Credit risk management practice in Sonali Bank Ltd.
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Sonali Bank Ltd. is the largest state owned commercial bank in Bangladesh with a total of 1203 branches. Total of 858 branches in rural and 343 branches in urban area. The functions of the bank covered a wide range of banking and functional activities to individual, firms, corporate bodies, Multinational agencies and the rural area. The bank provides more than 21 types of free services on behalf of the government of Bangladesh through its rural and urban branches as part of their commitment to society. Sonali bank Ltd. follows the rules and regulation prescribed by the Bangladesh bank. To manage credit risk, the Bank applies credit limits to its customers and obtains adequate collaterals. Credit risk in the Sonali Bank Ltd.'s portfolio is monitored, reviewed and analyzed by the Credit Risk Management (CRM). Sonali Bank Ltd. has established Asset-Liability Management Committee (ALCO) to determine the maximum risk exposure. Management is aware about guidelines of Bangladesh Bank and implemented new capital accord BASEL-II. Sonali Bank Ltd. constantly monitors, reviews and analyzes its credit portfolio to minimizing potential losses and ensuring efficient credit process. To manage the Non-Performing Loans (NPL), Sonali Bank Ltd. has a comprehensive remedial management policy, which includes a framework of controls to identify weak credits and monitoring of these accounts constantly. A through credit risk assessment is done by analyzing borrower, industry, demand/buyer, historical financial statements etc. Bank review documents like loan applications, financial statements, market reputation, CRG, CIB report etc. to investigate credit risk. Managers have to enquiry about loan applicant. Proper documentation is required before sectioning loans. They must conduct necessary KYC (Know Your Customer) part on the customer and Money Laundering Guidelines must be followed. On the basis of investigation the branch manager will prepare a credit report as per format provided by their head office. Sonali bank Ltd. Pabna branch is where I did my internship. Loan and advances are sanctioned according standard procedure. In this particular branch consumer loan and SHBL are most popular. Credit risk is relatively low. Recovery rate is 100% in consumer loans and SHBL. Performance of other loans is also good. As most of its credits are related only to two kinds of loans, its credits are not well diversified. So it faces credit concentration risk. As it is a rural branch opportunity for sanctioning large scale or industry loan is very limited. Most of the deposits are added to Sonali bank general account. To understand the effectiveness of CRM practices, I analyzed some key aspects which include Process of credit risk management in Sonali Bank, Credit risk management practices followed in Sonali Bank, the credit risk faced by the bank and Methods used to mitigate credit risk. I found the credit risk management practice of Sonali Bank Ltd. is quite admirable. However the credit sanctioning procedure is quite lengthy compared to today's business world. Systematic and timely monitoring and appropriate documentation are tried to be maintained. Scams like "Hall-Mark" exposed major weakness in top management. The bank should emphasize on reducing the classified and non-performing credits by concerted efforts. Filing has to be dealt with importance and Salary scale should be revised.