operation is the vital part of a Bank. At first the customer approach to Branch
accordingly branch sends proposal to ead )ffice and by analy"ing the proposal makes
42
the decision. *amuna Bank +imited has a sound credit operation system, detail of which
described as under6
4rgani9ational Str#ct#re for Credit 4perations:
*B+ has a suitable organi"ational structure for credit operations. The credit organogram of
the bank has been structured in the following manner6
&n case of $:C proposal:
E /erformance of +'C during the last year i.e. 8o. 0 .ate of +'C
opened6
E CommodityF
E +'C valueF
E .ate of creation of /A.F
E .ate of retirementF
E ode of retirement etc.
&n case of BTB $:C proposal:
E .etailed list of machineryF
E /roduction capacityF
48
E =orking Capital 4BTB +'C5 AssessmentF j
E D%isting D%port +'C in hand mentioning date of shipmentF j
E .etailed position of outstanding BTB +'C'Accepted BillsF j
E /rogress of production and e%pected date of shipmentF
E $tatement of )utstanding 7.B/'-.B/, if any.
E Luota /ositionF
E -nspection !eportF
E Copy of Halid Bonded =are 1ouse +icenseF
E Customs Clearance of dispute, if any
E =hether the applicant is .irector of *B+ as per definition of Banking Company Act.
7inancial Analysis to be prepared by the Branch anager based on the financial
statement with trends etc. -t should ago contain an assessment of the competence and
(uality of he business management, the general economic and competitive environment
of the borrowers industry and any other pertinent factors relevant for credit decision.
Credit 0rincipal of 8B$
The Bank shall provide suitable credit services mid products for the market in which it
operates. /roduct innovation shall be a continuous process. B+ miles the understated
credit principle for considering potential credit proposal
E +oans and advances shall normally be financed from customers deposit and not out
of temporary fund or borrowing from money market.
E Credit facilities shall be allowed in a manner so that credit e%pansion goes on
ensuring (uality i.e. no compromise with the Bank s standard of e%cellence. Credit is
e%tend to customers who will complement such standards.
E All credit e%tension must comply with the re(uirements of Banks emorandum and
Articles of Association, Bank companies Act as amended from time to time, Bangladesh
Banks instructions Circulars, #uidelines and other applicable laws, rules and regulations.
E The conduct of the credit portfolio should contribute, within defined risk. +imitation,
to the achievement of profitable growth and superior return on the Banks capital.
E Credit advancement shall focus on tine development and enhancement of
customers relationship and shall be measured on the basis of the total yield for each
relationship with a customer 4on the global basis5, though individual transactions should
also be profitable.
E Credit facilities will be e%tended to those compares'persons, which can make best
use of the facility thus helping ma%imi"e our profit as well is economic growth of the
44
country. To ensure achievement of this objective lending decision shall be based mainly
on the borrowers ability to repay.
The portfolio shall be well diversified sector wise, -ndustry wise, geographical area wise,
maturity wise, si"e wise, mode wise, purpose wise. Concentration of credit shall be
carefully avoided to minim risk.
-f Credit facilities are granted on a trisection one&off basis, the yield from the facility
should be commensurate with the 4 risk /ricing of Credits shall depend on the level of risk
and type of securities offered. !ate of interest is the reflection of risk in the Transaction.
The higher the risk, the higher is pricing. -nterest rate may be revised from time at time in
view of the change itF the cost of 7und and market condition. Dffective yield can be
enhanced by re(uiring the customer to maintain deposit to support borrowing flutings.
Mield may be further improved by reali"ing anagement fee, Commitment fee service
charge etc where possible.
