Credit Management PDF

Credit Risk Management Practices of Janata Bank Ltd.
1.1 Background of the study

MBA program is designed with an excellent combination of theoretical and practical
aspects. As the classroom discussion alone cannot make a student perfect in handling the
real business situation, so it is an opportunity for the students to know about practical
situation through this internship program. This internship program provides the students
to link up their theoretical knowledge with practical fields. In this connection, I was
assigned to Janata Bank for my practical orientation.
From the very beginning of my internship I have worked on General banking. After few
weeks later I was learning all about Credit Risk Mgt. For that reason I made my report on
Credit Risk Management of JBL Kandirpar Corporate Branch, Comilla. I have tried my
level best to present my experience of the practical orientation in this report.
1.2 Rationale of the report

Bangladesh is a developing country. The economy of the country has a lot left to be
desired and there are lots of scopes for massive improvement. In an economy like this,
Micro Credit practices can play a vital role to improve the overall economic condition of
the country. By playing the role of an intermediary the banks can mobilize the excess
fund of surplus sectors to provide necessary finance, to those sectors, which are needed to
promote for the sound development of the economy.
This report is an effort to reflect a clear idea about the strategies, activities and
performance of Bangladesh regarding Micro Credit Management practices.
Department of Accounting & Information Systems, Comilla University Page 1

1.3 Objectives of the Study

The primary purpose of this report is to get an idea about the management of credit risk
system of Bangladesh as well as Janata Bank and make an industry analysis on the
banking sector of Bangladesh. Some specific objectives of this report are-
 To know about what functions are actually performed a bank through Credit
management Banking.
 To learn how this functions are processed.
 To analyze the comparative Credit risk Management practices of Janata Bank

Limited.
 To find out existing problems about Credit Management of Janata Bank Limited.
 To develop practical knowledge about Credit management.
 To know about what kind of risk the bank is facing in the division of Credit
Management.
1.4 Methodology of the Study
This report is prepared with several information and practical work experience.
Documents & information is collected and organized in a scheduled method for better
understanding and fair presentation.
Sources of Secondary Data
 Internet
 Annual Reports on different years of Janata Bank Limited.
 Other published documents of Janata Bank Limited.
Data Processing & Report Preparing

Secondary data needs less processing efforts. This data is more formal and highly
identified. These need analysis for appropriate positioning in this report. Here, an attempt

is made to keep this data more understanding and informative to present the report
statements more familiar with bank features & more supportive with internship purpose.
1.5 Scope of the Study

The study would focus on the following areas of Janata Bank Limited.
 Credit management system.

 Procedure of various credit related solutions.
 Procedure of clients to meet their financial objectives.
 Activities of credit risk management division of a commercial bank.
 Organization structures and responsibilities of management.
1.6 Limitations of the report

To prepare this report, I have faced some limitations, which are mentioned below.
Limitation of time: It was one of the main constraints that hindered to cover all aspects
of the study.
Lack of Secondary Information: The secondary source of information was not enough
to complete the report.
Limitation of the Scope: Some confidential information was not disclosed by various
personnel of their respective department.

2.1 Background of Janata Bank Limited
After independence in 1971, all banks were nationalized and reorganized into distinct
new banks in terms of Nationalization order 1972 of Bangladesh Bank, which was
promulgated on 26 March, 1972. Following the order, the erstwhile United Bank Limited
and Union Bank Limited were merged and renamed as Janata Bank. Later on, the bank
was corporatized and renamed as Janata Bank Limited on 15 May, 2007 with a mission to
be the largest commercial bank in the country. The board of directors is composed of
12(twelve) members including the chairman. Due to retirement of 5 members in
December, there were only 7 members at the end of the year. Presently 7 directors are in
the Board. The directors, independent by nature, are representatives from both public and
private sectors with high professional and academic backgrounds. JBL, by nature, has
shown distinctness from others and by its large branch network, covering in turn both
urban and rural areas, quality service, lucrative and innovative products. The bank‟s
business activities in general conform to social, ethical and environmental standards as
well as norms of corporate governance.
2.2 Vision of Janata Bank Limited
To become the effective largest commercial bank in Bangladesh to support socio-

economic development of the country and to be a leading bank in South Asia.
2.3 Mission of Janata Bank Limited
Janata Bank Limited will be an effective commercial bank by maintaining a stable

growth strategy, delivering high quality financial products, providing excellent customer
service through an experienced management team and ensuring good corporate
governance in every step of banking network.

2.4 Corporate profile of JBL

2.5 Core Values of Janata Bank Limited

Professionalism Diversity Growth
Dignity Accountability
2.6 Objectives of Janata Bank Limited
The objectives for which the bank is established are as follows:
 To carry on, transact, undertake and conduct the business of banking in all
branches.
 To build up a deep-rooted and harmonious banker-customer relationships by
dispensing prompt and improved services to the clients.
 Use the hard-earned investment of their valued shareholders. Simultaneously,
play their due part in developing a vibrant capital market.
 To make best use of latest technologies for giving the clients a taste of modern
banking so as to encourage them to continue and feel proud of banking with JBL.
 Respond to the need of the time by participating in syndicated large loans

financing, thereby expanding the area of investment of the Bank.
2.7 Services of Janata Bank Limited
Current Services Deposit Services Other

Customer credit Savings A/C DD
Scheme Current Deposit TT
Secured A/C L/C
Overdraft Short Term PO
Deposit Credit
Cash Credit
Fixed Deposit Cards
Current Deposit Online
A/c Received
Banking
Deposit Service Monthly
Savings
Scheme

2.8 Network in Bangladesh Map of Janata Bank Limited

2.9 Logo and Corporate Slogan of Janata Bank Limited
2.10 Business Prospects of Janata Bank Limited
 Surplus Capital Adequacy after IPO subscription.

 Business expansion in capital market.
 Gradual expansion of branch network.
 Progressive automation of the branches.
 Real online banking software will be in function soon.
 Expansion of ATM and Credit Card.
2.11 Business Line of Janata Bank Limited

There are mainly eight major business areas where the Janata Bank Ltd is performing
with high reputation. These areas are:
 General Banking
 Foreign Exchange
 SME
 Large Scale Industries
 Agriculture Sector
 Transport Sector
 Financing In Housing Sector& Land Developing
 Finance in Home Appliance

2.12 Award of Janata Bank Limited

Tax Card Sonmanona -ICMAB Best Corporate Award-2015
"Certificate of Appreciation" by ICAB, as a recognition of excellence in the Best
Presented Annual Reports 2014
School Banking Award- 2015
National Award for Best Presented Annual Report - 2014
National Award for Corporate Governance Disclosure - 2014
SAARC Anniversary Merit Award for Corporate Governance Disclosure
ICMAB Best Corporate Award-2014, 2012, 2014
Domestic Retail Bank of the Year Bangladesh – 2015
Bangladesh Domestic technology and Operations Bank of the Year- 2015
Bangladesh Domestic Project Finance Bank of the year 2013
Bangladesh Domestic Trade Finance Bank of the year 2013
Bangladesh Domestic Trade Finance Bank of the year 2012
Domestic Retail Bank of the Year Bangladesh 2013
The Bank of the Year in Bangladesh (2001- 2005)
2.14 Services Areas Janata Bank Limited

Branches
There are 910 branches of Janata Bank Limited in home and abroad. Among them 419
branches are situated in urban areas including four foreign branches and 487 branches are
in rural areas. And all foreign branches are situated in United Arab Emirates.

Table: Branches of Janata Bank Limited

Division Total
Dhaka 266
Chittagong 205
Rajshahi 148
Sylhet 59
Khulna 114
Rongpur 73
Borisal 41
Overseas 04
Total 910
Source: Annual Meeting Report 2017
Overseas Branches
Table: Foreign Branches of Janata Bank Limited

SL NO City No of Branch Status
01. Abu Dhabi 01 Foreign
02. Al-Ain 01 Foreign
03. Sharjah 01 Foreign
04. Dubai 01 Foreign
Total 04
Source: Annual Meeting Report 2017

2.15 Ethical Principles of Janata Bank Limited
Bank deals with public money where ethical compliance is very important. Janata Bank
maintains its reputation as a law-abiding organization and a good corporate body.
Employees are properly guided to conduct business in compliant manner. The policy and
procedures regarding Janata Bank‟s business process are prepared in adherence to the
laws and regulations. JBL follows and maintain ethical principles in every sphere of its
banking operation and customer services. The main features of employee‟s code of ethics
and business conducts are as follows:
 Implement justice and fairness.

 Ensure optimal customer services
 Maintain privacy and secrecy of customer‟s information, but at the same time it
complies with „The Right to information Act-2009‟.
 Prevent money laundering and corruption.
 Protects and upholds corporate values.
 Maintain accuracy and transparency in financial reporting.
 Protect natural environment.
 Perform all the activities according to the guidelines and laws approved by the
various regulatory authorities.
2.16 Future Plans of the Janata Bank Limited
The banking sector of Bangladesh is not only competitive but also an unequal contest
exists here between the public and private commercial banks (PCBs). Still, JBL has come
to today‟s position by overcoming various limitations. However, 2019 would be another
year of challenges for the banking sector if the political stability doesn‟t prevail and
overall investment environment doesn‟t get improved. Thus, in the year, we have to
concentrate on improving customer-service quality along with cost reduction and income
generating activities. I believe, if our taken strategies and work enthusiasm are rightly
implemented like the past times, 2017 will be another successful year. The followings
are some of the mentionable action plans taken for 2017:

 Bringing all branches under online operation.

 Prioritizing the SME and agro sector like fishery, dairy and cattle rearing for
increasing the country‟s production.
 Elimination of sector and regional discriminations in providing loans.
 Implementation of the Bangladesh Bank‟s initiatives through expanding financial
inclusion activities for building up a Banking nation.
 Achieving all targets of the Annual Performance Agreement signed with Bank
and Financial Institution Division.
 Arrangement of adequate training programs at home and abroad for increasing
skill of human resources.
 Increasing the Bank‟s branding values.
Finally, I would like to express my deepest gratitude to all employees. Because, their
authentic compassion and tireless efforts have brought the Bank to today‟s position. I
express my respectful congratulations and gratitude to the Chairman and the Board of
Directors for their praiseworthy contribution to the achievement of various success
including developing quality of different financial indicators. Specially, I would like to
give a very heart-felt thank to customers whose trust, belief, support and cooperation
helped the Bank to achieve success. I would also like to record my modest thanks to
Bank and Financial Institution Division, Bangladesh Bank, Bangladesh Securities
Exchange Commission and other controlling authorities for their overall cooperation,
support and advice in our banking operation. I firmly believe, their cooperation and
support will be also continued in 2017.

