Green Banking in Bangladesh
DEFINITION OF CREDIT RISK GRADING (CRG) * 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.
FUNCTIONS OF CREDIT RISK GRADING
Its managed credit risk grading systems promote bank 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 bank management and examiners to monitor changes and trends in risk levels. The process also allows bank management to manage risk to optimize returns.
How to Compute CRG Risk | Key Parameters | Grade | Financial Risk | Leverage, Liquidity, Profitability, Coverage ratio | 50% | Business/Industry | Size, Age of Business, Business Outlook, Industry Growth, Competition, & Barrier to business. | 18% | Management | Experience, Succession & Team Work | 12% | Security | Security, Collateral Coverage & Support | 10% | Relationship | Account Conduct, Utilization of Limit, Compliance & Personal Deposit. | 10% | Total | 100% |
CRG METHODOLOGY & MODEL When a credit applicant comes to the bank the credit department of the bank calculates the performance ratio of the proposed project. Also calculate the IRR, NPV, Payback period of the project. Credit Risk Grading must be measure by the bank before and after loan sanction & loan collection steps. A sample is provided to understand the methodology of CRG. Companies named Butterfly Marketing Ltd. which leverage ratio calculate by the bank 4.72, Liquidity ratio 1.01, and Profitability ratio 8.35 Coverage ratio 2.35. After scoring it’s
FUNCTIONS OF CREDIT RISK GRADING
Its managed credit risk grading systems promote bank 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 bank management and examiners to monitor changes and trends in risk levels. The process also allows bank management to manage risk to optimize returns.
How to Compute CRG Risk | Key Parameters | Grade | Financial Risk | Leverage, Liquidity, Profitability, Coverage ratio | 50% | Business/Industry | Size, Age of Business, Business Outlook, Industry Growth, Competition, & Barrier to business. | 18% | Management | Experience, Succession & Team Work | 12% | Security | Security, Collateral Coverage & Support | 10% | Relationship | Account Conduct, Utilization of Limit, Compliance & Personal Deposit. | 10% | Total | 100% |
CRG METHODOLOGY & MODEL When a credit applicant comes to the bank the credit department of the bank calculates the performance ratio of the proposed project. Also calculate the IRR, NPV, Payback period of the project. Credit Risk Grading must be measure by the bank before and after loan sanction & loan collection steps. A sample is provided to understand the methodology of CRG. Companies named Butterfly Marketing Ltd. which leverage ratio calculate by the bank 4.72, Liquidity ratio 1.01, and Profitability ratio 8.35 Coverage ratio 2.35. After scoring it’s