Internship Report On Default Risk Management of EXIM Bank Ltd.

Default risk management is a dynamic field where a certain standard of long-range planning is needed to allocate the fund in diverse field and to minimize the risk and maximizing the return on the invested fund. The objective of the default risk management is to maximize the performing asset and the minimization of the non-performing asset as well as ensuring the optimal point of loan and advance and their efficient management. Continuous supervision, monitoring and follow-up are highly required for ensuring the timely repayment and minimizing the default. Actually the credit portfolios not only constitute the bank’s asset structure but also a vital factor of the bank’s success. The overall success in credit management depends on the banks credit policy, portfolio of credit, monitoring, supervision and follow-up of the loan and advance. Therefore, while analyzing the credit management of banks, each risk managers or risk officers are required to analyze its credit policy, credit procedure and quality of credit portfolio.
This report points out the various functions and activities of default risk management and also explains the basic framework of regulations and policies regarding default risk management, that are exist in Bangladesh. This report divided into seven chapters. Chapter three describes profile of EXIM Bank Ltd., chapter four reflects the policy and guideline of default risk management, tools used to manage and measure default risk etc. It also reflects the default risk management practices followed by the EXIM bank limited: Its Loan classification, provisioning, loan monitoring, supervision, follow-up and review-Early alert process, credit recovery and NPL account management- legal and non legal measures for recovery of loans. While chapter five deals with the credit performance of EXIM Bank Ltd. It reflects the non-funded & funded credit exposure, industry wise credit exposure, geographical distribution of credit exposure, mode of exposure, maturity wise credit exposure and trend of loan & advances.

Through analysis sections in chapter-six, it has been tried to explain the effective monitoring and judgmental decisions for credit granting that may improve an institution’s overall financial health and thus may help to reduce the percentage of classified loans. Analysis section includes SWOT analysis; stress testing, regression analysis, CAMEL analysis and Trend analysis.

From the SWOT analysis I have identified that strong management, strong Islamic image and good design of services are the main strengths of EXIM BANK LTD., lack of motivation to clients, failure to attract large corporate clients are its major weaknesses, expansion of economy and evolution of modern technologies are major opportunities and political unrest, emergence of competitors, government initiatives to allow new commercial banks in Bangladesh are the major threats for the Bank.

EXIM Bank’s risk weighted capital adequacy ratio was 9.95% at the end of 2010 against regulatory capital requirement of 10% under Basel II. And the Bank’s risk weighted capital adequacy ratio was 10.88% at the end of 2011 against regulatory requirement of 10% under Basel II.

Then I have done stress testing for default risk to find out the impact of increase in the level of nonperforming loans of the bank. It involves six types of shocks. The first deals with the increase in the NPLs and the respective provisioning. The second deals with the negative shift in the NPLs categories and hence the increase in respective provisioning. The third deals with the fall in the forced sale value (FSV) of mortgaged collateral. The fourth deals with the increase of the NPLs in particular 1 or 2 sector i.e. garments & Textiles and the respective provisioning. The fifth deals with the increase of the NPLs due to default of Top 10 large borrowers and the respective provisioning. The sixth deals with extreme events in which due to increase in the certain percentage of NPLs, the whole capital position of a bank will be wiped out to offset the increased amount of provision due to cover respective loan losses. Simple stress testing results of EXIM Bank Ltd. reveals that the bank’s overall CAR would stay above the required level in minor and moderate shocks. But in major shocks the bank is exposed to risk to losing capital adequacy according to the required CAR.

From regression analysis it has been found that there exists strong relationship between profitability and amount of loan disbursement of EXIM bank.

In fine, this report contains some findings and recommendations, which may be helpful for the Bank.

Modern banks play an important part in promoting economic development of a country. Bank provides necessary funds for executing various programmers underway in the process of economic development. They collect savings of large masses of people scattered throughout the country, which in the absence of the banks would have remained ideal and unproductive. These scattered amounts are collected, pooled together & made available to commerce in industry for meeting the requirements.

Economy of Bangladesh is in the group of world's most underdeveloped economies. One of the reasons may be its underdeveloped banking system. Government as well as different international organizations have also identified that underdeveloped banking system causes some obstacles to the process of economic development. So they have highly recommended for reforming financial sector.
Banks are becoming more important to the economy as a whole and to local communities day by day. Certainly banks can be identified by the functions (service or role) they perform in the economy. Bank is a financial intermediary accepting deposits and granting loans; offers the widest menu of services of any financial institution. Banks are the most important financial institution in the economy. They are the principle sources of credit (loan able funds) for millions of individuals and families for many units of the government. Banks are also closely watched because of their power to create money in the form of easily spend able deposits by banks appears to be closely correlated with economic conditions, especially the growth of jobs & the presence of absence of inflation. The fact that banks creates money, which impacts the vitality of the economy. Bank provides individuals and business with loans that support consumption and investment spending.

Financial Institution perform the essential economic function of channeling funds from people who have saved surplus funds by spending less than their income to people who have a shortage of funds because they wish to spend more than their income. The channeling of fund from savers to spenders is so important to the economy because people who save are frequently not the same people who have profitable investment opportunities available to them. The absence of financial market individual lender and investor/borrower cannot get together. Without a financial market it is hard transfer funds from savers to investors/borrower. Financial intermediaries i.e. Depository Institutions like Commercial Bank, Savings & Loan Associations, and Credit Institutions. It mainly consists of export, import and other foreign remittance. Direct Investment, export import and foreign remittance etc. play an important role in a developing economy. There is a great opportunity to invest the foreign remittance, which also comes from 'wage earners' working abroad, in several prospective investing fields like energy sector, telecommunication, and information technology etc in our economy.

Measured by total assets, commercial banks are the most important financial intermediary. Like other financial intermediaries, they perform a critical function of facilitating the flow of funds from surplus units to deficit units.
Commercial banks basically focused on commercial lending. From the end of 19th century they are providing diversified services. Commercial Banks have different sections such as section focusing on lending; a section helps in foreign trade, a section that collects deposits. This study more or less relates with general Banking & credit risk management of EXIM Bank Limited.

With the globalization and technological innovation in the, banking business has become competitive. To cope up with this, bankers should give vast theoretical knowledge and professional knowledge as well as technical basic. BBA is a bachelor degree, is to provide students with the practical aspect of learning to the organizational setting. For the attainment of that purpose curriculum and syllabus is designed in a manner so that students are facilitated to give practical or empirical experience to some extent. As a BBA student of the University of Dhaka, with Finance, I felt financial institution was my destiny to gather the real practical knowledge. With a view to develop skilled professional in that area, the Internship program for BBA students is mandatory. For that consequence I prefer my Internship program in the banking sector and the organization is the EXIM Bank Limited.