3.1 Introduction of Credit Risk Management
Contemporary banking organizations are exposed to a diverse set of market and non-
market risks, and the management of risk has accordingly become a core function within
banks. Banks have invested in risk management for the good economic reason that their
shareholders and creditors demand it. But bank supervisors, such as the Bangladesh
Bank, also have an obvious interest in promoting strong risk management at banking
organizations because a safe and sound banking system is critical to economic growth
and to the stability of financial markets. Indeed, identifying, assessing, and promoting
sound risk management practices have become central elements of good supervisory
practice.
3.2 Literature review
Literature Review means reviewing research studies or other relevant preposition in

related area of the study so that all past studies, deficiencies and their conclusions may be
known and further study can be conducted. For this literature review, I conducted a
database search of reviewed academic journal articles by searching for terms like “Credit
Risk Management” “Risk Management” and “Lending policy” and many more. This
search resulted in a large selection of articles and publications, which I studied to
determine which to be included in the review for this paper. In addition to the reviewed
journal articles, I also used references from popular media sources and visited several
relevant online websites to provide what may be viewed as the popular mainstream
perspective.
The management of credit risk of credit portfolios is therefore one the most
important tasks for the financial liquidity and stability of banking sector in
connection with increased sensitivity of banks to the credit risks and changes in the
development of prices of financial instruments (Kiseľáková and Kiseľák, 2013). The
most significant impact on performance of the enterprise has just financial risk. The
unsystematic risks have a higher impact on performance of the enterprise as systematic
risks (Kiseľáková et al., 2015).

Generally, credit risk is associated with traditional credit-granting activities, while it also
arises from holding bonds and other securities (Eveline, 2010). This credit creation
process exposes the banks to significant default risk which might lead to financial distress
and bank failure as a result of non-performing loans (Felix and Claudine, 2008). Most
credit issues arise from subjective decision-making by banks‟ management which is more
critical than ever. Such decision may lead to extending credit to the own business or with
which they are affiliated or credit granting to business and individual without a sufficient
assessment of the borrower's creditworthiness (Bekhet and Eletter,2014). Many problems
that intrinsically related to credit risk, a bank could face, are represented by higher
interest payments, minimizing borrowing capacity, decreasing profits, an increasing in
own capital which causes reduced return on equity, and reducing the expected investment
opportunities (Morphy, 2003). Since CR has the potential to create excessive risk-taking
and to practically wipe out most of a bank‟s owned equity that force it into bankruptcy,
managing this type of risk has posed new challenges in the banking industry (Hosna, et.
al., 2009).
Although there are many factors that can cause bank failure, poor credit risk management
has always indicated as being the main cause of bank crisis. This is actually because
credit creation is the main income generating activity for the banks, an ineffectively
credit exposure management during the lending process will lead to unfavorable results in
terms of its influences on bank performance and can even lead to bankruptcy (Eveline,
2010). Therefore, directors should be aware that, the excessively high level of non-
payment is one of the most crucial risks a bank faces and all feasible procedures should
be taken to avoid or at least to mitigate this risk. Evidently, It has found that the major
cause of the banking crisis was inefficient credit risk management practices represented
by the high level of bad loans, lending to businesses involved in speculative activities,
and the relatively high concentration of debt in certain sectors (Njanike, 2009).
Among the various elements of the banking sector, which could be critical subject to
analyze, we focus on bank profitability as one of the basic dimensions of this study.
Ensuring a stable and healthy profitability is a matter to maintain banking system stability
(García-Herrero et al., 2009), Since the trends in bank profitability and related factors are

major indicators of the state of health of banking systems, the quality of the banks
management as well as the main strategies used by banks and their efficiencies and
capabilities to manage various risk (García-Herrero et al., 2009) (Lindblom et al., 2010),
we have indicated the quantitative effect of credit risk managing on bank profitability.
Traditionally, commercial banks' essential services involve the granting of credit that is
held by the originating bank until maturity or payoff. Credit risk management (CRM);
however, allow banks to turn around this pattern, generally by transferring the loans in
part or in their entirety from their own books to any other third-party loan servicer
(Bekhet and Eletter,2014). The granting-credit process generates huge interest income
and determines to a very large extent the financial performance of any bank. However,
some of these loans usually do not perform and eventually result in bad debts and
adversely affect the banks‟ performance (Abdel Megeid, 2013). While financial
institutions, particularly banks, have experienced financial problems over the last years
for a various of reasons, the main cause of serious banking issues continues to be closely
related to permissive credit standards for borrowers and counterparties, poor managing of
risk, and insensibility of changes in economic that can lead to impairment in the credit
position of a bank‟s counterparties (Magnifique, 2013).
Using the same context, Kargi (2011) investigated the effect of credit risk management
on banks' profitability for the period of 2004 to 2008 of commercial banks in Nigeria.
The findings showed that CRM has a significant impact on the profitability of Nigerian
banks. The study concluded that banks‟ profitability is inversely influenced by the levels
of loans and advances, nonperforming loans and deposits, thereby exposing them to
greater risk of illiquidity and distress. More recently, Rufai (2013) has found that banks
with sound and effective credit risk management practices have lower loan default rates
(non-performing loans) and a good profitability. Therefore, the banks can absorb more
unexpected losses with higher profit potentials.
According to Umoh (2002) few banks are able to withstand a persistent run, even in the
presence of a good lender of last resort as depositors take out their funds, the bank
hemorrhages and in the absence of liquidity support, the bank is forced eventually to

close its doors. Thus, the risks faced by banks are endogenous, associated with the nature
of banking business itself, whilst others are exogenous to the banking system. Credit risk
is by far the most significant risk faced by banks and the success of their business
depends on accurate measurement and efficient management of this risk to a greater
extent than any other risk (Gieseche, 2004). Increases in credit risk will raise the marginal
cost of debt and equity, which in turn increases the cost of funds for the bank (Basel
Committee on Banking Supervision, 1999).Researchers employed a number of ratios to
measure credit risk. The ratio of Loan Loss Reserves to Gross Loan (LOSRES) is a
measure of bank„s asset quality that indicates how much of the total portfolio has been
provided for but not charged off. Indicator shows that the higher the ratio the poorer the
quality and therefore the higher the risk of the loan portfolio will be. In addition, Loan
loss provisioning as a share of net interest income (LOSRENI) is another measure of
credit quality, which indicates high credit quality by showing low figures. In the studies
of cross countries analysis, it also could reflect the difference in provisioning regulations.
3.3 What is credit?
In banking terminology, credit refers to the loans and advances made by the bank to its
customers or borrowers. Bank credit is a credit by which a person who has given the
required security to a bank has liberty to draw to a certain extent agreed upon. It is an
arrangement for deferred payment of a loan or purchase.
3.4 What is credit risk?
Risk means the exposure to a chance of loss or damage. Risk is the element of
uncertainty or possibility of loss that exist in any business transaction. Credit risk is the
likelihood that a borrower or counter party will be unsuccessful to meet its Obligations in
accordance with agreed terms and conditions
The constituent elements of credit risk can be viewed from the following flowchart:

Figure: Credit Risk Flowchart
3.5 Credit risk management (what it is and why it matters)
Credit risk refers to the probability of loss due to a borrower‟s failure to make payments
on any type of debt. Credit risk management is the practice of mitigating losses by
understanding the adequacy of a bank‟s capital and loan loss reserves at any given time –
a process that has long been a challenge for financial institutions. Effective credit risk
management is vital for success of any bank, as banks are operating at a low margin
compared to other business. They should strike a proper balance between pro Credit Risk
Management process enables Banks to proactively manage loan Portfolios in order to

minimize losses and earn an acceptable level of return for shareholders. A comprehensive
IT system is essential which should have the ability to capture all key customer data, risk
management and transactions information including Trade and Foreign Exchange. In
order to establish an effective and efficient management of the credit risk the Bank must
have robust credit risk management policies and procedures.
The global financial crisis and the credit crunch that followed put credit risk management
into the regulatory spotlight. As a result, regulators began to demand more transparency.
They wanted to know that a bank has thorough knowledge of customers and their
associated credit risk. And new Basel III regulations will create an even bigger regulatory
burden for banks.
To comply with the more stringent regulatory requirements and absorb the higher capital
costs for credit risk, many banks are overhauling their approaches to credit risk. But
banks who view this as strictly a compliance exercise are being short-sighted. Better
credit risk management also presents an opportunity to greatly improve overall
performance and secure a competitive advantage.
The reasons behind managing credit risks are as follows:
a) Increase shareholder value
 Value creation
 Value preservation
 Capital optimization
b) Instill confidence in the market place
c) Alleviate regulatory constraints and distortions thereof.
Credit Risk Management Policy of JBL captures the core principles for identifying
measuring and managing credit risk in the Bank. These policies are approved by the
Board of Directors and are designed to meet the organizational requirements that exist
today and to provide flexibility for the nature JBL recognizes that a critical factor in the
Banks continued profitability and stability is its effective risk management capabilities.
JBL ensures its risk management strength and strives to continuously promote a proactive

risk management culture in the bank. Effective measures are now being taken towards the
compliance of Basel II risk management standards.
3.6 PRISM Model of credit risk management
PRISM model is a contemporary model used in the credit risk management in modern
world. It is called PRISM, an acronym for –
P = Perspective
R = Repayment
I = Intention
S = Safeguards
M = Management
Management, a PRISM component, centers on what the borrower is all about, including
history and prospects. Intention or loan purpose serves as the basis for repayment.
Repayment focuses on internal and external sources of cash. Internal operations and asset
sales produce internal cash, whereas new debt or equity injections provide external cash
sources. Internal safeguards originate from the quality and soundness of financial
statements, while collateral guarantees and covenants provide external safeguards. The
final component, Perspective, pulls other sections together: the deal‟s risks and rewards
and the operating and financing strategies that are broad enough to have a positive impact
on shareholder value while enabling the borrower to repay the loan (Morton Glantz
2004).
3.7 Challenges to Successful Credit Risk Management
Inefficient data management. An inability to access the right data when it‟s
needed causes problematic delays.
No group wide risk modeling framework. Without it, banks can‟t generate
complex, meaningful risk measures and get a big picture of group wide risk.
Constant rework. Analysts can‟t change model parameters easily, which results
in too much duplication of effort and negatively affects a bank‟s efficiency ratio.

Insufficient risk tools. Without a robust risk solution, banks can‟t identify
portfolio concentrations or re-grade portfolios often enough to effectively manage
risk.
Cumbersome reporting. Manual, spreadsheet-based reporting processes
overburden analysts and IT.
3.8 Best Practices in Credit Risk Management
The first step in effective credit risk management is to gain a complete understanding of a
bank‟s overall credit risk by viewing risk at the individual, customer and portfolio levels.
While banks strive for an integrated understanding of their risk profiles, much
information is often scattered among business units. Without a thorough risk assessment,
banks have no way of knowing if capital reserves accurately reflect risks or if loan loss
reserves adequately cover potential short-term credit losses. Vulnerable banks are targets
for close scrutiny by regulators and investors, as well as debilitating losses.
The key to reducing loan losses – and ensuring that capital reserves appropriately reflect
the risk profile – is to implement an integrated, quantitative credit risk solution. This
solution should get banks up and running quickly with simple portfolio measures. It
should also accommodate a path to more sophisticated credit risk management measures
as needs evolve. The solution should include:
 Better model management that spans the entire modeling life cycle.
 Real-time scoring and limits monitoring.
 Robust stress-testing capabilities.
 Data visualization capabilities and business intelligence tools that get important
information into the hands of those who need it, when they need it.

