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Credit risk management of ncc bank limited bangladesh

The guidelines contained herein outline general principles that are designed to govern the implementation of more detailed lending procedures and risk grading systems within individual banks. Industry and Business Segment Focus: Types of Loan Facilities: The type of loans that are permitted should be clearly indicated, such as Working Capital, Trade Finance, Term Loan, etc.

Risk associated with cross border lending. For example, export documents negotiated for countries like Nigeria.

The RM should be the owner of the customer relationship, and must be held responsible to ensure the accuracy of the entire credit application submitted for approval.

It is essential that RMs know their customers and conduct due diligence on new borrowers, principals, and guarantors to ensure such parties are in fact who they represent themselves to be.

Credit Applications should summaries the results of the RMs risk assessment and include, as a minimum, the following details: Amount and type of loan s proposed. In addition, the following risk areas should be addressed: The majority shareholders, management team and group or affiliate companies should be assessed.

Any issues regarding lack of management depth, complicated ownership structures or intergroup transactions should be addressed, and risks mitigated Industry analysis.

Any customer or supplier concentration should be addressed, as these could have a significant impact on the future viability of the borrower.

An analysis of a minimum of 3 years historical financial statements of the borrower should be presented. Where reliance is placed on a corporate guarantor, guarantor financial statements should also be analyses. Specifically, cash flow, leverage and profitability must be analyzed. Loans should not be granted if projected cash flow is insufficient to repay debts. For existing borrowers, the historic performance in meeting repayment obligations trade payments, cheques, interest and principal payments, etc should be assessed.

Adherence to Lending Guidelines: The amounts and tenors of financing proposed should be justified based on the projected repayment ability and loan purpose. A current valuation of collateral should be obtained and the quality and priority of security being proposed should be assessed. Loans should not be granted based solely on security. Adequacy and the extent of the insurance coverage should be assessed.

These situations should be discouraged and treated with great caution. Rather, credit proposals and the granting of loans should be based on sound fundamentals, supported by a thorough financial and risk analysis. Appendix iv contains a template for credit application. Risk grading All Banks should adopt a credit risk grading system.

All facilities should be assigned a risk grade. Where deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities should be immediately changed. Borrower Risk Grades should be clearly stated on Credit Applications. The following Risk Grade Matrix is provided as an example. The more conservative risk grade higher should be applied if there is a difference between the personal judgment and the Risk Grade Scorecard results.

It is recognized that the banks may have more or less Risk Grades; however, monitoring standards and account management must be appropriate given the assigned Risk Grade: Approval authority should be delegated to individual executives and not to committees to ensure accountability in the approval process.

The role of Credit Committee may be restricted to only review of proposals i. Approvals must be evidenced in writing, or by electronic signature. Approval records must be kept on file with the Credit Applications. The aggregate exposure to any borrower or borrowing group must be used to determine the approval authority required.

Any credit proposal that does not comply with Lending Guidelines, regardless of amount, should be referred to Head Office for Approval. Banks credit risk management of ncc bank limited bangladesh aim to segregate the following lending functions: Audits should be carried out annually, and should ensure compliance with regulatory guidelines, internal procedures, and Lending Guidelines and Bangladesh Bank requirements.

Credit approval should be centralized within the CRM function. The key responsibilities of the above functions are as follows: To approve or declinewithin delegated authority, Credit Applications recommended by RM. To ensure that all security documentation complies with the terms of approval and is enforceable. To monitor insurance coverage to ensure appropriate coverage is in place over assets pledged as collateral, and is properly assigned to the bank.

Assignment Point - Solution for Best Assignment Paper

To maintain control over all security documentation. RMs should proactively monitor the financial performance and account conduct of borrowers.

Procedural guidelines This section outlines of the main procedures that are needed to ensure compliance with the policies contained in Section 1. Credit Applications should be recommended for approval by the RM team and forwarded to the approval team within CRM and approved by individual executives. In addition, banks may wish to establish regional credit centres within the approval team to handle routine approvals.

Executives in head office CRM should approve all large loans. The recommending or approving executives should take responsibility for and be held accountable for their recommendations or approval. Credit Administration The Credit Administration function is critical in ensuring that proper documentation and approvals are in place prior to the disbursement of loan facilities. Credit Administration procedures should be in place to ensure the following: Standard loan facility documentation that has been reviewed by legal counsel should be used in all cases.

Exceptions should be referred to legal counsel for advice based on authorization from an appropriate executive in CRM. Disbursements under loan facilities are only be made when all security documentation is in place. All Credit Approval terms have been met. Appropriate insurance coverage is maintained and renewed on a timely basis on assets pledged as collateral.

Security documentation is held under strict control, preferably in locked fireproof storage. All credit risk management of ncc bank limited bangladesh Bangladesh Bank returns are submitted in the correct format in a timely manner. Banks are referred to Bangladesh Bank circular outlining approved external audit firms that are acceptable.

The table below shows an indicative incentive plan for RU account managers: