Credit risk management practices in Sonali Bank Limited

Abstract

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 minimize potential losses and ensure 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 reviews documents like loan applications, financial statements, market reputation, CRG, CIB report etc. to investigate credit risk. Manager has 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. Mirpur Shilpa Elaka 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.