3.9 What is a credit risk management process?
A credit risk management process is the method or process of building steps to insulate a
lender from the possible risks arising out of lending credit. Banks and financial
institutions offer credit in a number of ways, and hence, a credit risk management process
has to cover all these.
Credit Risk Management identifies the potential that a borrower will fail to meet their
obligations and the potential risk to the company lending. Credit risk management
maximizes a lenders rate of return by maintaining risk management within acceptable
parameters. These risk management parameters are defined by industry or competitor
standards and the gross margins of a company product or service. The higher the gross
margin a company makes, usually the more critical the need for risk management.
Tightening regulatory requirements
Risk identification and risk source
Risk analysis
Risk assesment
Risk monitoring and review
Risk solution
Figure: Credit Risk Management Process

Tightening regulatory requirements
Regulatory requirements have been made more stringent, and regulators now expect
banks and financial institutions to become more circumspect in their lending activities.
Regulators expect these lenders to adhere to best practices, which is a way of countering
the ill effects of indiscriminate and reckless lending.
Risk identification and risk source
Risk identification is to identify all possible risks, not to eliminate risks from
consideration or to develop solutions for mitigating risks those functions are carried out
during the risk assessment and risk mitigation steps.
The risk identification process needs to be repeated as these sources of information

change and new information becomes available.
There are many ways to approach risk identification. Two possible approaches are :
(1) To identify the root causes of risks that is, identify the undesirable events or things
that can go wrong and then identify the potential impacts on the project of each such
event and
(2) To identify all the essential functions that the project must perform or goals that it
must reach to be considered successful and then identify all the possible modes by which
these functions might fail to perform.
Risk analysis
Risk analysis is a modern system for sound lending. It is an improved method where a
format is standardized to analyze properly the credit worthiness of a customer, soundness
and viability of his/her business prior to extending credit facilities to a borrower. While
financing a venture/project branches have to take into consideration the risk elements
from different angles that are involved in the venture/project.

Risk analysis describes how to assess the risks that are inherent in credit extension and
how to assess the likelihood that the customer will repay the loan.
Risk assessment
At the core of a credit risk management process is risk assessment. Lenders have to take
this first step before lending. This practice may be as old as lending itself, but new
regulatory requirements have added teeth to it. Regulators now monitor banks with low
risk assessment practices and subject them to greater scrutiny from their lax practices.
Risk monitoring and review
To minimize credit loss, a robust monitoring procedure and systems to be in place that
provides an early indication about the deteriorating financial health of a borrower. The
system shall be in place to produce and report the following status reports MD, Head of
Credit, Head of Credit Marketing, Branch Managers and RM‟s:
 Past due principles or interest payments.

 Breach of covenants.
 Loan terms and conditions that are not complied with, financial statements that
are not received on a regular basis.
 Documentation deficiencies
 Any covenant breach or exception to be referred to HOC and RMs for timely
follow up.
 Expired credit lines.
Risk solution
Implementing a risk solution follows from the first step above. This solution should be
comprehensive and integrated with all the functions of the bank. Some of the components
of a sound risk solution that should form part of a credit risk management process
include:

3.10 Problems in Credit Risk Management
Proper Credit Management is the most important function of any Bank. But the credit
management activities suffer from some kinds of problems that are learnt from discussion
with officers, clients and also problems identified from the job observations. The
problems are as follows:
3.10.1 Lack of Deposit for Credit Extensions
Discussion with officers it revealed that if the Bank collects more deposit, it would be
able to advance credit to more viable projects.
3.10.2 Mentally of not to repay the loan
A culture has been developed among the common people in Bangladesh that Bank loans
need not to be repaid.
3.10.3 Defective Legal System
Existing bad legal system is another greatest blow and curse to the credit management
system and alarming factor recovering loan from defaulter. In reality it is very difficult,
lengthy and expensive to have a verdict in favor of the Bank.

3.10.4 Delay in Loan Sanction
Lengthy process of loan sanction or delay is a common problem of credit management.
3.10.5 Higher Rate of Interest for Credit
Clients generally complain that rate of interest for various type of credit is quite high. In
many cases productivity from loaned investment is inadequate that borrower become
incapable in repaying loan.
3.10.6 Changes in Policies and rates
Due to changes in the credit policy as well as monetary and fiscal policy, long term
financing suffers a lot.
3.10.7 Irregularity in Providing Loan
Usually Banks are responsible to provide loan to those who are eligible for the loan. But
in reality, small investors do not get the loan easily. They have to fulfill more terms and
conditions than those who have greater influence in the business community.
3.11 Credit Risk Management Analysis
Credit Risk Management (CRM) analysis is an integral part of the lending process in
JBL. Proper credit risk management analysis helps avoid risks in the lending process and
brings transparency. The analysis of financial statements of the prospective borrower
carried on for the purpose determining the past financial health of the borrowing unit and
judging whether any future loan commitment to the unit is secured or not is known as
credit analysis. Credit analysis is generally done at the branch level of lending process
and the results and findings are evaluated in the corporate office.
The basic financial statements required for credit analysis are:
 Balance Sheet.
 Income statement (Profit and Loss Account).
 Cash Flow Statement.

The credit analysis starts with the financial spread sheet analysis using the financial
statements provided by the borrowing unit.
3.11.1 Financial Spread Sheet Analysis
Financial spread sheet is a means of presenting the main Balance Sheet and Profit and
Loss categories in a form whereby a comparison can be made between similar figures on
different dates.
3.11.2 Importance of Financial Spread Sheet
1. Financial spread sheet provides a quick method of assessing business trends and
efficiency.
 Assess the borrowers‟ ability to repay.

 It realistically shows business trends.
 It allows comparisons to be made within industry.
2. Borrowers that provide information for financial spread sheets are more like to be good
borrowers.
3. Financial spread sheet is an important tool in a disciplined organized approach to credit

analysis.
4. The historic financial reports of a company are a primary indicator of its future
financial position. Spread sheet allows proper analysis of financial statements.
3.11.3 Breakdown of Financial Spread Sheet
The financial spread sheet is split into three sections. These are:
The Balance Sheet and Profit and Loss Account provide a quick and easy source
of identifying trends in similar categories over a number of years.

The Cash Flow Statement indicates the company‟s ability to generate cash inflow
in excess of cash outflow.
The ratio analysis demonstrates in the form of accounting ratios and percentages,
the relationship between significant figures on different dates. This provides a
quick and reliable method of :
i. Measuring trends of profits;
ii. Identifying the growth or correction of the business;
iii. Identifying strengths and weaknesses of the business.
3.12 Goals of Credit Management
In establishing the mission statement, the credit policy manual will set out the goals of
the credit management process. This can be done by either listing specific goals or by
making the goals more general in nature. These goals will be based upon many factors,
including the company‟s credit philosophy (that is, its attitude to assuming credit risk by
offering credit sales to customers). It will also be a factor in relation to sales targets and
financial performance. Other factors, over which the firm may not have control, include
competition in its markets and business conditions.
As part of the goals, there may be specific, observable objectives, such as setting a
maximum number of days outstanding for credit items, collection systems, and the
frequency of bad and doubtful debts. Note that such objectives will dictate the type and
extent of credit risk being taken by the firm. For instance, if the company is seeking a low
level of bad debts, it will most likely have to confine its credit to high-quality firms with
low -default probability. This will impact on its ability to offer credit and hence grow
sales with lesser creditworthy customers. Attitudes to credit risk will also dictate the
frequency and scope of credit reviews of existing and prospective customers.
3.12.1 Responsibilities
As part of developing a sound process of credit granting, the various responsibilities and
limitations on discretion of staff involved in credit risk management and credit granting

have to be clearly laid out. As with many other types of operation, there is a potential
conflict of interest between those individuals who are rewarded by creating new business
and those who act to control risks. Hence proper lines of responsibility and awareness of
these issues should lead to the separation of the credit evaluation and credit-granting
functions.
Also, who finally signs off on a credit decision and who has the authority to override the
normal criteria for acceptance and rejection needs to be thought through. Since refusing a
credit application has important repercussions on customers and staff alike, it is important
that all parties within the firm understand clearly who has responsibility and power to
authorize. This is even more important in the case where an existing customer has to have
their credit line withdrawn
3.12.2 Controlling Credit Risk

The credit analyst or manager is required to understand the ways in which bad debts or
credit losses arise and to devise methods for identifying these. This then requires that due
consideration is given to how these are effectively managed.
A key issue is credit control, which involves constantly managing the credit-granting
process. This can be seen as a policy that includes procedures, guide-lines and processes
for managing the credit process.
Diversification can play an important role in reducing exposure to unexpected and
catastrophic losses. However, spreading risks will be effective only if the principles of
efficient portfolio construction are followed. There is a danger that the portfolio is ill-
diversified, leading to unexpected losses. As with all risk management processes, the
exposure to credit risks has to be kept under constant review and action taken as required.
Credit risk management is a dynamic process that responds to new information.
Finding the links between a firm‟s financial condition, behavior and default is the key
skill required in the management of credit or counterparty risk.

The sound practices set out in this document specifically address the following areas:
(i) Establishing an appropriate credit risk environment; (ii) operating under a sound
credit-granting process; (iii) maintaining an appropriate credit administration,
measurement and monitoring process; and (iv) ensuring adequate controls over credit
risk. Although specific credit risk management practices may differ among banks
depending upon the nature and complexity of their credit activities, a comprehensive
credit risk management program will address these four areas. These practices should
also be applied in conjunction with sound practices related to the assessment of asset
quality, the adequacy of provisions and reserves.
3.13 Principles for the Management of Credit Risk
A. Establishing an appropriate credit risk environment
Principle 1: The board of directors should have responsibility for approving and
periodically (at least annually) reviewing the credit risk strategy and significant credit
risk policies of the bank. The strategy should reflect the bank‟s tolerance for risk and the
level of profitability the bank expects to achieve for incurring various credit risks.
Principle 2: Senior management should have responsibility for implementing the credit
risk strategy approved by the board of directors and for developing policies and
procedures for identifying, measuring, monitoring and controlling credit risk. Such
policies and procedures should address credit risk in all of the bank‟s activities and at
both the individual credit and portfolio levels.
Principle 3: Banks should identify and manage credit risk inherent in all products and
activities. Banks should ensure that the risks of products and activities new to them are
subject to adequate risk management procedures and controls before being introduced or
undertaken, and approved in advance by the board of directors or its appropriate
committee.

B. Operating under a sound credit granting process
Principle 4: Banks must operate within sound, well-defined credit-granting criteria. These
criteria should include a clear indication of the bank‟s target market and a thorough
understanding of the borrower or counterparty, as well as the purpose and structure of the
credit, and its source of repayment.
Principle 5: Banks should establish overall credit limits at the level of individual
borrowers and counterparties, and groups of connected counterparties that aggregate in a
comparable and meaningful manner different types of exposures, both in the banking and
trading book and on and off the balance sheet.
Principle 6: Banks should have a clearly-established process in place for approving new
credits as well as the amendment, renewal and re-financing of existing credits.
Principle 7: All extensions of credit must be made on an arm‟s-length basis. In particular,

credits to related companies and individuals must be authorized on an exception basis,
monitored with particular care and other appropriate steps taken to control or mitigate the
risks of non-arm‟s length lending.
C. Maintaining an appropriate credit administration, measurement and

monitoring process
Principle 8: Banks should have in place a system for the ongoing administration of their
various credit risk-bearing portfolios.
Principle 9: Banks must have in place a system for monitoring the condition of individual
credits, including determining the adequacy of provisions and reserves.
Principle 10: Banks are encouraged to develop and utilize an internal risk rating system in
managing credit risk. The rating system should be consistent with the nature, size and
complexity of a bank‟s activities.

