Credit Risk Management of Commercial Banks- a case on Bangladesh Development Bank Limited (BDBL)
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Bangladesh Development Bank Limited is a fully state owned commercial bank in Bangladesh. This is one of the leading public commercial banks which is established under the banking company’s ACT 1991, the bank began its operation on 3rd January, 2010 with a primary objective of offering all types of commercial banking services mostly emphasizing on promoting small and medium entrepreneurs and industrial development all over the country. This report is the fulfillment of the requirement for the evaluation process of the internship program. The main purpose of the report is to have an overall idea about function and process of credit risk management, analyzing tools and techniques used to evaluate credit proposal, analyzing steps taken to recover bank’s bad portfolio mostly of BDBL and other five commercial banks. Lending is one of the main function of the bank. The objective of Credit Risk Management (CRM) of BDBL and other five commercial bank is to minimize the risk and maximize bank’s risk adjusted rate of return by assuming and maintaining credit exposure within the acceptable parameters. The CRM department is responsible for upholding the integrity of the bank’s risk/return profile. CRM department of BDBL conducted their functions by six wings. Wholesale Credit, Retail Underwriting and SME underwriting- these three wings of credit risk management assess and approve the loan for the respective customers. Central Collection Unit collects the credit. Special Asset Management wings help the bank to recover bank’s bad portfolio. For credit approval, the bank has a team who approve the credit. Different tools and techniques are being used to evaluate a credit proposal. Retail Credit, Card Credit, Authorization and Fraud Control, Central Verification Unit (CVU) are related with retail underwriting. Credit Collection Unit of BDBL collects credit based on the level of delinquencies of credit. Special Asset Management wings help the bank to recover bad portfolio by taking different types of steps. To understand the performance of present credit risk management process, the year by year ratio of loans which are grouped on basis of classification rules in the total loan and advances has analyzed. From the performance analysis, it is found that the collection of standard loan of BDBL from year 2012 to 2016 is not so good. Among the other five banks, private commercial banks have the higher collection of standard loan. The reason behind the lower standard loan of BDBL can be many like- fallen of national economy, fallen of world economy etc. As the standard loan decreased in these years, the balance of Special Mention Account (SMA), Sub Standard, Doubtful and Bad/Loss loan increased these years. If we see the previous performance of BDBL of credit collection, which is mostly commendable. Now BDBL is taking the most effective initiatives especially for the Credit Risk Management. In 2015, the bank has taken different steps for reducing Bad/Loss accounts such as establishment of regional CRM Centers, introduction of a new wing called Asset management and Credit inspection and so on. As a state-owned commercial bank, Bangladesh Development Bank Limited is successfully operating Credit Risk Management. The bank should more improve the CRM sector as well as other sectors which will help take the bank to become the leader of banking sector.
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