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 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 six years information of EBL from 2005-2010. In the whole
report I also explain the credit policy and credit risk management of EBL..
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 20010, which will
make the overall position of the bank strong.
In the comparison part, I make compare
the credit risk of EBL, MTB &Trust Bank Limited. EBL has the less MTB ratio
than the two other commercial banks and the trend is in decreasing. Not only in
MTB 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. In the
regression analysis, I take NPL as dependent variable and GDP, CPI inflation,
as independent variables. And find positive relationship with CPI inflation,
and NPL and negative relation with GDP.
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.
1.0 Introduction
Banks
play pivotal role in molding of Economy. Banks are classified as two 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.
1.1 Origin of the
Report
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 “Internship
Program”. 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, Mirpur 11.
1.2 Objective of the Study
There had been
some objectives set forward in doing this report so that it can be determined
what task I have to perform in the bank. The objective of the report can be
divided into two parts-
§
To identify the
Credit Risk of EBL.
§
To have better orientation on credit management
activities specially credit policy and practices, credit appraisal,
credit-processing steps, credit management, financing in various sector and
recovery, loan classification method and practices of Eastern Bank Limited
(EBL).
§
To compare the Credit Risk condition of EBL with
the Trust Bank Ltd and Mutual Trust Bank
Ltd.(Based on last Six years)
§
To get an overall idea about the performance of
Eastern Bank Ltd.
§
To identify and suggest scopes of improvement in
credit management of EBL.
§
To fulfill the requirement of the internship
program under MBA program.
1.3 Methodology of the Study
A) Sources of data:
There are two sources of data have been used
and most of the data are collected from the secondary sources. The sources are-
- Primary Sources:
- Interviewing the bank officials of Credit Risk Management division and
- Official records and observing practical work
- Secondary Sources:
- Annual reports of EBL, MTB, Trust Bank Ltd,
- Published Booklets/Manuals of the Bank,
- Website of the Bank, Bangladesh Bank, BIBM, CPD, Ministry of Finance, etc.
- Various published documents like- Bangladesh Bank’s Monthly Economic Trend, Statistical Yearbook of BBS, Bangladesh Bank Annual Report etc.
B) Data analysis techniques:
This report is an analytical one. Different
statistical tools are used in analysis and presentation of data throughout the
report. The over all analysis techniques are-
·
Build
questionnaire and make Test of Hypothesis test, in order to find significant
relationship of the variables.
- To find out the relationship among different variables with NPL, GDP, CPI Inflation and Exchange Rate Multiple Regression Analysis is conducted in case of credit risk analysis.
- Compare the different banks credit risk scenario on the basis of ratio calculation.
- Microsoft Excel is used in calculating and constructing of graphs
- SPSS software is used to analyze correlation and multiple regression analysis.
- Tables, Pie Charts, Bar Charts and Line Graphs are used in presenting data.
1.4 Rationale of the Study
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 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 riskiness of a commercial bank is calculated
through long term and short term rating by the credit rating agencies. That’s
why; I prepare the report on the basis of Credit Risk.
1.5 Scope of the Study
The study would
focus on the following areas of Eastern Bank Limited.
-
Credit appraisal system of Eastern Bank Limited
-
Procedure and risk for different credit facilities.
-
Organization structures and responsibilities of
management.
Each of the above areas would be critically
analyzed in order to determine the efficiency of EBL’s Credit appraisal and
Management system.
1.6 Limitations of the Report
Actually, the truth is
that, the limitations of this report are well concrete. They have stated below
–
Ø Time:
It was one of the major limitations of
this report. Nevertheless, according to Parkinson’s Law: “Works tend to
expand to fill the time available’’. The subject matter of this report was
so vast that despite of the time given, I have not included all the aspects of
credit policy as I expected earlier. However, I tried my best to present this
report before the submission deadline.
Ø Inadequate
Discussion:
As a newcomer to banking service, I have
taken considerable time to understand this business. To make a solid report I
felt the urgency of communication with high-level employees but in commercial
bank time is money and there is no opportunity to make appointments with them.
I believe, inadequate discussion is one of the limitations of the report.
Ø
Restricted Disclosure:
The report will be very information worthy
if I get the opportunity to make a comparative analysis of credit policy and default
culture. Nevertheless, the fact is, most of the banks do not disclose consumer
loan data in a separate heading in the annual report. Moreover, trend analysis
of EBL consumer’s loan also lacks the historical data necessary to make a valid
forecast. Most of the loans have launched in recent times.
Ø Lack
of knowledge and experience:
Honestly, I agree that making a compliance
study on credit policy procedure consumer’s loan requires a great deal of
experience and current banking knowledge. As a MBA student, I do not possess
that kind of knowledge and experience.
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