N /roper staffing6 /roper analysis of Credit proposal is comple% and re(uired high level of
numerical as well as analytical ability and common sense. To ensure effective
understanding of the concept and thus to make the overall credit port&folio of the Bank
healthy, proper staffing shall be made through placement of (ualified officials having
appropriate background, who have got the right aptitude, formal training in Credit !isk
Analysis, Banks credit procedures as well as re(uired e%perience
Credit Categories in 8am#na Bank $td:
*amuna Bank +imited has broadly three categories of loan facilities, these are Continuous
credit, 7i%ed term loan and .emand loan. 7i%ed term loan are divided into three parts
based on loan tenor. TheF categori"ation is shown below6
+oan and advances have primarily been divided into three major groups as under6
4>

Term $oans for $arge ' Medi#m Scale &nd#stries:
A+arge -ndustryB is defined to include all industrial enterprises whose total fi%ed costO
replacement cost e%cluding land an factor building is over Tk.:22 million. ed -ndustry is
defined to include all industrial enterprises whose total fi%ed cost replacement cost
e%cluding value of land and facto6 y building is between Tk.:3 million of Tk.:22 million.
This category of advances accommodate the medium and long term financing for
ac(uiring capital machinery of new -ndustries or for B PD of the e%isting units who are
engaged in manufacturing goods and services.
Term financing to tea gardens may included in this category depending on the nature and
si"e.
As the financing under this category have fi%ed repayment schedule it under the head
A+oan 4#en5'1ire&/urchase'+ease.
Term $oans to Small ' Cottage &nd#stries:
A$mall -ndustryB will mean enterpriser whose total fi%ed cost' replacement cost e%cluding
land and factory building is not more than Tk.:3 million.
8o short term or continuing credits are to by included in this category. edium 0 term
credits arc also included under the category.
+ike the +arge 0 edium $cale -ndustry it is also allowed in the form of A+oan 4#en5O1ire
/urchase' +ease 7inancingB.
;orking Capital:
+oans 0 Advances are allowed to the manufacturing units to meet their working capital
re(uirements, irrespective of their si"e G big, medium or small, fall under the category.
These are usually continuing credits are as such fall under the head ACash CreditB.
46
.*port credit :
Credit facilities allowed to facilitate e%port of ill items against +etter of Credit and'or
confirmed e%port orders fall under this category. -t is accommodated under the heads
AD%port Cash Credit 4DCC5B, /acking Credit 4/C5, 7oreign .ocumentary Bills /urchased
47.B/5, +ocal D%port Bills /urchased etc. 1owever, bills discounted' purchased against
supply of goods and services to companies' industries which are located in the country
and not involved in e%port' deemed e%port shall not fill under e%port credit.
$hort term loans and continuing creeps inflows for commercial purposes other that
e%ports fall under this category. -t incipit +imner financing, financing for internal trade.
$ervice establishment, etc. 8o medium and long term loans are accommodated here.
This category of advances are allowed in the for of 4#en5, etc. for commercial purposes.
Any loan that does net fall in any of the above categories is considered under the
category A)thersB. -t includes loan to *B+ has separate $D 7inancing $cheme duly
approved by tic 1oard. There are several products, modalities and loan ceiling for $D
financing. $D Ce1 witling Corporate .ivision handles $D loans.
Anal"sis
%eposits ' %eposit: Mi*:
-n commercial Bank operation starts with mobili"ation of resources i.e. tapping of deposits
and then the same are deployed as loans, advances0. investment for the purpose of
ma%imi"ing wealth. Thus, cenobite is the lifeblood of a bank.
-n keeping with this a%iom *B+ attaches utmost importance to the deposit mobili"ation
campaign and to the optimal dine&sit rid for minimum cost of fund as far as practicable.
The comparative position of %eposits ' %eposit Mi* of the Bank for the last two
"ears are depicted below:
T)TA+ .D/)$-T$ @ Q$ource6 Annual !eport, *amuna Bank +td.
Rnder the prevailing stiffly competitive market *B+ has been able to install confidence
customers as to its commitment to depositorde could mobili"e a total deposit of Tk
Tk.>2;>9.2> million showing an increase of TS.?,<,.;> million being ,#.33 percent.
Cost of F#nds %eposit Cost ' 4verhead Cost:
The Cost of 7unds of *B+ in >22K was :>.9;J, which was >22K<was :>.>?J, :>.:<J in
>22?. $o, it is noted that in >22; the cost of funds was big higher than that of >22?K0
>22<.
