Credit risk management in Prime Bank Ltd.
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Banks are exposed to five core risks through their operation, which are-credit risk, asset/liability risk, foreign exchange risk, internal control & compliance risk, and money laundering risk. Among these risks management of credit risk gets most attention. Credit risk arises due to the possibility that the borrower may fail to repay the loan. Following the recent global financial crisis, which originated from poor management of credit risk, credit risk is the most discussed topic in banking industry. Prime bank limited is the emerging commercial bank in Bangladesh. Within a short period of time PBL has managed to establish itself as a strong performer in the financial market. It is rapidly expanding and enjoying a high growth rate. Its loan portfolio is increasing every year. For this reason efficient management of credit risk is crucial for continuous success of PBL. All commercial banks operating in Bangladesh are strictly regulated by Bangladesh Bank. Bangladesh Bank has provided a guideline for credit risk management. All banks try to comply with that guideline. Prime bank is no exception of this practice. PBL has segregated the credit related activities. Marketing, preparation of credit proposal, other documentation, credit disbursement, credit monitoring etc are done at branch level. Credit administration and credit risk management related works are done at head office. At branch level, branch managers act as Relationship Manager (RM) to explore/find new business opportunities. If a new business is located he informs Head of Corporate Division using a call report. Corporate Division shall examine the call reports and communicate their initial views to the Branch about the proposed business. If the views are positive, HO will direct the concerned RM to send a complete business proposal to Corporate Division. Then the Branch submits complete proposal to H.O. CRM examines the proposal from different angles of risk and compliance and communicate their views. The branch shall execute/obtain documents/securities as per sanction advice & documentation check list and fill-up the documentation checklist and send a copy to CAD seeking authority for disbursement. Then it becomes the branch’s responsibility to monitor and follow-up the disbursed credit. There are several parts of credit risk management process. First of all credit administration and credit disbursement authorities are segregated. In PBL Head office administers credit while the branches prepare proposal and disburse credit. When a party approaches PBL for a loan, a loan proposal is prepared at branch level, which includes credit risk assessment report, credit risk grading report besides recommended amount of loan that can be disbursed. This proposal is sent to the Head Office for approval. If Credit Administration Department of Head Office sanctions the proposal then the amount is disbursed to that party. Monitoring the loan after disbursement is the branch’s responsibility.