It is with humble honor and respect that I submit my internship report on “Credit Risk Management of NCC Bank Limited: A Study on DhoniaUpa Branch”. BBA1801013028 of Sonargaon University would like to solemnly declare here that this report on “Credit Risk Management of NCC Bank Limited: A Study on DhoniaUpa Branch” has been authentically prepared by me.
Background of the Report
Objectives of the Study
Methodology
Primary Sources
Credit risk was considered in the analysis because it is our related matter. Thus, the entire data set is sampled to analyze the entire risk management scenario of NCC Bank Limited.
Scope of the Study
Next, a deposit cost calculation is needed to help determine the loan interest rate. The research has the potential to link to an effective credit risk management system and measure its long-term effects for improving the quality of banks' assets.
Limitations of the Study
CHAPTER - 2
An overview of banking sector in Bangladesh
- Definition of Bank
- Objective of Bank
- Historical Background of the Bank
- Banking Operations in Bangladesh
After the liberation war and the eventual independence of Bangladesh, the Government of Bangladesh reorganized the Dhaka branch of the State Bank of. The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as its central bank and named it the Bangladesh Bank.
CHAPTER - 3
Overview of the Organization
- Background of the Organization
- Board of Directors
- Vision
- Mission
- Organization Structure /Hierarchy of the Organization
- Product & services
- Achievement
- List of Branch
- Capital and Reserve
- At a Glance Profitability Position (Last 5 Years)
The organization started its journey in the country's financial sector as an investment company in 1984. The aim of the company was to mobilize resources from within and invest them in such a way that the country's industrial and trade sector was developed and served as catalyst was played. role in the formation of the capital market. The company operated with 16 branches until 1992 and then with the approval of the Central Bank, it was converted into a full-fledged private commercial bank in 1993 with a paid-up capital of Tk.
The bank has set a new standard in the financing of industrial, commercial and foreign exchange operations. To mobilize financial resources from within and abroad to contribute to the country's agriculture, industry and socio-economic development and play a catalytic role in capital market formation. Its various deposit and credit products have also attracted customers - both companies and individuals who enjoy doing business with the bank.
The Bank offers different types of banking services involving all segments of society, backed by the latest technology.
Chart Title
Total Asset Position: (Million)
CHAPTER – 4
Financing Products & Credit Risk Management
Overview of Financing Products & Credit Risk Management
Making loans and advances has always been an important profitable function of banks. Crediting clients from the funds at their disposal is one of the main services of a modern bank. As a financial intermediary, the bank's main objective is to collect deposits from surplus units (which have surplus funds) and use them by lending to deficit units (which need funds).
Bank collects deposits from surplus parties in exchange bank gives them a few percent of the benefits obtained from the various loan or credit granted to the borrowers. One of the most important risks a bank is exposed to is what is generally called "Credit Risk", which is the primary risk in the banking system. Since the majority of income generated by a bank and a large percentage of assets are subject to this risk, it is clear that prudent management of this risk is fundamental to the sustainability of a bank.
Credit risk management must be a robust process that enables the banks to proactively manage the credit portfolio to minimize losses and achieve an acceptable return for the Shareholders.
Credit Risk
Financing of Credit Risk Management
Consequently, every bank must be well equipped to deal with the modern banking system and adopt effective means and ways to overcome all possible risks, especially credit risk. Credit makes up the largest portion of the Bank's asset portfolio and managing credit risk is by far the Bank's most important concern. For most banks, loans and advances are the largest and most obvious source of credit risk; However, other sources of credit risk exist within a bank's operations, including in the banking sector.
As a result, NCC has changed a lot as credit culture has shifted towards a more professional and standardized credit risk management approach. The management of the above Core Risks of Banking is described below: Credit Risk Management – It has already been stated in this report that the management of credit risk is the most important and important task of the bank. Credit risk refers to the probability of loss arising from the failure of a counterparty/customer to perform as agreed with the Bank.
NCC Bank has formulated a comprehensive Policy Document for Credit Risk Management in accordance with the guidelines of Bangladesh Bank, which are discussed below.
Bangladesh Bank’s Guidelines for Management of Credit Risks
Lending guidelines should be updated at least annually to reflect changes in the economic outlook and assessment of the bank's loan portfolio. Lending guidelines should be approved by the MD/CEO and the Bank's Board of Directors based on the approval of the bank's Head of Credit Risk Management and the Corporate Head. Approval of loans that do not comply with lending guidelines should be limited to the Head of Loans or the Managing Director.