Principle 11: Banks must have information systems and analytical techniques that enable
management to measure the credit risk inherent in all on- and off-balance sheet activities.
The management information system should provide adequate information on the
composition of the credit portfolio, including identification of any concentrations of risk.
Principle 12: Banks must have in place a system for monitoring the overall composition
and quality of the credit portfolio.
Principle 13: Banks should take into consideration potential future changes in economic
conditions when assessing individual credits and their credit portfolios, and should assess
their credit risk exposures under stressful conditions.
D. Ensuring adequate controls over credit risk
Principle 14: Banks must establish a system of independent, ongoing assessment of the
bank‟s credit risk management processes and the results of such reviews should be
communicated directly to the board of directors and senior management.
Principle 15: Banks must ensure that the credit-granting function is being properly
managed and that credit exposures are within levels consistent with prudential standards
and internal limits. Banks should establish and enforce internal controls and other
practices to ensure that exceptions to policies, procedures and limits are reported in a
timely manner to the appropriate level of management for action.
Principle 16: Banks must have a system in place for early remedial action on
deteriorating credits, managing problem credits and similar workout situations.
E. The role of supervisors
Principle 17: Supervisors should require that banks have an effective system in place to
identify, measure, monitor and control credit risk as part of an overall approach to risk
management. Supervisors should conduct an independent evaluation of a bank‟s
strategies, policies, procedures and practices related to the granting of credit and the

ongoing management of the portfolio. Supervisors should consider setting prudential

limits to restrict bank exposures to single borrowers or groups of connected
counterparties.
3.14 Elements of a sound risk management system
The key elements of a sound risk management system for effective business operations
should encompass the following:
a) Active involvement of board and senior management;
b) Adequate organization, policies and procedures;
c) Appropriate management information systems; and
d) Comprehensive internal controls and limits.
It should not be understood that risk management functions are only limited to the Risk
Management Division/Department (RMD). Business lines are primarily responsible for
the risks they are taking. Because the line personnel can understand the risks of their
activities, any lack of accountability on their part may hinder sound and effective risk
management.

3.15 Essential criteria for ensuring sound risk management
For ensuring successful risk management across the organization, the following features
should, at least, be present in the bank:-
a) Submission of consolidated report to the Board and senior management team

incorporating different types of risks, risk mitigation measures, comparison of risk levels
with limits, the level of capital required for absorbing large losses, and suggestions for
restoring capital;
b) Consistency between the risks taken by the management and the risks perceived by the
Board;
c) Active, firm-wide risk management approach that includes all business lines;
d) Developing in-house expertise relying on various sources/factors including market

data, credit ratings, published analyses, etc.;
e) Alignment of treasury functions with risk management;
f) Active management of contingent liabilities;
g) Using both firm-specific and market-wide stress scenarios for liquidity management;
h) Efficient and effective management of asset and liability;
i) Taking the stress testing result into consideration to understand the impact of adverse
scenario on the bank‟s profitability or capital;
j) Independent risk management functions with sufficient authority, logistic support and
continuous communication with business lines;
k) Experienced and expert personnel for performing risk management activities;
l) Giving importance to the risk management officials‟ opinion.

4.1 Introduction
Lending is the main profit generating activity of Janata Bank Ltd. Every bank should
possess a lending procedure that provides correct borrower selection, quick processing,
assurance of repayment and effective monitoring and supervision. Janata Bank Ltd is yet
to develop its written operational lending procedure.
The credit policy and lending guidelines of the bank was firstly prepared in line with the
guidelines of Bangladesh Bank on credit risk management in the year 2004 and
subsequently it was revised in the year 2007 and lastly it is revised in line with the
guidelines given by Bangladesh Bank on credit risk management. This policy will apply
to all branches of Janata Bank Limited for the guidance of the officers/executives in
handling affairs relating to credit in a disciplined way and replace the earlier “Credit
Policy and Lending Guidelines-Revised Edition 2007”of the bank which was approved
by the board of directors in its meeting held on 26.12.2006.
The lending procedure followed by Janata Bank Ltd consists of a set of sequential
activities. In these sequential activities, both bank officials and potential borrowers play
significant role.
4.2 Risk management Division of JBL
Janata Bank has an independent full-fledged risk management department/division. The

Risk Management Division/Department (RMD) executed by the Chief Risk Officer
(CRO). It have separate desks within the risk management department for overseeing
each key risk area. The main functions of the department include, but not limited to, the
following:
 managing the process for developing risk policies and procedures;

 coordinating with business users/units to prepare functional specifications;
 preparing and forwarding risk reports; and
 assisting in the implementation of all aspects of the risk function.

The risk management function shall be functionally and hierarchically independent from
business and other operation functions. The officials who take and own risks should not
be given responsibility for monitoring and evaluating their risks. Safeguards against
conflict of interest should be put in place to maintain independence of the risk
management function. Sufficient resources should be provided to Risk Management
Department where the personnel possess needed experience and qualifications, including
market and product knowledge and command of risk discipline. Likewise, adequate
budget should be allocated to this function to enable it carry out its crucial function
effectively. According to the business size and nature of activity, the bank will form
various desks under the Risk Management Department to perform its assigned activities.
However, necessary desks under the division should be as follows -
1) Credit Risk
2) Market Risk
3) Liquidity Risk
4) Operational Risk
5) Risk Research and policy development
It is noted that there is a negative relationship between capital and bank risk, i.e. when the
capital increases, the bank risk decreases. Hence, there must be a close relationship and
communication between Basel Implementation Unit (BIU) and RMD.
4.3 Major Functions of CRM

 To update Banks credit policy/Lending Guideline, procedures and control
mechanisms related with all credit risks arising from corporate/commercial
banking and retail banking etc.
 To approve/decline credit proposal received from Corporate Division (Presently
from Branches) within delegated authority and to recommend to the higher
authority if it is beyond delegation.
 To provide advice/assistance regarding all credit matters to Corporate
Division/Branches.

 Periodical review of different types of credits, maintain effective follow-up and

supervision and take all possible measures in time to save from classification.
4.4 Duties and responsibilities of CRM
 Examine/review credit proposals (new/renewal) sent by corporate branches to.

I. Process for approval.
II. Placing credit proposals in the Head Office Credit Committee.
III. Decline credit proposals if they do not meet criteria.
IV. Recommendation of credit proposal to the Managing Director/EC/Board for their
approval.
V. Prepare facility sanction letter and send copies to:
a. Corporate division/Branches
b. Credit Administration Division
 A Review of the following things on a periodical basis in the light of
 Structuring
 Adequacy of security
 Pricing and profitability
 Financial analysis
 Form and content
 Performance
 Turnover
 Repayment
 Revise and ratify borrower‟s risk grade developed by Corporate Division/branches.
 Credit approval authorities delegated review on an annual basis.
 Retail Credit from time to time review approval procedures
 Review and update banks and credit operating procedures on an annual basis.
 Conduct industry analysis and detect risk involved with each industry.
 To minimize risk of lending to specific industry formulate strategy
 Guide and educate officers of all units of credit division and corporate
division/branches.

4.5 Credit Policy Statement of JBL
The credit policy is a statement of basic principles that govern the extension of credit. It
provides a framework within which to conduct the banks‟ business and also enables the
bank to have a long term business plan.
4.5.1 Mission
Janata Bank Limited‟s credit mission is to actively participate in the sustainable growth
and expansion of our national economy and social development by providing credit
viable borrowers, efficiently delivered and competitively priced.
4.5.2 Client Base
Janata Bank‟s client base consists of individual, corporate, institutional and private
clients to help them realize their short term business goals and long term aspirations.
4.5.3 Legal Consideration
Janata Bank Limited complies with all applicable Bangladesh laws and regulations.
4.5.4 General Policy Guidelines

 JBL makes loan only to eligible and reputed clients who are involved in
legitimate business activities and whose income and wealth are derived from
legitimate source.
 JBL encourages lending to social desirable, nationally important and financially
viable sectors and will not lend for unproductive purposes or socially undesired
projects.
 At all times a policy of “Know Your Customer” must be foremost in the credit
application processing.
 JBL requires that borrowers have a source of repayment established at the
inception of the credit, and that any exception must be specifically addressed in
the approval of credit.
 JBL discourages financing tobacco and narcotics production and/ or trade.
 JBL does not engage in name lending based on only on the general reputation of
the borrower.
 JBL extends credit facilities to the area in which the branch is located and the size
and the ability of its staff to supervise and monitor the same is also considered.
4.5.5 Exclusion List
JBL will not finance any activity involving mention sectors.
Production/Activities involving forced labor or child

labor
Activity deemed illegal under Bangladesh legislation

and agreements
Production /trade in weapons and ammunitions
Trade in wildlife/eildlife products
Production/use of/trade in hazardous materials
Figure: Exclusion list in credit
4.5.6 Loan Portfolio Mix
After annually reviewing the performance of existing loan portfolio of JBL as Theyll as
market prospect of different sectors/sub-sectors of the country, the senior management
prepares the annual budget at the beginning of the year. It provides guidelines for limiting
exposure to the annual plan/budget, and also the guidelines for limiting exposure to
different sectors/sub- sectors and terms, which are approved by the Board of Directors.

Some factors are considered in preparing credit budget. These are given-
General Economic Outlook (global/local)
Policies and Role of the Government in the Industry
Economic Importance of the Industry
Cyclical Aspects of the Economy
Market Size and level of Competition of Industry
Industry Maturity
Risks Specific to the Industry
Market Segmentation
Figure: Factors considering in Credit Budget
Terms of lending are determined based on some factors given below-
Deposit Mix and Average

Cost of Funds
Volatility and Seasonal

Fluctuation of the Deposit
Amount of Purchased
Funds
Composition of the
Investment Portfolio
Liquidity of other Bank

Assets
Figure: Base of the Terms of Lending

4.5.7 Credit Assessment
A thorough credit and risk assessment must be conducted prior to granting any
loan/advance. Sufficient information has to be collected to enable a comprehensive
assessment of the true risk profile of the client. The results of this assessment have to be
presented in the JBLs‟ prescribed credit proposal format. Depending upon the types,
amount and the term of credit exposures as well as clients‟ background, the nature and
scope of appraisal is determined and carried out and documented in the credit proposal.
There should not be any option to interchange the limits amongst different concerns of
the group in case of corporate clients.
4.5.8 Lending Authority
JBLs‟ organization structure has three levels-
Corporate Office
Zonal Offfice
Branch Office
Figure: Organizational Structure of JBL
Credit proposal moves through various management approval levels according to the
amount of risk involved. There are five approval levels-
President
Deputy Board of
Branch &
Zonal Head Managing Directors
Manger Managing
Director of the Bank
Director
Figure: Approval Level of JBL

4.5.9 Pricing
Interest rates on lending are determined keeping in view the prevailing rates offered by
other financial institutions. At the same time, the management has to keep in mind the
following points while piecing a loan-
Risk Account
Term of
Exposure Cost of Balance &
Loan
(obligor & Funds Other
(maturity)
Industry) Relationship)
Figure: Pricing Loans
4.6 Monitoring of Credit

The control of credit operations falls into two part-
Monitoring and Review

of all Accounts
Monitoring and Delinquent
Accounts
Figure: Monitoring of Credit
Relationship management unit at branch level monitors all existing loans on day to day
basis and takes remedial measures as and when any deterioration occurs. Credit
Administration unit and Recovery Unit at Corporate Office level control the credit
operations of the JBL.
In case of delinquent accounts, BBs‟ “Procedures of Loan Classification and

Provisioning” are complied with strictly by JBL.

