For example, samples are taken from the full set of data to analyze NCC Bank Limited's overall risk management scenario. The current economic condition of Bangladesh requires the immediate development of efficient and strong financial institutions. After the liberation war and eventual independence of Bangladesh, the government of Bangladesh reorganized the Dhaka branch of the State Bank.
The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it the Bangladesh Bank.
Background of the Organization
Board of Directors
Vision
Mission
Organization Structure /Hierarchy of the Organization The Hierarchy of the Bank is as follows
Product & services Loan & Advanced Products
The Bank has set a new standard in financing in the industrial, commercial and foreign exchange business. Its various deposit and credit products have also attracted the customers – both corporate and individuals who feel comfortable doing business with the Bank.
Achievement
List of Branch
Capital and Reserve
At a Glance Profitability Position (Last 5 Years)
Total Asset Position: (Million)
Chart Title
Overview of Financing Products & Credit Risk Management
Obtaining loans and advances has always been a prominent profitable function of banks. Sanctioning credit for customers from available funds is one of the main services of a modern bank. As a financial intermediary, a bank's primary objective is to collect deposits from surplus units (which have surplus funds) and utilize the same by lending to deficit units (which require funds).
The bank collects deposits from the surplus customers and in return the bank gives them some percentage of the benefits they get from the various loans or credits extended to the borrowers. One of the most important risks to which a bank is exposed is what is generally called "credit risk", which is the primary risk in the banking system. Since this risk is subject to the largest part of the income generated by the bank and a large share of assets, it is obvious that prudent management of this risk is of fundamental importance for the sustainability of the bank.
Credit risk management should be a robust process that enables banks to proactively manage their loan portfolio in order to minimize losses and earn an acceptable level of return for shareholders. Credit risk is the possibility that a borrower will fail to fulfill its obligation in accordance with the agreed terms. Some definitions related to credit risk are cited below: "The concept of high quality credit cannot exist in the absence of objective credit standards." - R.
Financing of Credit Risk Management
Banks increasingly face credit risk (or counterparty risk) in various financial instruments other than lending, including acceptances, interbank transactions, trade finance, foreign exchange transactions, financial futures, swaps, bonds, shares, options and by extension. of obligations and guarantees and settlement of transactions. Given the rapidly changing dynamic global economy and the increasing pressures of globalization, liberalization, consolidation and disintermediation, it is important that banks have robust credit risk management policies and procedures that are sensitive and responsive to these changes. Therefore, NCC has changed a lot as the credit culture has changed towards a more professional and standardized approach to credit risk management.
The management of the above fundamental banking risks is described below: Credit Risk Management – It has already been stated in this report that credit risk management is the most important and crucial task of a bank. Credit risk refers to the probability of loss resulting from the counterparty's/customer's failure to fulfill its obligations in accordance with the agreement with the bank. Liability/Balance Sheet Risk Management – The bank's assets are mainly developed by and supported by its liabilities.
Currency Risk Management - Since foreign exchange involves buying and selling foreign currency against local currency, currency risk is the risk or chance of loss due to unexpected movements in the market price of the currencies of different countries or the price of the assets denominated in foreign currency. To ensure effective and efficient management of foreign exchange risk, banks should have a well-developed and well-structured foreign exchange risk manual and international standard handbook for trading rooms. NCC Bank has formulated a comprehensive Credit Risk Management Policy Document in accordance with the guidelines issued by Bangladesh Bank which is discussed hereafter.
Bangladesh Bank’s Guidelines for Management of Credit Risks Bangladesh Bank has provided directional guidelines to the banking sector with a
The lending guidelines should be updated at least annually to reflect changes in the economic outlook and the assessment of the bank's credit portfolio. The lending guidelines should be approved by the director/managing director and the bank's board based on the approval of the bank's head of credit risk management and the group CEO. Any variance and deviation from lending guidelines should be expressly identified in credit applications and a justification for approval provided.
Approval of credits that do not comply with the guidelines for lending should be limited to the bank's credit manager or 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 credit allowed should be clearly stated such as working capital, trade finance, term loan etc.