For each sector, a clear indication of the bank's appetite for growth must be given, e.g. Textiles: Grow; Cement: Maintenance;. Types of credit facilities – The type of credits allowed must be clearly stated, such as working capital, trade finance, term, etc. Single borrower/group limits – Details of the bank's single borrower/group limits must be included per Bangladesh Bank guidelines.
Supplier/buyer analysis: Any customer or supplier concentrations should be addressed, as these can have a significant impact on the borrower's future viability. Historical Financial Analysis: An analysis of the historical financial statements of at least 03 (three) years of the borrower must be presented. The credit risk classification for each borrower must be assigned at the beginning of the loan and must be updated periodically.
Financing Credit Operations in NCC Bank Ltd
Credit Principles of NCC Bank Ltd
Credit facilities will be allowed in such a way that credit expansion continues while ensuring quality, i.e. credit advancement will focus on developing and improving customer relationships and will be measured on the basis of the total yield for each relationship with a customer (on a global basis), although individual transactions must also be profitable. The purpose of the division is to improve the level of knowledge and expertise in each department, to establish control over the disbursement of sanctioned credit facilities to avoid conflict of interest, compromise and to guarantee the quality of assets through a transparent process.
To prepare well-dressed credit proposals and recommend the same to the Credit Risk Management Department in the Credit Department. To set short, medium and long term business objectives and forward the same to the Credit Risk Management (CRM) unit of the Credit Division for ratification. To perform credit analysis with due diligence, assess the customer's credit needs, structure credit facilities, identify potential credit risks and mitigating factors.
Relationship Managers (RMs) should own the customer relationship and be held accountable for ensuring the accuracy of the entire loan application submitted for approval.
Administration Credit Approval/Credit Risk Management (CRM)
To update the Credit Policy/Lending Guideline, procedures and controls of the Bank in respect of all credit risks arising from corporate/commercial banking and retail banking etc. Weaknesses or potential weaknesses requiring close monitoring and proactive account management to strengthen the bank's position to protect. The reasons behind this fact were that during the reference period, a significant portion of the Bank's credits were negatively classified as in the previous years, which was the initial stage of the Bank, they were penalized and disbursed with piles of defects and shortcomings.
The bank has been able to recover approx. Tk. 212.40 million in cash from its negatively classified loans in 2006 until 31 August. The bank has successfully developed an integrated and well-coordinated system for analysis, assessment and sanctioning of credits through its credit operations department followed by a proper and rigorous control and disbursement process through its credit administration department supported by fully automated structure. Notably, almost entire classified loans and advances were extended in the initial phase by the bank ie.
The bank has therefore been able to mark an upward trend in its operational and financial performance.
Consequently, the percentage of Classified and Non-Performing loans and advances of Total Loans and Advances decreased to .86% as on 31 August 2007 from 9.82% as on 31 December 2007, which can be termed as remarkable progress. Lack of trained staff for credit related operations: NCC suffers from shortage of efficient and well trained staff for its various credit related operations. Lack of Marketing Activities: The promotional activities and marketing of different products of NCC are not sufficient to provide its services to the public or the Business Organization.
Lack of volume: As most of the deposits, capital and investment funds were already used in various loans and advances, a large part of which remained as classified and non-performing assets. Consequently, in the prevailing conditions, it is difficult to increase the credit portfolio and ensure adequate management of credit risks.
CHAPTER – 5
Recommendation & Conclusion
Recommendations
NCC bank should focus on reducing classified and non-performing loans through a joint effort. The bank should develop detailed outlines and procedures for steps to be taken to recover classified loans and advances so that the classified barometer does not rise again. The bank should focus on procedural guidelines prepared for careful compliance by the branches for effective credit risk management.
For efficient management of credit risks, the Bank should emphasize building rapport and cordial relations with customers to ensure that neither the business nor the business relationship between the Banker and the Customer is in any way hindered. The research cell of this Bank should be strengthened with efficient manpower by studying the feasibility of introducing new products, labor productivity analysis and other similar research work and eventually efficient management of credit risks. For sustainable growth, the Bank should identify and reinvest in the productive sector and end unproductive operations/divisions.
The bank should increase the number of credit analysts to reduce the extra workload and to ensure efficient management of credit risks.
Conclusion