Internal Audit and Control
Corporate Offices‟ Internal Audit and Control team visits the branches. They evaluate the
effectiveness of the Credit Policy as well as monitor the compliance status and report the
same to Senior Management to review.
4.7 Credit Risk Grading of JBL
Credit risk grading (CRG) is an important tool for credit risk management as it helps the
bank and financial institutions to understand various dimensions of risk involved in
different credit transactions and provides better assessment of the quality of credit
portfolio of the bank or a branch.
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.
Bangladesh Bank has made risk grading mandatory for Banks & Financial institutions for
loan amount of BDT 1.00 crore and above.
CRG scale has been classified as following 8 categories:
1. Superior-low risk
2. Good- satisfactory risk
3. Acceptable- fair risk
4. Marginal risk
5. Special Mentioned
6. Sub Standard
7. Doubtful & Bad
8. Bad & Loss

The total weight of the above five components comprise 100% weight and the weight is
put to the previously mentioned 8 categories and the weight is distributed as follows:
Grading Short Name Score

Superior SUP Fully cash secured
Government Guarantee
International Bank
Guarantee
Good GD 85+
Acceptable ACCPT 75-84
Marginal/watch list MG/WL 65-74
Special Mention SM 55-64
Substandard SS 45-54
Doubtful DF 35-44
Bad/Loss BL <35
Table: Score in CRG
Credit risk on the securities held outright by the Bank is managed by holding only
investment-grade securities in routine circumstances, issued chiefly by governments and
government organizations. The reinvestment of customer deposits may also give rise to
credit exposures. In non-routine circumstances, the Bank will seek appropriate methods
of mitigating credit risk, including indemnities from HTM Treasury.
Policy has already been formed and is being updated from time to time. Credit Risk
Manuals and several Instruction Circulars have been issued to implement CRM. Early
Alert System, Credit Recovery, NPL Management, Check list/Due date Diary have
already been introduced and these are continuous processes. CEO and MD issues letters
from time to time with instruction to implement CRM.

4.7.1 Functions of Credit Risk Grading
Promote bank safety and soundness by informed

decision making.
Measures credit risk and differentiate individual and

groups of credit.
Allow bank management and examiners to monitor

changes and trends in risk levels.
Allow bank management to manage risk to optimize

returns.
Figure: Functions of CRG
4.7.2 Uses of Credit Risk Grading
 The Credit Risk Grading matrix allows application of uniform standards to credits to
ensure a common standardized approach to assess the quality of individual obligor,
credit portfolio of a unit, line of business, the branch or the Bank as a whole.
 As evident, the CRG outputs would be relevant for individual credit selection,
wherein either a borrower or a particular exposure/facility is rated. The other
decisions would be related to pricing (credit-spread) and specific features of the credit
facility. These would largely constitute obligor level analysis.
 Risk grading would also be relevant for surveillance and monitoring, internal MIS
and assessing the aggregate risk profile of a Bank. It is also relevant for portfolio
level analysis.

4.8 Computation of CRG
The following step-wise activities outline the detail process for arriving at credit risk
grading.
4.8.1 Identify all the Principal Risk Components
Credit risk is most simply defined as the probability that a borrower or counterparty will
fail to meet its obligations in accordance with the agreed terms and conditions. In other
words, it is the loss associated with degradation in the credit quality of borrowers or
counterparties.
Credit risk for counterpart arises from an aggregation of the following:
Market Risk
Relationship Liquidity
Risk Risk
Operational/
Business/Ind
Management
ustry Risk
Risk
Information
Security
Risk
Figure: Different Credit Risk
Each of the above mentioned key risk areas require be evaluating and aggregating to
arrive at an overall risk grading measure.

a) Evaluation of Financial Risk
Risks that counter parties will fail to meet obligation due to financial distress. This
typically entails analysis of financials i.e. analysis of leverage, liquidity, profitability &
interest coverage ratios.
b) Evaluation of Business/Industry Risk
Risk that adverse industry situation or unfavorable business condition will impact
borrowers‟ capacity to meet obligation. The evaluation of this category of risk looks at
parameters such as business outlook, size of business, industry growth, market
competition & barriers exit.
c) Evaluation of Management Risk
Risk that counter parties may default as a result of poor managerial ability including
experience of the management, its succession plans and teamwork.
d) Evaluation of Security Risk
Risk that the bank might be exposed due to poor quality or strength of the security in case
of default is security risk. This may entail strength of security and collateral, location of
collateral and support.
e) Evaluation of Relationship Risk
This risk area covers evaluation of limit utilization, account performance,

condition/covenants compliance by the borrower and deposit relationship.
4.8.2 Allocate weight ages to Principal risk components
According to the importance of risk profile, the following weight ages are proposed for
corresponding principal risks:

Principal Risk Components weight

Financial Risk 50%
Business/Industry Risk 18%
Management Risk 12%
Security Risk 10%
Relationship Risk 10%
Table: Weight Distribution of Risk Components
4.8.3 Establish the Key Parameters
Principal Risk Components Key Parameters

Financial Risk Leverage Ratio
Liquidity Ratio
Profitability Ratio
Coverage Ratio
Business/Industry Risk Size of the business
Age of Business
Business Out look
Industry growth
Market Competition
Entry / Exit Barriers
Management Risk Experience
Succession
Team Work
Security Risk Security coverage
Collateral coverage
Support
Relationship Risk Account conduct
Utilization of limit
Compliance of covenants / condition
Personal deposit
Table: Key Parameters of Risk Components

4.8.4 Assign weights to each of the key parameters
Principal Risk Components Key Parameters weight

Financial Risk Leverage Ratio 15%
Liquidity Ratio 15%
Profitability Ratio 15%
Coverage Ratio 5%
50%
Business/Industry Risk Size of the business 5%
Age of Business 3%
Business Out look 3%
Industry growth 3%
Market Competition 2%
Entry / Exit Barriers 2%
18%
Management Risk Experience 5%
Succession 4%
Team Work 3%
12%
Security Risk Security coverage 4%
Collateral coverage 4%
Support 2%
10%
Relationship Risk Account conduct 5%
Personal deposit 2%
Compliance of covenants 2%
Utilization of limit 1%
10%
Table: Assigned weights to Key Parameters

4.8.5 Input Data to arrive at the score on the key parameters
After the risk identification and weighted assignment process, this step will be to input
actual parameter in the score sheet to arrive at the scores corresponding to the actual
parameters. The program requires inputting data accurately in particular cells for input
and will automatically calculate the risk grade for a particular borrower based on the total
score obtained.
4.9 Early Warning Signals from JBL
Early warning signals (EWS) indicate risks or potential weaknesses of an exposure

requiring monitoring, supervision or close attention by management. Despite a prudent
credit approval process, loans may still become troubled. Some risk symptoms that may
be highlighted by EWS-
4.9.1 Marginal/Watch List
If any loan is-
Past due/overdue for 60 days and above

frequent drop in security value or shortfall in drawing power exists
4.9.2 Special Mentioned
If any loan is-
Past due/overdue for 90 days and above

Major document deficiency prevails
Significant petition or claim is lodged against the borrower
The CRG form of EWS should be completed by the RM and sent to the approving
authority in the Credit Risk management Department. The CRG should be updated as
soon as possible in referring EWS accounts or any problem accounts to the CRM
Department for their early involvement and assistance in recovery.

4.10 Principles of Lending
Lending policy is a set of guidelines and criteria developed by a bank and used by its
employees to determine whether an applicant for a loan should be granted or refused the
loan. As such the banks are required to follow certain basic principles of lending. These
principles are:
Know Your Customer: Know Your Customer (KYC) is the most important
guiding principle of Janata Bank Ltd for extending credit facilities to its
prospective borrowers. Complying with this principle helps the bank to avoid
money laundering crime and adverse selection of borrowers.
Safety: Safety depends first upon,
1. The security and its value offered by the borrower.
2. The repaying capacity and willingness of the borrower to repay the loan
with interest.
Liquidity: It refers to the ability of an asset to be converted into cash without loss
and within a short time to meet depositor‟s demand for cash.
Profitability: Janata Bank Ltd must employ its fund in such a way that they will
bring adequate return for the bank, which should be more than cost of the funds.
Purpose: The purpose for which Janata Bank Ltd will provide loan should be
productive so that the money not only safe but also provides a definite source of
repayment.
Spread: It refers to the diversification of advance. So far Janata Bank Ltd could
maintain considerable margin on its disbursed loan but recently Bangladesh Bank
has imposed restriction on lending rate and to comply with Bangladesh Bank
policy guidelines, Janata Bank Ltd lowered its lending rate.

4.11 Basic lending Criteria for Credit Analysis of JBL
Credit analysis is the method by which a financial institution calculates the

creditworthiness of a person, business or organization. While each lending situation, bank
utilizes some variation of "The Five C's of Credit" when making credit decisions.
Character
Condition Capital
Collateral Capacity
4.11.1 Character
The lender decides whether or not borrowers are sufficiently trustworthy to repay the
loan. It is important that loan applicants get a copy of their personal credit report and
score before they apply for the loan and make sure that the information is accurate and
that there are not errors.
4.11.2 Capital
Business loan applicants must have a reasonable amount invested in their business, equity
investment. This reflects a personal commitment and ensures that, when combined with
borrowed funds, the business can start and continue operations.
4.11.3 Capacity
Borrowers have to be able to demonstrate their ability to repay the intended loan from
their business operation. Banks will require detailed financial projections showing when
business income will become cash and when the expenses must be paid.