$oans ' Advances:
4D
Rnder favorable business environment due to political turmoil throughout the *B+ was in
constant efforts to e%plore different areas of credit operation and could raise the loans
and advances portfolios to Tk. >:2,?.<? million in >22<;with an increase Tk.99:;.9:
million being >?.3;J, over that of the preceding year.
Classified $oans ' Advance:
)ver the last couple of years the !atio of Classified +oans 0 Advances out of Total +oans
0 Advances has been increased alarmingly year >22? and year >22K with respect to than
that of the previous years, but in >22< it declined substantially.
&nvestment:
*B+s investment portfolio as on ,:',>'>22;was Tk.9>,<.?, million from which Tk.3,;2.2,
million as on ,:':>'>22< registering a decrease of Tk. ::3:.92 million i.e. >:.,? percent.
The investment portfolio was blended with #ovt. investment of Tk.9:<3.9? million,
Treasury Bonds of Tk.>;,3.39 million, investment in /rimary $hares and Tero Coupon
Bonds of Tk.9,.?: million. -ts investment was made in ac(uisition of /reference $ilages
of Tk.>.32 43.22&>.325 million of After Automobiles +td. Besides, Tk.>.22 million has been
invested in ac(uisition of two shares of Central .eponent' Bangladesh +td. 4C.B+5. The
Bank s major portion of investment in #ovt. Treasury Bills and Bonds for the purpose of
fulfilling $tatutory +i(uidity !e(uirement 4$+!5. B
4F
Chapter: -
Findings and Analysis
4A
S;4T Anal"sis:
$=)T is for an organi"ations strength, weakness, opportunities and threats. The
underlying assumption of a $=)T analysis that managers can better formulate
successful strategy after they have carefully reviewed the organi"ation strengths and
weakness in the light of threats and opportunities presented by the environments. A right
strategy can turn fledging organi"ation ink successful one, whereas a wrong strategy
could lead to a disaster. $=)T analysis emphasi"es that organi"ational strategies must
result a good fit between the organi"ation and e%ternal environments. $ome significant
factors of *amuna Bank +imited presented below for $=)T Analysis6
$trengths
N As a third generation bank, *amuna Bank +imited has a very rood credit
comparison of other third generator, banks and also first and second Aeration banks.
N !obust Banking software that helps to cope with modem techni(ues and facilities
the real&time online banking, sirs banking, debit card 0 credit t card booth facilities
N ore efficient human resources competitive remuneration packages.
N All the branches of *amuna Bank +imited situated in commercially through out
Bangladesh.
N *amuna Bank is the only bank in Bangladesh that has agreement with Bangladesh
$ervices regards to inflow rerun trance (uickly to all over Bangladesh.
N *amuna Bank +imited is Authori"ed /rimary .ealer of #overnment Treason Bonds
0 Bills, approved by Bangladesh Bank.
;eakness
=eak marketing strategies.
*amuna Bank +imited has loan portfolio very few sectors.
Traditional banking approach.
+ack of managerial activities in branch level,
*amuna Bank +imited has not created market impression on customer service such as
other third generation private banks.
>0
4pport#nities
Branches are opening in prime location different parts of Bangladesh each year. *amuna
Bank +imited has given emphasis on $D segment and going to own $D center all
over the Bangladesh.
To e%pand business and capture the market share and lead the banking sector. *amuna
Bank 7oundation can play a vital role in corporate social activities that increase the image
of the bank.
Threats
N *amuna Bank +imited looses Customer due to customer service.
N -n a market oriented industry, its very to sustain without marketing.
N *ob oriented training is less in *amuna Bank +imited
N #lobal market recession /olitical instability.
.ffects of Management of Credit Risks in 8am#na Bank $td): -dentifying and
assessing credit risk essentially a first step in managing it effect &ivery. As per 7inancial
performance *B+ it is observed that the after Ta% Darnings per $hare 4D/$5, 8et Assets
per $han 48AH5 turned improved significantly over the last year in compare to last yea
and also the .eposit and Credits /ortfolio, Total -ncome, )perating /rofit, @8umber of
Branched increased during the said period.
