Internship Report on SME Banking-Potential Actor in Economy from CRM Perspective

In present banking industry, SME financing is the spurring instrument to run on the financial sector. Short and Medium enterprises earlier considered as emerging vehicle of the economy now are on a flourishing trend with the favorable number of support from the banks as a financial intermediaries. SME financing is now constructing the economy building of the country with the major key role players of banking industry which will appear advanced in near future. In recognition of the strategic importance of the development of SMEs in promoting industrial growth, employment generation and poverty alleviation the SME sector has been declared as a priority sector in the Government Industrial Policy 2005 and various measures have been initiated to help maximizing the SMEs growth potential.

SME financing has been introduced so that expansion of SME growth will enhance the GDP of the economy as well as reduce poverty through expanding employment opportunities. As a result, all commercial banks and non-bank financial institutions (NBFI) are involved in providing SME financing services where as Bangladesh Bank (BB) has undertaken to refinance 18 Banks (out of 48) and 21 NBFIs (out of 29) to accelerate credit flows to the SME sector. But in case of SME lending, Banks considers it as unattractive and non-profitable undertaking because of its high risk constituting from low capitalization, insufficient assets and inability to comply collateral requirements of the banks. Even also administration cost for close monitoring and supervision the SME operation are also higher. Credit risk management is such a division for banks so that risk and other costs will be mitigated. The more efficient Credit risk management, the lower will be credit risks, and thus the higher lending to the borrowers. And so, despite all the facts banks and the financial institutions have been providing finance to the SME sector and the volume of finance is showing an increasing trend.

This report describes the SME opportunities as well as the SME banking facilities through credit risk management and the conditions of PCBs especially The City Bank Limited in contribution of SME lending along with its financial performance.

 Background of the Report
Credit Risk Management (CRM), considered as the very fundamental point for any financial institutions like Banks. Because through effective and efficient credit risk management, overall risk of the institutions can be alleviated. As so, each banking institutions follows the policies and rules of CRM provided by Bangladesh Bank. On the other hand, in developing economy like Bangladesh, SME is contributing an important role in GDP through increasing employment as well as reducing poverty to turn the economic growth to a pro-poor economic growth. As a result, most of the financial and non-financial institutions are involved in SME banking and concentrating more to provide superior service with maintaining a better credit policy to uphold its own financial growth.

Bachelor of Business Administration (BBA) Course requires usually a three months attachment with an organization followed by a report assigned by the supervisor in the organization and endorsed by the faculty advisor. As a mandatory program, opportunity of doing the internship was derived from the organization ‘The City Bank Limited.’ During the period of 10 weeks in SME segment of CRM Division (assigned from the organization) the organizational works and other relevant works and facts of the division was worthy learning for me. With the help of my organizational supervisor, it was able to gather understanding on assessing the creditworthiness of the borrowers through different issues, policies and research work. Consequently, the topic for internship report “SME Banking: Potential Actor In Economy From CRM Perspective: Comparative Study on The City Bank Limited” has been chosen by me and approved by my Faculty Supervisor to prepare. This report includes the learning of the CRM division that was experienced during internship period and also other relevant research works on SME and CRM.

1.2. Objectives of the Report
This report emphasizes the potentials of SME banking in the context of Credit Risk Management of the commercial banks in Bangladesh along with the conditions of The City Bank Limited. A huge research work has been performed for preparing this report. The objectives behind this research paper are pointed below:

1.2.1. Broad Objectives
The broad objective of this report is to figure out the situation of SME banking along with SME sector in the angle of CRM of various commercial banks of Bangladesh like The City Bank Limited. In this report, to measure performance in lending of the commercial banks is another objective of the report.

1.2.2 Specific Objectives
Other specific objectives have also been determined for this report:
§ To highlight the standpoint of Regulator (Bangladesh Bank) and figure out the SME financing directory
§ To study the performance of SME and its contribution towards banks’ profitability
§ To enclose a brief understanding on the CRM policies and procedures.
§ To show up the present situation of SME and SME banking situation in Bangladesh.
§ To scrutinize a relation of CRM procedure and SME banking.
§ To figure out The CBL’s position in the banking industry in SME context.

1.3 Scope of the Report
The report focuses mainly the potentials of SME banking deriving from the efficient Credit Risk Management. Besides the areas that the report is been prepared are-
§ Credit risk appraisal system under BB policies for credit risk management
§ Credit risk management of the CBL
§ SME banking conditions in Bangladesh
§ SME contribution in the economy

Each area mentioned above is related to the topic variable- SME banking and Credit Risk Management. Statistical data and the analysis have been included that focuses on the topic. Lastly, all the areas and parts of the report have been critically analyzed to fulfill the objective of the report.

1.4 Organization of the Report
The report- ‘SME Banking: Potential Actor in the Economy through CRM Perspective – Comparative Study on the City Bank Limited’ contains 7 chapters focusing the relation in between SME and CRM procedure. In the present chapter (Chapter - 1), an idea on the report topic, the methods of preparation and the data used for, analysis procedure on the report variable and most importantly the reasons, objectives of preparing of the report has been discussed. Chapter 2 focuses on the general view on CBL, chapter 3 focuses on the review on literature; chapter 4 describes issues of SME banking and CRM and the rest of the chapters focus on the analysis of the loan performance of CBL.
All this chapters are evaluated and written with effective analysis and research. Necessary items are attached as appendixes with sources from where the related papers are gathered. These chapters altogether are organized in such a way that will reveal the topic successfully.

1.5 Rationale of the Report
In present, SME sector is grabbing the interest of all economists, scholars, as well as general people. Its rapid growth and increased contribution to the GDP of the economy motivated the financial and non-financial institutions to provide better SME banking services. But though there are some obstacles of SME financing like high risk as low capitalization, insufficient assets, inability of meeting collateral requirements etc. of the borrowers, an efficient Credit Risk Management can drive the institutions to provide financing to SME sector.
Therefore, this report is prepared to work out that an efficient CRM can sustain the SME financing situation through the better services provided by the commercial banks in Bangladesh.