4.11.4 Collateral
Collateral is a form of security which can be used to assure a lender that borrowers have a
second source of loan repayment. Assets such as equipment, buildings, accounts
receivable, and (in some cases) inventory are considered possible sources of repayment if
they can be sold by the bank for cash.
4.11.5 Conditions
Lenders will also consider local economic conditions and the overall climate, both within
the industry and in other industries that could affect the business.
4.12 Lending standards of JBL

For assessment of credit worthiness of a customer in respect of his specific objectives the
following lending standards will be followed by JBL for proper guidance of their lending
decisions:
LS-one Only lending will be extended when the customer will have the
capacity and ability to repay
LS-Two Asses the customer„s character for integrity and willingness to

repay.
LS-Three Only extend credit where we can sufficiently understand and

manage the situation.
Identify alternative repayment source and plan for the

LS-Four
possibility of default.
Ensure independent participation of officers in the credit

LS-Five
process.
LS-Six Behave ethically in all credit activities

LS-7 Be proactive in identifying, managing and communicating

credit risk.
LS-8 Be diligent in ensuring that credit exposures and activities

comply with JBL norms.
LS-9 Ensure the return from the customer vis-à-vis with the total risk
undertaken by the bank.
LS-10 Build and maintain a diversified credit portfolio.
Figure: Lending Standards of JBL
4.13 Classification of Loans and Provisioning of JBL

Loan classification is a process by which the risk or loss potential associated with the
loan accounts of the Bank on a particular date is identified and quantified. It is done to
determine the level of reserves to be maintained by the Bank for the probable loss on that
risky loan account.
4.13.1 Unclassified Loans

An unclassified loan or commitment is one that is set by Bangladesh Bank or the Head
Office of the Bank. Unclassified loans are those loans in which repayment is regular.
4.13.2 Classified Loans
A classified loan or commitment is one that is classified as substandard, Doubtful or Loss
as per policy of loan classification set by Bangladesh Bank or Head Office of the bank.
Loan Classification means to categorize the debt information in a systematic manner. But
in true sense it is defined in terms of degree of risk associated with these loans. The
objectives/importance of loan classifications are:
To find out Net Worth of a bank;

To assess financial soundness of a bank;

To calculate the required provision and the amount of interest suspense;

Strengthen credit discipline;
To improve loan recovery position and
To put the bank on sound footing in order to develop sound banking practice in
Bangladesh.
Position of classified loans and advances and other assets should be placed before the
Board of directors of the bank.
4.14 Lending Process of JBL
The lending procedure starts with building up relationship with customer through account
opening. The stages of credit approval are done both at the branches and at the corporate
office level. The lending procedure as observed in Janata Bank is described in sequential
order:
Application for loan from Customer
Getting CIB Report
Scrutinizing Documents Available
Project Inspection
Credit Analysis
Valuation of Collateral
Preparation of loan proposal
Approval Authority Determination
Approval of Head Office
Issuing Sanction Letter
Collection of charge Documents
Loan Disbursement
Figure: Steps in lending Process

4.14.1 Application for Loan from Customer
A loan procedure formally starts with a loan application from a client who must have an
account with the Bank. At first it starts from the branch level. Branch receives application
from client for a loan facility. In the application client mention what type of credit facility
he/she wants from the bank including his/her personal information and business
information. Branch Manager or the Officer-in-charge of the credit department conducts
the initial interview with the customer.
4.14.2 Getting CIB Report
After receiving the loan application from the client, the bank sends a letter to Credit
Information Bureau (CIB) of Bangladesh Bank for obtaining a credit inquiry report of the
customer from there. This report is called CIB (Credit Information Bureau) report. The
purpose of this report is to be informed that whether or not the borrower has taken loans
and advances from any other banks and if so, what is the status of those loans and
advances i.e. whether those loans are classified or not.
4.14.3 Scrutinizing Documents Available
If Bangladesh Bank sends positive CIB report on that particular borrower and if the Bank
thinks that the prospective borrower will be a good one, then the bank will scrutinize the
documents. Required documents are:
 In case of corporate client, financial documents of the company for the last three
years. If the company is a new one, projected financial data for the same duration
is required.
 Personal net worth of the owner (s).
 In this stage, the bank requires whether the documents are properly filled up and
duly signed. Credit in charge of the relevant branch is responsible enquire about
the ins and outs of the customer‟s business through discussing with him/them.

4.14.4 Project Inspection
Bank officials of the credit department will inspect the project for which the loan is
applied. Project existence, its distance from the bank originating the loan, monitoring cost
and possibilities are examined.
4.14.5 Approval Authority Determination
Any credit proposal needs to be evaluated on the basis of financial information provided
by the loan applicant. Financial spread sheet analysis which consists of a series of
quantitative techniques is employed to analyze the risks associated with a particular loan
and to judge the financial soundness and worthiness of the borrower. Besides, lending
risk analysis is also undertaken by the bank to measure the borrower‟s ability to pay
considering various risks associated the loan.
4.14.6 Preparation of loan proposal
Obtain legal opinion on the collateral provided by the applicant, whether those are
properly submitted- regular and up to date or else those documents are fake. Furthermore,
the valuation of the collateral is done by Third Party Valuation Company. Both the
market value and distress value are determined.
4.14.7 Credit Analysis
If the proposal meets Janata Bank‟s lending criteria and is within the manager‟s
discretionary power, the credit line is approved. The manager and the sponsoring officer
sign the credit line proposal and issue a sanction letter to the client.
If the value of the credit line is above the branch manager‟s limit then it is sent to head
office for final approval with detailed information regarding the client (s), credit analysis
and security papers.

4.14.8 Valuation of Collateral
The branch starts processing the loan at this stage. Based on the analyses (credit analysis)
done by the branch, the branch prepares a loan proposal. The proposal contains following
important and relevant information:
Name of the borrower Extent of the credit Rate of interest

Nature of credit Collateral Repayment schedule
Purpose of the credit Margin Validity
4.14.9 Approval of Head Office
Head office processes the credit proposal and afterwards puts forward an office notice if
the loan is within the discretionary power of the head office Credit Committee or board
memorandum if the loan requires approval from the Board of Directors.
4.114.10 Issuing Sanction Letter
If the Credit Committee of the head office or the Board, as the case may be, approves the
credit line, an approval letter is sent to the branch. The branch then issues a sanction letter
to the borrower with a duplicate copy. The duplicate copy duly signed by the borrower is
returned to the branch of the bank. This duplicate copy returned by the applicant proves
that the borrower agrees with the terms and conditions of credit line offered by the bank.
4.14.11 Collection of charge Documents
After issuing the sanction advice, the bank will collect necessary charge documents.
Charge documents vary on the basis of types of facility, types of collateral.
4.14.12 Loan Disbursement

Finally loan is disbursed by the branch through a loan account to the name of the
borrower and monitoring of the loan starts formally.

4.15 Role of Different Organizational Levels in Credit

Management Process of JBL
Janata Bank Ltd.‟s organizational structure has two levels- Branch and Head Office. The
credit proposal moves through different management approval levels according to the
amount of risks associated with the loan. There are three approval levels in Janata Bank
Ltd with regards to credit lending process:
1. Branch Manager and Branch Credit Department.

2. Zonal Head of the Bank.
3. Credit Committee of the Corporate Office.
4.15.1 Branch Level

 Adherence to the policy guidelines of the Head Office and the supplementary
policy guidelines of the Regional Office.
 Analysis of the command area.
 Determination of the requirements of incremental loan able funds.
 Allocation of the said funds to different sector and client groups during the budget
period.
4.15.2 Zone Level

 Analysis and settlement of the branch credit plan in a branch managers‟ meeting
in a democratic way.
 Transmission of the regional credit plan to the Head Office.
4.15.3 Regional Level
 Adherence to the policy guidelines of the Central Bank regarding deployment of
credits.
 Correction of zonal as they‟ll as sectorial imbalances if any.
 Settlement of credit plan of the bank for the budget year.

4.16 Disclosure of Risk Reporting

Proper risk reporting is an important factor for risk management. Reliability of financial
reports, timely feedback on the achievement of operational or strategic goals and
compliance with laws and regulations reveals in success of risk management. Key risks
are being reported to both internal and external controlling authorities as part of proper
and timely mitigation of risks.
4.16.1 Risk Monitoring and Reporting

 An effective risk monitoring procedure exists in Their bank to identify and measure
all quantifiable and material risk factors;
 They have a separate Management Information System Department which provides
necessary information to Risk Management Department and senior management for
understanding the bank‟s positions and risk exposures in time.
 Adequate and accurate reports containing sufficient information are being produced
to senior management for identifying any adverse trends and evaluating the level of
risk.
4.16.2 Reporting to Bangladesh Bank

Recently Bangladesh Bank has framed two kinds of risk reporting formats i.e. Monthly
Risk Management Report and half yearly Comprehensive Risk Management Report
(CRMR). As per regulatory requirement they prepare those reports covering all potential
risks in banking which are being sent to Bangladesh Bank on monthly and half yearly
basis along with resolution of the meeting.
4.16.3 Market disclosure
They have a formal disclosure framework approved by the Board of Directors containing
the key pieces of information on the assets, risk exposures, risk assessment processes and
the capital adequacy to mitigate the risks. The stakeholders will be able to assess the
bank‟s position regarding holding of assets, identification of risks relating to the assets
and capital adequacy to meet probable loss. They disclosed it in their official website and
annual report.

5.1 Ratio Analysis
5.1.1 Profitability Ratio
Profitability is the ultimate test of effectiveness of management. The profitability can be

measured by Return on Asset (ROA), Return on Equity (ROE), Net Income Margin, and
earnings per Share (EPS) and Dividend per Share ratio. The measurements of the
profitability of JBL Bank Limited for last six years have been presented through
calculation and graphical presentation.
Return on Asset (ROA)
The ROA of JBL Bank Limited are presented in the table below-
Table 1: Return on Asset (ROA)
ROA 2012 2013 2014 2015 2016 2017
Net 556/32 677.18/4 882.28/5 1719.5/659 2371.68/83 2198.96/10

Income/Tot 615 2522.58 7365.52 37.4 554..18 3510.7
al Asset
=.012 =.0159 =.0254 =.0261 =.028 =.0212
Interpretation: The ROA calculation of JBL Bank Limited states the return over the
total asset of the bank for past six years. Both the table and graph presents that banks
return on asset has been increased from 2012 to 2016, but after 2016 it slightly decreases
due to negative growth of net income in year 2017. It is mostly due to the economic
downtrend and share market debacle in year 2017. A huge quantity of investment income
from capital market has been decreased due to the market collapse. The graphical
presentation of ROA as follows:

Figure 1: ROA
ROA
0.5
ROA
0 ROA
Return on Equity (ROE)

The ROA of JBL Bank Limited for last six years (2012-2017) are presented in the table
below-
Table 2: Return on Equity (ROE)
ROE 2012 2013 2014 2015 2016 2017
Net 556/ 677.18/3 882.28/46 1719.5/66 2371.68/1 2198.96/125

Income/Tota 2647 326.52 21.25 56.52 0272 80.32
l Equity
=.21 =.20 =.191 =.261 =.23 =.17
Interpretation: The ROE calculation of JBL Bank Limited states the return over the
total equity of the bank for past six years. Both the table and graph presents that banks
return on equity has been increased in years 2015 and 2016, but after 2016 it slightly
decreases due to negative growth of net income in year 2017. It is mostly due to the
economic downtrend and share market debacle in year 2017. A huge quantity of
investment income from capital market has been decreased due to the market collapse.
The graphical presentation of ROE as follows-

Figure 2: ROE
ROE
0.25
0.2
0.15
0.1
0.05
5.1.2 Liquidity Ratio
A bank must survive in the short run to prosper in the long run. Banks liquidity ratio
measures the banks short term investment management as well as meeting demand of
short term liquidity of depositors. Soundness in liquidity ratio refers banks ability to pay
day to day demand of liabilities and how to earn by investing in short term investment
opportunities. Current ratio is effective measurement of liquidity for any bank. Banks
current ratio from 2012-2017 are calculated in the following table.
Table 3: Current Ratio
Current Ratio 2012 2013 2014 2015 2016 2017
Current 18750/859 19850/987 20250/1045 22385/1135 25780/1354 26829/117

Asset/Curren 0 0 0 0 0 52
t Liabilities
=2.18 =2.01 =1.93 =1.97 =1.9 =2.2
Interpretation: The table indicates the trend of current ratio of JBL Bank Limited. The
result reveals that from year 2014 banks current ratio has a decreasing trend. In year 2016
bank has the lowest current ratio comparing to the past six years. This is due to change in
the level of investment due to downtrend in capital market as well as the effect of global
financial crisis. The figure presents the results in graph.

