1.

Origin of the Report

I want to prepare the report titled Credit Risk Management of Financial Institutions: A Case Study on National Bank Ltd. to fulfill the requirement of internship program of the EMBA degree under vigilant supervision of M Abu Taleb, Professor, Department of Banking & Insurance, University of Dhaka. It is mandatory for every student to work in a particular organization for minimum three months. The application of the theoretical knowledge in the practical field and realization of the real working environment is the primary purpose of this internship program. As an EMBA student, I have also attached with an organization. I am working in the National Bank Limited. So I have completed my internship from National Bank Ltd., a commercial and service oriented financial institution. I am working with Credit & Advance Department. From my observation, I feel that credit risk management is one of the most important tasks for financial institutions like banks. A detailed analysis on the credit risks faced by National Bank Ltd. and how these risks can be managed will be focused in this report.

2.

Rationale of the Study

Financial Institutions (FIs) play a significant role in meeting the diverse financial needs of various sectors of an economy and thus contribute to the economic development of the country as well as to the deepening of the countrys financial system. The financing modes of the FIs are long term in nature. Inefficiency of FIs in long-term loan management has already leaded an enormous volume of outstanding loan in our country. Due to their structural limitations and rigidity of different regulations, they could not expand their operations in all expected areas and were confined to a relatively limited sphere of financial services. Moreover, their efforts to meet long term financing with short term resources may result in asset-liability mismatch, which can create pressure on their financial base. They also could not broaden their operational horizon appreciably by offering new and innovative financial products. At this backdrop, in order to ensure flow of term loans and to meet the credit gap, Credit Risk Management is very essential in this stage. Actually, FIs are divided into two sectors- Banking Financial Institutions (BFI) and Non-Banking Financial Institutions (NBFI). Here, BFIs are concentrated to provide long-term corporate loans whereas; NBFIs are concentrated to provide SME loans.

Credit risk management in both corporate and SME encompass identification, measurement, matching mitigations, monitoring and control of the credit risks.

3.

Scope of the Study

Risk is the element of uncertainty or possibility of loss that prevail in any business transaction in any place, in any mode and at any time. In the financial arena, enterprise risks can be broadly categorized as Credit Risk, Operational Risk, Market Risk and Other Risk. Credit risk is the possibility that a borrower or counter party will fail to meet agreed obligations. Globally, more than 50% of total risk elements in banks and Financial Institutions are Credit Risk alone. Thus managing credit risk for efficient management of a Financial Institutions has gradually become the most crucial task. In Bangladesh, Credit Risk Management is one of the most important functions for Financial Institutions as per central banks guideline. Bangladesh Bank has its own guideline known as Credit Risk Grading Manual (CRGM). According to the instruction of Bangladesh Bank, my concentrated organization National Bank Ltd. developed their Risk Grading Model.

4.

Objectives of the Study

The main objective of the study is to get a definite idea about how the banks manage the risk associated with each and every product and services of them. Furthermore, the orientation is very useful to detect whether the theoretical knowledge matches with real life scenario or not. Though the title Credit Risk Management of Financial Institutions- A Study on National Bank Ltd very lengthy area, the specific objectives are as follows:

1. To know about the credit risk of financial institutions. 2. To know the necessity of Credit Risk Management. 3. To learn about the whole CRM procedure. 4. To know about the credit risk management of National bank Ltd. 5. To know about Risk Grading Model & its effectiveness.

5.

Sources of Information & Methodology

A research design is nothing but a logical and systematic plan prepared for accomplishing a study. It usually specifies the objectives of the study and the methodology and techniques are adopted for achieving the objectives. The study will be conducted on National Bank Ltd. which is actively involved in whole banking service. In this regard the main concentration will be given on General Loan (Credit) procedure for National Bank Ltd. (NBL). Only the Credit Risk Management Strategy is the primary target of this study. Besides, the financial performance analysis of NBL will also be covered in the report. The paper will be written on the basis of information collected from primary and secondary sources. Primary Data Personal observations Prospectus, the CRM division, annual report Directories and Manuals, Various publication of NBL Secondary Data Different publications, web sites, various articles Various issues of Bangladesh Bank quarterly & annual report Various issues of BLFCA year book, DSE, SEC & internet.

Methods of Data Collection

There are so many methods of data collection which was relevant & important for the study. The methods will be used in this report are as follows: Interview Method: To collect information direct interview will be taken of the manager of operation, loan in charge, executives, officials etc.

 Observation Method: To collect some information relating to the practice of loans and advances in terms of approval, sanctioning and mode of disbursement an observation will be conducted.

Methodology

For conducting the study, relevant data will be collected from reliable sources. The study will be mainly based on the secondary data. Necessary secondary data will be collected from Annual Report and CRM Strategy of National Bank Ltd., Credit Risk Grading and Guidelines of Bangladesh Bank related to CRM and different publications and web sites. Some of the important indicators, such as net profit after tax, asset, debt and equity, net sales, operating and financial expenses will be analyzed to assess the financial strength of the concerned organization. Analysis will be performed based on the availability of data of the company during the period of year 2007 to 2011 for the NBL. Prior to using the secondary sources of data and information, they will be carefully scanned to judge their validity and reliability. Numerical data had been analyzed and interpreted with concentration and relation to the main issue. Data and information will be collected from different sources will critically compared and found negligible mismatching. Theoretical analysis along with numerical evidences will be used to substantiate the findings of the report. The analysis will be presented first and then findings will be drawn.

6.

Limitations of the Study

I have to complete this report writing within a shorter period of time. So the time constraint of the study hindering the course of vast area and time for preparing a report within the mentioned period is really difficult. In preparing this paper I have to face some problems which are mentioned below Shortcoming of practical experience to comprehend the conceptual framework of this type of report. Lack of comprehensive written reports and published documents regarding the credit risk management of Bangladeshi companies.

Three months time is not enough for such an extensive study. It is very difficult to gather practical experience and required information for the completion of the report within this time period. Lack of adequate relevant information. Due to some legal obligation and business secrecy banks are reluctant to provide data. For this reason, the study limits only on the available published data and certain degree of formal and informal interview.