The reasons behind the fact were doing the period under reference a si"eable amount of
Banks credits recovered the classified amount. eanwhile recently the Bank has been
able to improve the (uality assets significantly through efficient anagement of Credit
!isks, which are mentioned below6
E The Bank has been about to recover around Tk.>:>.32 million in cash out of its
adversely .classified loans and advances during >22< to ,:
st
instance of .ecember.
Conse(uent the percentage of Classified and 8on performing loans and advances of
Total +oans 0 Advances has gone down to >.<9J as on ,:
st
.ecember, >22< from 3.2?J
as on ,:
st
.ecember, >22K, which can be termed as remarkable progress.
The Bank has successfully developed an integrated and well&coordinated system
Analysis, Appraisal and $anction of Credits through its Credit )peration .iv followed be
proper and strict Control and .isbursement process through its C Administration .ivision
backed by fully automated structure.
>1
8otable that almost entire classic loans and advances were e%tended at die ii stage of the
Bank i.e. from >22: to >223, which became classified during the couple of years and .an
suffered adversely in >22? and >22K. =hile, thee of edit tibiae last ilk of the recently
sanctioned credit sound good. Conse(uently, the Bank has been able to mark an upward
&rend lies operational and financial performance.
The bank is a way of establishing proper governance structure risk and returns are
evaluated with a view o producing sustainable revenues, reducing volatility& in earnings
and enhancing value to shareholders.
The Bank also pursues an effective internal control system by establishing systems and
procedures for scrutini"ing the transactions periodically encompassing key back&up
supports and cornice regular contingency plan.
>2
Chapter : 6
Concluding remarks
>8
Recommendations
A banker cannot sleep well with bad debts in his portfolio. The failure of commendable
banks occurs mainly due to bad loans, which occurs due to inefficient management of the
loans and advances portfolio. Therefore any banks must be e%tremely cautious about its
lending portfolio and credit policy. $o far *amuna Bank +imited has been able to manage
its credit portfolio skillfully and kept the classified loan at a very lower rateU.. thanks goes
to the standard and stringent credit appraisal policy and practices of the bank.
Considering the findings and inlay is in the earlier chapters, *B+ can do the following for
further sustainable growth and development.
N The bank should emphasi"e reducing the classified and non&performing credits by
concerted efforts.
N Central monitoring system should be more active to maintain classified loan to a
minimum level.
N The Bank should develop the detail outlines and courses of actions to be taken for
recovery of classified loans and advances so as to the classified barometer would not rise
again.
N The bank should focus on procedural guidelines that have been devised for
meticulous compliance by the branches for effective anagement of Credit !isk
N -nterest e%penses on .eposits of the !ank may be tried to keep low with due regard
to balances .eposit i% for the cost and ma%imi"ing the profit.
N The research cell of this Bank should be strengthening with the efficient manpower by
studying turn feasibility of introduction of new products, analysis of manpower productivity
end similar other which works and eventually the efficient anagement of Credit !isks.
N *B+ has to arrange to train up its personnel through ade(uate training programs and
workshops so as to they can carry out their jobs properly and up to the mark.
N The Bank should strengthen the promotional activities and marketing of different
products for catering its services of the potential customers.
N The Bank should support its corporate culture in order to ensure proper anagement
of Credit !isk.
N *B+ should establish more own AT machine all over the country, to overcome
dependency on other Bank.
>4
Concl#sion
*amuna Bank +imited celebrates its ;
th
anniversary on ,
rd
*une>2:2 started its operation
from in >22:. =ithin this tangible period, the Bank has been recogni"ed by the
Bangladesh Bank through improvement of overall asset (uality and establishment of well&
organi"ed credit risk management. Credit anagement $ystem of *B+ is successful
4classified loan is only >.<9J whereas the market average is more that >2J5. This
success lies on its selection of good borrower and close credit monitoring system, which
reflects on its profitability.
Credit is utmost important factor for a Bank and core income generating source as well as
it is involved with risk. $o, decision regarding credit is very important in all respect of the
Bank. *B+ has proper credit management policies that describes what type of loans
piloted the Banks soundness and also help to meet the need of the communities the
Bank serves.
*B+ should capitali"e its present successful credit management system and try to give
better service to its stakeholders in days to come which can ensure its sustainable growth
and development
>>