Figure 3: Current Ratio
Current Ratio
2.2
2.1
2 Current ratio
1.9
1.8
1.7
2012 2013 2014 2015 2016 2017
5.1.3 Asset Turnover Ratio
Asset turnover ratio is a broad measure of efficiency because it measures the effect of
total asset to the revenue generation. Asset is the products that generate revenue. The
explanatory power of asset in revenue generation can be measured using the ratio.
Calculation of the ratio has been presented in the table-
Table 4: Asset Turnover Ratio
Asset 2012 2013 2014 2015 2016 2017

Turnover
Ratio
Revenue/Tot 3913.69/ 5269.03/ 7414.64/5 9333.03/65 10157.9/83 13923.05/1

al Asset 32615=.1 42522. 7365.5 937.4 = .14 554.18 03510.03=.
2 =.12 =.13 =.12 13

Interpretation: A constant trend has been revealed in calculation of Asset Turnover

Ratio of JBL Bank Limited. Both the table and graph below presents that banks this ratio
has been remain constant in years .2015 which is the highest among last six years, but
after 2017 it stands at 13%. Both the variables have increased in subsequent years. But
the growth of revenue is lower than the growth of asset. The graphical presentation of
Asset Turnover Ratio as follows-
Figure 4: Asset Turnover Ratio
Asset Turnover Ratio
0.14
0.13
Asset Turnover Ratio
0.12
0.11
2012 2013 2014 2015 2016 2017
5.1.4 Financial Leverage
Financial leverage refers to the relationship between liability and shareholders equity.
The following ratios are used to measure the leverage position of JBL Bank Limited-
Debt Ratio: Debt ratio indicates the portion of firm‟s total assets financed by borrowed
fund. The debt ratio position of the bank is as-
Table 5: Debt Ratio
Debt Ratio 2012 2013 2014 2015 2016 2017
Total 37515.8/32 38513/425 50310/5736 55910/65937 70914/83554. 81901/1035

Liabilities 615.0 22. 5.5 .4 18 10.3
/Total Asset
= .85 =.87 =.86 = .84 =.83 =.8

Interpretation: The table indicates the trend of Debt Ratio of JBL Bank Limited. The
result reveals that from year 2014 banks debt ratio has a decreasing trend. In year 2017
bank has the lowest Debt ratio comparing to the past six years. This is due to change in
the debt management strategy indicates the dependency on debt has been reduced by the
bank successfully. The global economic downtrend shifts the banks income growth in
decreasing trend causes banks to manage credit risk with cautions. The figure presents
the results in graph.
Figure 5: Debt Ratio
Debt Ratio
0.9
0.85
Debt Ratio
0.8
0.75
5.1.5 Capital Adequacy Ratio
Capital adequacy ratio states the banks equity position of tier 1 and tier 2 capitals over its
risk weighted asset. The calculation of capital adequacy from year 2012-2017 are shown
in the table following-

Table 6: Capital Adequacy Ratio (CAR)
Capital 2012 2013 2014 2015 2016 2017

Adequacy
Ratio
Tier 1+ 2471/25 3326.53/31 4440.28/41 6322.42/466 10033.9/91 11825.2/10

Tier 2 270.3 300.7 448.7 52 926.6 4975.9
Capital/
= 9.78% =10.61% =10.61% =13.5% = 10.91% =11.26%
RWA
Interpretation: The table indicates the trend of Capital Adequacy Ratio (CAR) of JBL
Bank Limited. The result reveals that from year 2012 bank maintains the required CAR
according to the guidelines of Bangladesh bank. In year 2017 CAR is 11.26% which is
higher than 10% requirement. It has been increased from 2016 due to increase in capital
reserve comparing year 2016. The figure presents the results in graph.
Figure 6: Capital Adequacy Ratio
CAR
15
10
CAR
5

5.2 Linear Discriminant Model

Altman Z Score model is widely used to measure the level of default risk of a particular
firm. This model estimates the level of risk that a firm will face the risk of default
considering five variables. The model includes-
Z= 1. 2X1++1.4X2+3.3X3+.6X4+1X5
Here, the variables are-
X1= Working capital/Total Asset
X2= Retained Earnings/Total Asset
X3= EBIT/Total Asset
X4= Equity Market value/Debt Book value
X5= Revenue/Total asset
Table 7: Z score of NCCBL
Year Calculation Score

2012 1.2(9177/103510)+1.4(1858/103510)+3.3(4210/103510)+.6*2.98+1*.13 1.94
2013 1.2(820/83554)+1.4(1820/83554)+3.3(4100/83554)+.6*5.06+1*.13 3.36
2014 1.2(1090/65937)+1.4( 1460/65937)+3.3(9137/65937)+.6*3.4+1*.14 2.07
2015 1.2( 1129/57365)+1.4(1234/57365)+3.3((8863/57365)+.6*1.89+1*.12 1.85
2016 1.2( 1280/42522)+1.4(1050/42522)+3.3(5580/42522)+.6*1.78+1*.12 1.88
2017 1.2( 1550/32615)+1.4( 1050/32615)+3.3(5187/32615)+.6*1.69+1-.12 1.86
Interpretation: Z score value less than 1.81 indicates the firm is in the level of default
risk. 1.81-2.99 indicates grey zone and >2.99 indicates safe zone. Table indicates year
2013 and 2014 Janata Bank was safer from the level of risk. In year 2015, 2016, 2017 and
2012 the banks Z score is close to 1.81. But all the six years banks Z value is higher than
the required level of 1.81.

5.3 Basel III compliance report

5.4 Market Disclosure for December 2017 (Under Pillar-III of

Basel III)
The reports will enable market participants to assess more effectively key information
relating to a bank‟s regulatory capital and risk exposures in order to instill confidence
about a bank‟s exposure to risk and overall regulatory capital adequacy. The qualitative
and quantitative disclosures of the bank under Basel-III requirements based on the
audited financial statements as of 31 December 2017 are prepared as per the guidelines of
Bangladesh Bank on “Risk Based Capital Adequacy for Banks” to establish more
transparent and more disciplined financial market.
5.3.1 Capital Structure
Assessing regulatory capital in relation to overall risk exposures of a bank is an integrated
and comprehensive process. JBL follows the „asset based‟ rather than „capital based‟
approach in assessing the adequacy of capital to support current and projected business
activities.

5.3.2 Credit Risk

Credit risk is the potential loss that may arise from a borrower‟s failure to repay a loan or
meet its obligation in accordance with agreed term. Banks are very much prone to credit
risk due to its core activities i.e. lending to corporate, SME, individual, other banks/FIs or
to another country.


5.5 Financial Highlights

5.6 Comparative Financial Highlights of JBL
(BDT in million unless stated otherwise)

5.7 SWOT Analysis

SWOT analysis is a critical analysis about an organization where Strength, Weakness,
Opportunities and Threats to that organization are analyzed. It includes all internal and
external aspects of the organization. The major objective of doing the SWOT Analysis is
to find out the internal Strengths that is, in which areas it is more forward than its
competitors and weaknesses that in which areas it has lacked. At the same time
organization can know the opportunities that are available in the market for it and threats
ahead from its competitors or other regulatory bodies.
I worked as an intern for three month in the Janata Bank Limited, Comilla Corporate
Branch. By this time, I tried to find out its Strengths, Weaknesses, Opportunities and
Threats. I wish this would help the bank to make its service better and make a greater
contribution to the society and to make a higher profit. The result of SWOT analysis is as
follows:
5.7.1 Strengths
1) Top Management
The top management of the bank, the key strength for JBL has contributed heavily
towards the growth and development of the bank. The top management officials are
highly educated and some of the most experienced banking personnel of our country.
2) Company Reputation
The reputation of the bank is increasing day by day. People are relying on this bank
gradually.
3) Modern Facilities and Computer
From the very beginning JBL tries to furnish their work surroundings with modern
equipment and facilities. For speedy service to the customer, JBL had installed money-
counting machine in the teller counter. The bank has computerized banking operation
under software called Flora banking. More over computer printed statements are
available to internal use and occasionally for the customers. JBL is equipped with telex
and fax facilities.

4) Stirring Branches
From the formative stage of JBL tried to furnish their branches by the impressive style.
Their well-decorated branches gets attention of the potential customer, this is one kind of
positioning strategy. The Branch is also impressive and is comparable of foreign banks.
5) Interactive Corporate Culture
The corporate culture of JBL is very much interactive compare to other local
organization. This interactive environment encourages the employee to work attentively.
Science the banking jobs is very much routine work oriented and lovely environment
boots up the work capability of the employees.
6) Team Work:
At Janata Bank Ltd mid level and lower level management there are often team works.
Many jobs are performed in groups of two or three in order to reduce the workload and
enhance the process of completion of the job.
5.7.2 Weaknesses:
1) Limitation of Information System (Flora Bank)
Flora bank is not comprehensive banking software. It is desirable that a more

comprehensive banking system should replace Flora bank system.
2) Hierarchy Problem
The hierarchy problem treated as a weakness for JBL, because the employee will not stay
for a long. So there will be a chance of brain drain from this bank to other bank. Another
important aspect of credit policy is pricing of loans. JBL bank„s management determine
rate of interest through considering the cost of their allocated fund. Bank„s management
proves their skill by determining their loan pricing which reflects on their high rate of
profitability. Comparing to the newly established Bank„s, JBL bank„s loan pricing is
competitive