Individual Borrower/Group Limits – As per Bangladesh Bank guidelines, details of bank limits for individual borrower/group should be included. Supplier/Buyer Analysis: Any concentration of customers or suppliers should be addressed as they could significantly affect the borrower's future viability. Past financial analysis: An analysis of the borrower's past financial statements for at least 3 (three) years must be submitted.
A process should be established to share experiences with credit losses in order to update lending guidelines. Credit risk classification for each borrower should be assigned at the beginning of the loan and should be updated periodically.
Financing Products & Provisioning of loans & Advances
Financing Credit Operations in NCC Bank Ltd Organizational Structure for Credit Operations
Credit Principles of NCC Bank Ltd
Credit development will focus on developing and strengthening the relationship with the customer and will be measured by the total return for each relationship with a customer (on a global basis), although individual transactions must also be profitable. Diversification: The portfolio will be well diversified by sector, industry, geography, maturity, size, fashion and purpose. Prices: Loan prices depend on the level of risk and the type of securities offered.
The purpose of the separation is to improve the level of knowledge and expertise in each department, to impose control over the disbursement of sanctioned loan facilities to avoid conflicts of interest, compromises and to ensure the quality of assets through a transparent process. To collect sufficient credit information and process this to perform due diligence (credit analysis). To prepare well-dressed credit proposals and recommend the same to the Credit Risk Management Department in the Credit Department.
Setting short, medium and long term business objectives and forwarding them to the Credit Division's Credit Risk Management (CRM) unit for ratification. To perform due diligence credit analyses, assess customer credit needs, structure credit facilities, identify potential credit risks and mitigating factors. The Relationship Managers (RM) must own the customer relationship and be held accountable for the accuracy of the entire credit application submitted for approval.
Administration Credit Approval/Credit Risk Management (CRM) The Credit Risk Management Unit shall perform the following duties: Assess risks
Cash Flow EA4 - Liquidity is tight and needs additional borrowing or capital now or in the near future. EA2 Proprietary Ship - Concerns over management's ability to effectively manage existing operations and/or business expansions and/or business expansion plans. According to the financial performance of KKK, it is observed that profit after tax, earnings per share (EPS), net assets per share (NAV) have decreased significantly during the last two years, i.e.
The reasons behind this fact were during the period under reference a significant amount of the Bank's loans were classified negatively as they were sanctioned and disbursed with piles of defects and flaws in the previous years which was the early stage of the Bank. The bank has been able to recover about Tk 212.40 million. Consequently, the percentage of classified and impaired loans and advances of the total loans and advances has decreased to .86% as of August 31, 2007 from 9.82% as of December 31, 2007, which can be termed as a significant progress.
The Bank has successfully developed an integrated and well-coordinated credit analysis, appraisal and sanctioning system through its Credit Operations Department, followed by a proper and rigorous monitoring and disbursement process through its Credit Administration Department, supported by a fully automated structure. It is noticeable that almost the entire classified credits and advances were approved in the initial stage of the bank, i.e. as a result, the bank was able to mark an upward trend in its operational and financial performance.
Problems in Management of Credit Risks in NCC Bank Ltd
Recommendations
The research cell of this bank should be strengthened with effective human resources by studying the feasibility of introducing new products, analyzing the productivity of human resources and similar other research works and eventually effective credit risk management. For sustainable growth, the bank needs to identify and reinvest in the productive sector and liquidate unproductive activities/departments. The NCC must set investment priorities and develop corporate budgets that direct resources to those internal activities critical to strategic success.
It should be involved in channeling resources to areas where earning potential is higher, and away from areas where it is lower. The NCC bank should initiate responses to changes underway in the industry, the economy as a whole, the regulatory and political arena and other relevant areas. The NCC bank must closely observe competitors to analyze any new actions they take and respond competitively to that action.
NCC Bank needs to increase its market exposure and create a favorable image because its market value per share is much lower than its book value. The Bank should increase the number of Credit Analysts to reduce additional workloads and ensure efficient management of credit risks.
Conclusion
