Credit risk management of Bangladesh Commerce Bank LTD.

Abstract

Today’s economic policy is concerned to obtain the optimum economic condition in an economy. Banking sector is playing the pioneer role to achieve that optimum. The banking sectors channel resources through deposit mobilization and providing credit for different business venture. The successful running of bank business depends upon effective and efficient commercial and organizational activities of the commercial banks. Banking sector of Bangladesh entered into a new era when all the commercial banks and financial institutions were nationalized after the emergence of Bangladesh as an independent nation. Banks mainly collect deposits and lend funds in deficit sectors. Lending fund or providing credit is one of the prime tasks of banks and banks earn most of the profit from lending or providing credit in several sectors. So it is very essential for a bank to manage it credit as well as credit department properly and dynamically. Like other business Banks also face many risks, threats regarding their banking business both macro and micro level. Managing risk is also very important for banks. Among all the risks Credit risk is one of the most vital risks for any commercial bank. Credit risk arises from non performance by a borrower. It may arise from either an inability or an unwillingness to perform in the pre-commitment contracted manner. The real risk from credit is the deviation of portfolio performance from its expected value. The credit risk of a bank is also effect the book value of a bank. The more credit of a particular is in risk, the more probability of a bank to be insolvent. Therefore, the status of depositor in the bank is at risk and probability of incurring loss from their deposited value. In other way the riskiness of a commercial bank is calculated through long term and short term rating by the credit rating agencies. In my whole report, I was working on the credit risk of Bangladesh Commerce Bank Limited. During the preparation of the report, I provide the last five years information of BCBL from 2009-2014. In the whole report I also explain the credit policy and credit risk management of BCBL. The Bangladesh Commerce Bank Limited (BCBL) is a public limited company incorporated in Bangladesh under the Company Act, 1994. It is also guided by the Bank Company act, 1991 and Bangladesh Bank Ordinance 1972, so as to enable the company for doing banking business. For any kind of transaction BCBL plays an important role. BCBL is one of the leading commercial in the country. To maintain its leading position in Bangladesh, BCBL is always keen to develop long term relationship with trustworthy clients. Previously the bank concentrated more on revenue, but for the last few years risk factor gets special consideration in addition to revenue. In today’s modern and complex business world banks are the most important participants as they match the surplus & deficit unit by collecting deposit from surplus unit & lend it to the deficit 1 unit. Without banks a single transaction cannot be done efficiently now. And lending to customers is one of the basic tasks performed by the banks. Bank credit plays an important role in everyday business as well as personal life. Every bank provides loan according to their principals and regulations. Bangladesh Commerce Bank Limited also disburses loans carefully by following different rules and take necessary steps for the safety and recovery of the loans. The bank mostly gives short term loans and has priority towards commercial and industrial sector. Most of the loans disbursed by BCBL are in Dhaka and Chittagong division. The growth rate of loans and advances of BCBL is positive. Classified loans of BCBL are very much concentrated than before. BCBLs’ provision for all types of loans is high as they are very much careful about the security of their loans. The recovery system of BCBL is very much efficient that’s why the loan performance/loan recovery rate of the bank is also good. BCBL follows the BBs’ guidelines for the proper recovery of loans. The financial performance of the bank is also satisfactory. To maintain a profitable growth rate the bank should take some necessary steps like issuing easy and flexible credit policy, using modern technology in analyzing credit proposal and approval and ensuring proper management of loans and advances. If I make focus on 2009, I found that BCBL credit to deposit ratio was about to 98.78%, return on asset was about to 2.81, and non performing loan was approximately 4.31%. Those ratio of BCBL indicate that the credit risk in that year was more than any other year in the last five one. If I make focus on 2009, I found that BCBL credit to deposit ratio was about to 98.78%, return on asset was about to 2.81, and non performing loan was approximately 4.31%. Those ratio of BCBL indicate that the credit risk in that year was more than any other year in the last five one. In the credit risk part, I also find the relationship of Non Performing Loan with the some selected factors like GDP growth rate, Exchange rate. For this I collect some data about the reliability of those factors on the basis of Questionnaire and make Test of Hypothesis and regression analysis. In those test I find significant relationship among the economic condition, deposit, loan, NPL and banks profit. In the regression analysis, I take NPL as dependent variable and GDP, Exchange rate as independent variables. And find negative relation Exchange rate and GDP with NPL. Finally, I like to conclude that BCBL is one of the most promising and fast growing bank in our country. According to its operational excellence, it is now competing with some renowned foreign commercial banks which are operating in our country.