3) Advertisement Problem
There is another weakness for JBL is advertisement. Their media coverage is so much
low that people do not know the bank thoroughly.
4) Disguised Employment
Currently there are ―Trombone heads but few hands‖. And this is related to the problem
of reference appointment. There are people who only drawing salaries at the end of the
month but making a minimum contribution towards the organization. On the other hand
there are who work hard but are not appreciated accordingly.
5) Inadequacy of ATM Booth
Today most of the commercial banks have more than 200 hundreds ATM Booths
countrywide through which they are providing smooth customer service. Janata Bank has
limited ATM booths in Bangladesh.
5.7.3 Opportunities
 In order to reduce the business risk, JANATA Bank has to expand their business
portfolio. The management can consider options of starting merchant banking or
diversify into leasing and insurance sector.
 The activity in the secondary financial market has direct impact on the primary
financial market. Banks operate in the primary financial market. Investment in the
secondary market governs the national economic activity. Activity in the national
economy controls the business of the bank.
 Opportunity in retail banking lies in the fact that the country„s increased
population is gradually learning to adopt consumer finance. The bulk of our
population is middle class. Different types of retail lending products have great
appeal to this class. So a wide variety of retail lending products has a very large
and easily pregnable market.
 A large number of private banks coming into the market in the recent time. In this
competitive environment Janata Bank must expand its product line to enhance its

sustainable competitive advantage. In that product line, they can introduce the
ATM to compete with the local and the foreign bank. They can introduce credit
card and debit card system for their potential customer.
 In addition of those things, JANATA Bank can introduce special corporate

scheme for the corporate customer or officer who have an income level higher
from the service holder. At the same time, they can introduce scheme or loan for
various service holders. And the scheme should be separate according to the
professions, such as engineers, lawyers, doctors etc.
5.7.4 Threats
1) Contemporary Banks
The contemporary banks of Janata Bank like: Dhaka Bank, Dutch Bangla Bank,
National Bank, The Trust Bank, Mercantile Bank is its major rivals. They are
carrying out aggressive campaign to attract lucrative clients as well as big time
depositors. JBL should remain vigilant about the steps taken by these banks, as
these will in turn affect JBL strategies.
2) Multinational Bank
The Rapid expansion of multinational bank poses a potential threat to new PCB„s.
Due to the booming energy sector, more foreign banks are expected to operate in
Bangladesh. Moreover, the existing foreign banks such as HSBC, CITI N.A, and
Standard Chattered are now pursing an aggressive branch expansion strategy.
Since the foreign banks have tremendous financial strength, it will pose a threat to
local bank to a certain extant in terms of grabbing the lucrative clients.
3) Upcoming Banks:
The upcoming private local banks can also pose a threat to the existing OPCB„s.
If that happens the intensity of competition will rise further and banks will have to
develop strategies to compete the foreign banks.

6.1 Findings
Proper Credit Management is the most important function of any Bank. But the credit
management activities of JBL suffer from some kinds of problems that are learnt from
discussion with officers, clients and also problems identified from the job observations.
The problems are as follows:
 Discussion with officers of the Head Office revealed that if the Bank collects more
deposit, it would be able to advance credit to more viable projects.
 A culture has been developed among the common people that Bank loans need not to
be repaid.
 Existing bad legal system is another greatest blow and curse to the credit management
system and alarming factor recovering loan from defaulter. In reality it is very
difficult, lengthy and expensive to have a verdict in favor of the Bank.
 Lengthy process of loan sanction or delay is a common problem of credit
management.
 Bangladesh Bank credit risk management policies requires bank to set lending
guidelines which JBL does and reviews on annual basis. As per BB requirement it is
set by top management.
 Due to changes in the export, import, foreign exchange policy as well as monetary
and fiscal long term financing suffer a lot.
 Usually Banks are responsible to provide loan to those who are eligible for the loan.
But in reality, small investors do not get the loan easily. They have to fulfill more
terms and conditions than those who have greater influence in the business
community.
 The banks in Bangladesh has faces a lot of illegal pressure from Political persons,
Directors and Management of the Bank for approval of loan. In that cases risk
managers are bound to approve the loan without any assessment and rationality.
 The risk management has often insufficient time for credit risk management. Huge
workload and hurries for loan approval prevent them from through assessment. So, it
is very troublesome to manage the risk in a prudent manner for the risk managers.

 Training of the risk managers is extremely essential for better risk management. Most
of the banks have not any regular training program. Lacks of proper training on credit
risk management risk managers often dose the mistakes on credit risk management.
 Credit quality depends on close follow –up and monitoring of loans. The follow-up
and monitoring of loans is not strong here. As a result Special Mention Accounts and
deteriorating credit are increasing day by day.
6.2 Recommendations
Based on statistical Research & My experience in working Janata Bank Ltd. as an intern,
I would like to put some of my Suggestions such as:
 Janata Bank should increase their Credit Monitoring speed.

 Should design to summarize the financials and necessary information of the clients
 Janata Bank can become flexible in their interest rate.
 Janata Bank can also increase their loan product in different sectors so that they can
earn more profit.
 Janata Bank can take necessary steps to promote their Credit card service which is
becoming popular day by day.
 Janata Bank should provide easier Credit system then other competitive Bank.
 The employee of Credit committee of JBL Try to develop their system.
 Credit committee can try to develop employee„s skills so that they can provide better
customer services.
 Credit department service can be faster with honesty.
 Sufficient Workforce are required to allocate a standard Risk Assessment time.
 Policies already put in place for the management and measurement of credit risk
should be reviewed from time to time to ensure its effectiveness i.e there should be
policy consistency.
 Establishment of credit policies and standards that conform to regulatory
requirements and the bank„s overall objectives to further reduce the level of their
credit risk exposure.

 The bank should work harmoniously in keeping aggregate credit risk well within the
bank„s risk taking capacity (risk tolerance).
 Developing and maintaining Credit Approval Authority structure to ensure appraisal
of only worthy credit facilities.
 Granting approval authority to qualified and experienced individuals to ensure job
competence.
 Setting systems to identify significant portfolio indicators, problem credits and level
of provisioning required.
 JBL should be system established for presentation of information about the bank„s
exposure to credit risk and its management and control over such credit risks in time.
 Assessment and the continuous monitoring of counterparty and portfolio to know
when loan is becoming non-performing.
 Interest earnings constitute a great proportion of the gross earning of banks, the bank
should be caution in increasing the rates charged on a loan.
 Loans to individuals should be accordingly secured e.g autos for car loans and private
or income producing real estate should be secured by a mortgage over the relevant
property.
 Borrowers should be adequately informed of the procedures involved in getting a loan
and the penalties given for defaulters.

6.3 Conclusion
As an organization Janata Bank Limited has earned the reputation of top banking
operation in Bangladesh. The organization is much more structured compared to any
other public commercial bank in Bangladesh. It is relentless in pursuit of business
innovation and improvement. It has a reputation as a partner of consumer growth.
With a bulk of qualified and experienced human resource, Janata Bank Limited can
exploit any opportunity in the banking sector. It is pioneer in introducing many new
products and services in the banking sector of the country. Moreover, in the overall-
banking sector, it is unmatched with any other banks because of its wide spread branch
networking thought the country.
The current situation of Janata bank Limited is satisfactory. But in the age of competition
if the bank does not provide extra ordinary that means superior services than it will be
difficult to continue banking because everybody wants to maintain quality. In loan and
advancement portion Janata Bank Limited has some problem. On the other hand in Ratios
– liquidity, efficiency and leverage ratio of Janata Bank Limited is satisfactory which
indicates better position of Janata Bank Limited. But profitability ratio of the bank is not
satisfactory so Janata Bank Limited should take necessary steps to beat the overall
problem as early as possible. And when Janata Bank Limited is able to overcome this
type of problem then it would be more structured compared to any other bank operating
local or foreign in Bangladesh.
The report has taken an effort to identify the problems and limitation of credit risk
management systems of Janata Bank Limited, Eventually, this report chalks out a sort of
findings and recommendation for improvement of credit risk management systems so that
bank may attain common standards for credit risk management. Like previous years,
Janata Bank Limited should continue to take regular initiatives to achieve better quality
portfolio and move the Bank forward.

References
 Annual Report of Janata Bank Limited (2013 to 2017), Janata Bank Limited.
 Risk Management Guidelines for banks, Bangladesh Bank (8 October, 2018)
 Bekhet, H.A and Eletter, SH.F. (2014), Credit risk assessment model for Jordanian
commercial banks: Neural scoring approach
 Basel Committee on Banking Supervision, Principles for the Management of Credit Risk,
September 2000.
 Eveline, N. (2010), Credit Risk Management in Banks as Participants in Financial
Markets
 Felix, A.T and Claudine, T.N (2008). Bank Performance and Credit Risk Management
 Garcia-Herrero, A., Gavila, S., Santabarbara, D. (2009), What explains the low
profitability of Chinese banks?
 Hosna, A., Bakaeva, M. and Sun Juanjuan (2009), “Credit Risk Management and
Profitability in Commercial Banks”
 Kargi, H.S. (2011). Credit Risk and the Performance of Nigerian Banks
 NJANIKE, K. (2009), The Impact of Effective Credit Risk Management on Bank
Survival.
 Rufai, A.S,2013, Efficacy of Credit Risk Management on the Performance of Banks in
Nigeria
 Murphy, A,(2003) An empirical analysis of the structure of credit risk premiums in the
Eurobond market.
 Lindblom.T, Olsson. and Willesson. M,2010, Financial crisis and bank profitability
Financial crisis and bank profitability.
 Abdel Mageid, N.S. (2103), The Impact of effective credit risk management on
commercial banks liquidity performance;
 www.banktrack.org
 www.bankedge.com
 www.bangladesh-bank.org/econdata/index.php

Appendices




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Credit Risk Management Practices of Janata Bank Ltd.

1.1 Background of the study

1.2 Rationale of the report

Department of Accounting & Information Systems, Comilla University Page 1

1.3 Objectives of the Study

 To learn how this functions are processed.

 To analyze the comparative Credit risk Management practices of Janata Bank

 To develop practical knowledge about Credit management.

1.4 Methodology of the Study

Sources of Secondary Data

Data Processing & Report Preparing

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1.5 Scope of the Study

 Credit management system.

1.6 Limitations of the report

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2.1 Background of Janata Bank Limited

2.2 Vision of Janata Bank Limited

To become the effective largest commercial bank in Bangladesh to support socio-

2.3 Mission of Janata Bank Limited

Janata Bank Limited will be an effective commercial bank by maintaining a stable

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2.4 Corporate profile of JBL

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2.5 Core Values of Janata Bank Limited

2.6 Objectives of Janata Bank Limited

The objectives for which the bank is established are as follows:

 Respond to the need of the time by participating in syndicated large loans

2.7 Services of Janata Bank Limited

Current Services Deposit Services Other

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2.8 Network in Bangladesh Map of Janata Bank Limited

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2.9 Logo and Corporate Slogan of Janata Bank Limited

2.10 Business Prospects of Janata Bank Limited

 Surplus Capital Adequacy after IPO subscription.

2.11 Business Line of Janata Bank Limited

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2.12 Award of Janata Bank Limited

2.14 Services Areas Janata Bank Limited

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Table: Branches of Janata Bank Limited

Source: Annual Meeting Report 2017

Table: Foreign Branches of Janata Bank Limited

Source: Annual Meeting Report 2017

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2.15 Ethical Principles of Janata Bank Limited

 Implement justice and fairness.

2.16 Future Plans of the Janata Bank Limited

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 Bringing all branches under online operation.

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3.1 Introduction of Credit Risk Management

3.2 Literature review

Literature Review means reviewing research studies or other relevant preposition in

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3.3 What is credit?

3.4 What is credit risk?

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Figure: Credit Risk Flowchart

3.5 Credit risk management (what it is and why it matters)