Credit risk is one of the most vital risks for any commercial bank. Credit risk arises from non performance by a borrower. It may arise from either an inability or an unwillingness to perform in the pre-commitment contracted manner. The real risk from credit is the deviation of portfolio performance from its expected value. The credit risk of a bank is also effect the book value of a bank. The more credit of a particular is in risk, the more probability of a bank to be insolvent. Therefore, the status of depositor in the bank is at risk and probability of incurring loss from their deposited value. In other way the risky ness of a commercial bank is calculated through long term and short term rating by the credit rating agencies.
In my whole report, I was working on the credit risk of Eastern
Bank Limited. During the preparation of the report, I provide the last five years information of EBL from 2005-2009. In the whole report I also explain the credit policy and credit risk management of EBL. And I also make relationship of EBL credit risk with the probability of book value insolvency of EBL. Finally, I show the credit rating position of EBL compare to the banking industry in Bangladesh.
If I make focus on 2007, I found that EBL credit to deposit ratio was about to 104%, return on asset was about to 1.1, provision against classified asset was about to 50% and non performing loan was approximately 4.31%. Those ratio of EBL indicate that the credit risk in that year was more than any other year in the last five one. Compare to the last five financial years, EBL has got more comfortable position in case credit risk as well as profitability in 2009. The non performing loan ratio is decreased to 2.46% and return on asset is about to 2.34 in 2009, which will make the overall position of the bank strong.
In the comparison part, I make compare the credit risk of EBL, NBL &Trust Bank Limited. EBL has the less NPL ratio than the two other commercial banks and the trend is in decreasing. Not only in NPL ratio but also in ROA, EBL make a good distance with the Trust Bank Limited. In Capital Adequacy Ratio, EBL has shown great consistency over the two other commercial banks and the ratio is more than the Bangladesh Bank requirement of 10%.
In the credit risk part, I also find the relationship of Non Performing Loan with the some selected factors. For this I collect some data about the reliability of those factors on the basis of Questionnaire and make Test of Hypothesis & Chi Square Test. In those test I find significant relationship between the economical condition and NPL. In the regression analysis, I take NPL as dependent variable and GDP, CPI inflation, Exchange rate as independent variables. And find positive relationship between CPI inflation, Exchange rate and NPL and negative relation with GDP.
In the report, I try to find relationship between credit risk and probability of book value insolvency of EBL. In 2007, we observe that the credit risk of EBL is in bad position and also find the highest probability of book value insolvency by 0.054. In 2009, I watch that the probability of book value insolvency is in the lowest position by 0.012. In the regression analysis, I try to find relationship between RI as dependent variable and ROA, CAP as independent variables and find positive relationship between that independent variable with RI. In another regression, PBVI as dependent variable and RI, CAP as independent variable and find negative relationship between RI with PBVI.
In the final part of the report, I show the credit rating of EBL and compare it with the overall banking industry in Bangladesh. In 2007, the rating status of EBL both in Long term and Short term is very poor compare to the other commercial banks in Bangladesh. But in recent year, EBL makes great achievement in all operational sectors along with credit rating status.
Finally, I like to conclude that EBL is one of the most promising and fast growing bank in our country. According to its operational excellence, it is now competing with some renowned foreign commercial banks which are operating in our country. Hopefully it may achieve its target to simplify the banking system in Bangladesh through-
Banks
play pivotal role in molding of Economy. It is categorized in two parts such as
State-owned and Private Banks. And the needs of commercial banks in the country
are more important than the nationalized banks in many ways. Primarily,
commercial banks are the one of the major source of funds in the economy of
Bangladesh. By borrowing money from the locals and lending the same to the
locals as loans and advances, they perform an important function. Eastern Bank Limited is
a service and profit oriented organization. It gains profit through successful
efficient management, which is achieved through its human resources. Getting
and keeping good people is critical to the success of every organization,
whether profit or non-profit, public
or private. Those organizations that are able to acquire, develop, simulate, and keep
outstanding workers will be both effective and efficient. The report will give
and overall idea about the credit management of Eastern Bank Limited.
Therefore, like any other “Business School”, an opportunity is also offered by Dhaka University (Faculty of Business Studies) for its potential business graduates to get three months (twelve weeks) practical experience, which is known is as “InternshipProgram”. For the competition of this internship program, the author of the study was placed in a bank namely, “Eastern Bank Limited.” Internship Program brings a student closer to the real life situation and thereby helps to launch a career with some prior experience. Dhaka University has goals to produces world-class graduates within the local environment with knowledge and skill to provide leadership in enterprise, public service, and welfare of our society. Internship of Business Faculty is a step towards fulfilling this commitment by given the students an opportunity to get ready for the real world before they entire into their practical life.
This report
entitled “Credit Management of Eastern Bank Ltd.’’ originated from the
partial fulfillment of the internship program. For the internship program, each
student is attached with an organization. My internship was at the “Eastern
Bank Limited, Darus Salam.