Theoretical Framework with Graphical Representation
3.1 Primary Discussion:
Risks are by their nature uncertain and management of risks relies on judgment of risks and predictions about the future. Since uncertainty can adversely affect the profitability of the Bank and it can also deplete the Liquidity. So Jamuna Bank Limited always try to avoid any unforeseen problem. Credit risk is the risk or loss that may occur from the failure of any counter party to make required payments in accordance with agreed terms and conditions. This section lends the fund what the bank mobilizes through its various deposit accounts This is the second function of banks two generic function deposit mobilization and credit creation. The major part of banks income is derived from credit and since the banks credit is customer’s fund, bank takes extreme caution in lending. The true core business of banking is the profitable management of risk. The risk Management of Jamuna Bank Limited evolves identification, measurement and controlling risks to ensure that a. The Bank’s risk exposure is within the limits established by Board of Directors. b. The Bank’s risk taking decisions are in the line with the business strategy and objectives set by the Board of Directors of the Bank as well as Bangladesh Bank guidelines. c. The Bank’s risk taking decisions are explicit and clear. d. Sufficient capital as a buffer is available to take risk. One of the most crucial side of arising risk is the credit department. The following graph might clear about that:
The above circle makes us clear that JBL’s major portion of risk weight is carried by the credit section. So the proper credit management systems are required to avoid or minimize the credit risk which contains possibility of affecting the Bank’s profit. 3.2 Concepts of Credit Risk of JBL:
It arises mainly from lending trade finance, leasing and treasury business. This can be described as potential loss arising from the failure of a counter party to perform as per contractual agreement with the bank. The failure may result from unwillingness of the counter party or decline of his/her financial condition. Therefore, the Bank’s credit risk management activities have been designed to address all these issues. Steps have already been implemented of Bangladesh Bank requirements and some are in under process. A typical Credit Risk Management framework in JBL is broadly categorized into following main components:
Boards and senior management oversight.
Systems and Procedures for identification acceptance, measurement, monitoring, control risk. 3.3Credit Risk Management System:
Jamuna Bank Limited has established a robust credit risk management system to proactively manage loan portfolio in order to minimize losses. JBL being a progressive and dynamic private sector Bank formulated its own Credit Policy Guidelines to efficiently and professionally manage risks arising out of its credit operation. The credit policy guidelines was initially approved by the board of directors in the 59th meeting held on 08.01.2006. As per Credit Risk Management Guidelines of Bangladesh Bank, the credit policy of JBL has been refined from time to time. JBl has significantly improved risk management culture and established standards for segregation of duties and responsibilities relating to credit operation of the Bank.
It has formulated its own Credit Policy Guidelines in line with the core risk guideline of Bangladesh Bank.
The Policy takes into account the sectoral concentration and specific industry exposure cap is set in the policy.
Head office organizational structure is segregated in line with CRM Guideline i.e. Credit Marketing, Credit Approval and Credit Administration have been separated.
Borrower’s Risk Grades are assigned and mentioned in the credit proposals.
All disbursement is authorized centrally in the computer system only after confirming fulfillment of...
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