Internship Report On Credit Management of Eastern Bank Limited


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-
  1. Primary Sources:
    1. Interviewing the bank officials of Credit Risk Management division and
    2. Official records and observing practical work
  2. Secondary Sources:
    1. Annual reports of EBL, MTB, Trust Bank Ltd,
    2. Published Booklets/Manuals of the Bank,
    3. Website of the Bank, Bangladesh Bank, BIBM, CPD, Ministry of Finance, etc.
    4. 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.