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CHAPTER 1:
INTRODUCTION

1.1 Introduction

Financial services firms are in the business of accepting risk. Primary aims of any financial services firm are collect and manage risks on behalf of their customers and make a profit for its shareholders. We may define ‘Risks’ as uncertainties resulting in adverse outcome, adverse in relation to planned objective or expectations. In the financial arena, enterprise risks can be broadly categorized as credit risk, operational risk, market risk and other risk. Credit risk is the oldest and important risk which banks exposure and important of credit risk and credit risk management are increasing with time because of some reasons like economic crises and stagnation, company bankruptcies, infraction of rules in company accounting and audits, growth of off-balance sheet derivatives, declining and volatile values of collateral, borrowing more easily of small firms, financial globalization and BIS risk-based capital requirements.

Credit risk can be defined as the risk of losses caused by the default of borrowers. Default occurs when a borrower can not meet his financial obligations. Credit risk can alternatively be defined as the risk that a borrower deteriorates in credit quality. This definition also includes the default of the borrower as the most extreme deterioration in credit quality. Credit risk is managed at both the transaction and portfolio levels. But, banks increasingly measure and manage the credit risk on a portfolio basis instead of on a loan-by-loan. In credit risk management banks use various methods such as credit limits, taking collateral, diversification, loan selling, syndicated loans, credit insurance, securitisation and credit derivatives. Credit risk is considered as a critical factor that needs to be managed by the banks and financial institutions.

Credit Risk Management process permits the banks to proactively manage loan portfolios in order to minimize losses and earn a satisfactory level of return for shareholders. It includes detection, measurement, matching mitigations, supervision and control of the credit risk exposure. The purpose of credit risk management is to ensure that individuals taking the risk have full knowledge about it, the bank or financial institution is exposed to an approved risk limit, the risk related decisions are in line with the business strategies, the compensation for the risk is adequate and sufficient capital support is there to buffer the risks. Credit Risk Management process includes Credit Investigation, Financial Analysis, Credit Assessment, Credit Approval, Documentation, Monitoring ( Follow up, Supervision and Control) and Credit Recovery procedures.

Banks and Financial Institutions have high exposure to credit risk and Pubali Bank was initially emerged in the Banking scenario of the then East Pakistan as Eastern Mercantile Bank Limited at the initiative of some Bang alee entrepreneurs in the year 1959 under Bank Companies Act 1913 . After independence of Bangladesh in 1972 this Bank was nationalised as per policy of the Government and renamed as Pubali Bank. The bank is pledge-bound to serve the customers and the community with utmost dedication. The prime focus is on efficiency, transparency, precision, and motivation with the spirit and conviction to excel in both value and image. In this respect, Pubali Bank has established its own credit policy which will guide them in achieving their target of maximum value addition through an efficient and effective credit risk management.

1.2 Objectives of the study
The objectives of this study are as follows:

i) To have a sound understanding of credit risk management system and procedure followed in the Pubali Bank Limited. ii) To gain knowledge about the credit related operations and maintenance in this bank. iii) To analyze in detail the credit risk management process of the bank and to make recommendations if needed....
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