Selection of credit customers and assessment of working capital credit needs

Abstract

The paper captures my experience of working in the credit department of United Commercial Bank Limited, a privately owned commercial bank in Bangladesh. It provides a detailed description of the banks organizational structure, business plan, products and services, credit management, process of selecting of credit customers, sources of information for credit investigation, principles of sound lending, credit risk grading, credit granting and approval process, the assessment of working capital for credit needs, whilst including the entire set of responsibilities that were assigned to me. The key highlight of the paper however tries to dissect the two most important functions of the bank- Analyzing the creditworthiness of a customer and Forecasting the working capital of businesses for credit needs. The paper emphasizes on the techniques, methods and steps needed to assess one‟s credit rating. It further tries to deliver a comprehensive view of the entire Credit process by touching on various topics such as credit ratings, classification of different kinds of loans whilst providing a detailed step-by-step description of the total documentation process. Forecasting the working capital of businesses using various methods for the need of credit was another topic that this paper deeply addresses. It aims to provide a complete picture of how working capital needs are forecasted by describing the techniques and methods used to carry out the forecasting process. Various aspects such as the usage of the financial statements, the importance of forecasting tools such as financial ratios (most importantly the operating cycle ratio and it's components) are all mentioned here. It also incorporates other factors that considered in carrying out the forecasting process such as the importance of analyzing the current and future outlook of the economy. The inclusion of all these topics were intended for one purpose only which is to properly illustrate how a commercial bank carries out two of its most vital functions.