Credit Risk Management in Bangladesh (Janata Banl Ltd.)
1. Introduction:
In the modern era bank is the most important and reliable source of fund for every business organization and also to individuals. Especially in today's world it is not possible to continue or to expand any business without bank loan. So lending is the principal function of the bank. As it is a principal function for the bank it is at the heart of the overall risk management system of the bank. Credit risk is the uncertainty in a counter party's (also called an obligation's or credit's) ability to meet the obligations. The goal of credit risk management is to maximize a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. A large portion of banks total assets is invested to the customer in the form of loans and advances, so it is necessary to develop modern techniques for the lending procedure and to manage the risk associated with these activities to maintain and improve quality of loan portfolio and reduce actual losses and to ensure that approved policies and procedures are followed and appropriate due diligence are made in approving credit facilities.
1.2 Background of the Report:
Bangladesh Bank undertook a project to review the global best practices in the banking sector and examines in the possibility of introducing these in the banking industry of Bangladesh. Four 'Focus Groups' were formed with participation from Nationalized Commercial Banks, Private Commercial Banks & Foreign Banks with representatives from the Bangladesh Bank as team coordinators to look into the practices of the best performing banks both at home and abroad. These focus groups identified and selected five core risk areas and produce a document that would be a basic risk management model for each of the five 'core' risk areas of banking. The five core risk areas are as follows- i. Credit Risks; ii. Asset and Liability/Balance Sheet Risks; iii. Foreign Exchange Risks; iv. Internal Control and
In the modern era bank is the most important and reliable source of fund for every business organization and also to individuals. Especially in today's world it is not possible to continue or to expand any business without bank loan. So lending is the principal function of the bank. As it is a principal function for the bank it is at the heart of the overall risk management system of the bank. Credit risk is the uncertainty in a counter party's (also called an obligation's or credit's) ability to meet the obligations. The goal of credit risk management is to maximize a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. A large portion of banks total assets is invested to the customer in the form of loans and advances, so it is necessary to develop modern techniques for the lending procedure and to manage the risk associated with these activities to maintain and improve quality of loan portfolio and reduce actual losses and to ensure that approved policies and procedures are followed and appropriate due diligence are made in approving credit facilities.
1.2 Background of the Report:
Bangladesh Bank undertook a project to review the global best practices in the banking sector and examines in the possibility of introducing these in the banking industry of Bangladesh. Four 'Focus Groups' were formed with participation from Nationalized Commercial Banks, Private Commercial Banks & Foreign Banks with representatives from the Bangladesh Bank as team coordinators to look into the practices of the best performing banks both at home and abroad. These focus groups identified and selected five core risk areas and produce a document that would be a basic risk management model for each of the five 'core' risk areas of banking. The five core risk areas are as follows- i. Credit Risks; ii. Asset and Liability/Balance Sheet Risks; iii. Foreign Exchange Risks; iv. Internal Control and