A Study

On
Credit Risk Management of Jamuna Bank Limited

By
Raqibul Hasan
3-10-18-016

A Project Report
Submitted to the
Department of Management Studies

In Partial fulfillment of the requirements

for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

UNIVERSITY OF DHAKA
DHAKA 1000

JANUARY, 2013

i
 A Study
On
Credit Risk Management of Jamuna Bank Limited

Submitted by

Raqibul Hasan
3-10-18-016

Submitted to

Professor Dr. Md. Serajul Islam

Department of Management Studies
Faculty of Business Studies
University of Dhaka

UNIVERSITY OF DHAKA
DHAKA 1000

JANUARY, 2013

ii
FORWARDING OF THE SUPERVISOR

Dr. Md. Serajul Islam

Professor
Department of Management Studies
Faculty of Business Studies
University of Dhaka.

iii
 ABSTRACT

This project paper is aimed at evaluating the credit risk management policy of Jamuna
Bank Limited. Credit lending is the core activity of a bank. And risks are associated with
every steps of credit. That is why; there is a process to minimize the risks which is called
the credit risk management policy.

Jamuna Bank Limited is a third generation progressive bank. The report will focus on the
study of ‘Credit Risk Management’ in Jamuna Bank Limited. The basic objectives are to
provide the necessary and standard principles of credit risk management, figuring out the
various types of risks which are closely related with credit lending, and probable measure
to be taken to improve the policy. To exploit the study purpose, both primary and
secondary data were collected. For collection of primary data, a self administered survey
questionnaire was prepared, and a questionnaire survey was conduct upon the credit
officers of 20 branches. For secondary data, Credit Risk Management Manual,
Bangladesh Bank’s Guidelines, various credits related publications and journals were
used.

The report describes a brief discussion on credit risk management policy at pre and post
stages credit lending. The questionnaire discovered many important aspects of credit
lending, as well as discovered some weak points of risk management at Jamuna Bank
Limited. At the ending part of the report, these weak points were discussed and
recommendations were given about how to develop the credit risk management policy of
the bank.

iv
 ACKNOWLEDGEMENT

One of my pleasant moments is to recognize the people whose individual contributions

lead to the ultimate success of this report and I offer my thanks.

Professor Dr. Md. Sirajul Islam, Department of Management Studies, Faculty of Business

Studies, University of Dhaka, who guided and contributed to this work through his ideas,

criticism and day to day examples of commitment to excellence.

Mr. Motiur Rahman Patwary, First Executive Officer, Credit Risk Management Division,

Jamuna Bank Limited privileged me with necessary information. Without his cooperation

it might not be possible to organize this report. I am also thankful to my colleagues who

participated in the survey of questionnaire for the collection of primary data regarding

credit risk management.

Finally, all praise to Almighty Allah for giving us the strength and courage.

RAQIBUL HASAN

v
 TABLE OF CONTENTS

Abstract iv
Acknowledgement v
List of Figures ix
List of Tables ix
Abbreviations x

TITLE PAGE

CHAPTER 1: INTRODUCTION
1.1.Background of the Study 1-2
1.2 Statement of the Problem 2
1.3 Objectives 2
1.4 Significance of the Study 3
1.5 Limitations of the Study 3
CHAPTER 2: RESEARCH METHODOLOGY
2.1. Questionnaire Development 4
2.2. Population Parameter 4
2.3. Sample Design 4
2.4. Sampling Method 5
2.5. Data Collection Method & Instrument 5
2.6. Data Processing and Analyzing 6
CHAPTER 3: CREDIT RISK MANAGEMENT:
CONCEPTUAL FRAMEWORK
3.1. Introduction 7
3.2. Definition of Credit Risk & Credit Risk Management 8
3.3. Credit Risk Management Policies & Strategies 9-20
3.3.1. Credit Risk Identification 11
3.3.2. Credit Risk Measurement 12
3.3.3. Credit Risk Assessment 12-17
3.3.4. Credit Risk Monitoring 18-20
3.3.5. Credit Risk Control 20

vi
CHAPTER 4: ORGANIZATIONAL PROFILE:
JAMUNA BANK LIMITED(JBL)
4.1. Company Overview of JBL 21
4.2 Mission & Vision 21
4.3 Product Profiles 22
4.4 Competitive Status 22
4.5 Trends of Performance 23
4.6 SWOT Analysis of JBL 24-25

CHAPTER 5: CREDIT RISK MANAGEMENT POLICY:

JAMUNA BANK LIMITED (JBL)
5.1. Organizational Structure of Credit Operation 26
5.2. Segregation of Duties 27-28
5.3.Credit Principles of JBL 28-30
5.4 Discouraged Businesses for Bank Finance 30
5.5 Credit Risk Analysis of JBL 31-34
5.6. Sectoral Credit Concentration of JBL 35-36
5.7.Sectoral Outlook Considering Risk & Opportunity 37-42
5.8. Credit Risk Grading (CRG) System of JBL 42
5.8.1. Definition of Credit Risk 43
5.8.2 Function of Credit Risk Grading 43
5.8.3 Use of Risk Grading 43
5.8.4 Credit Risk Grading Definition 44-45
5.9 Computation of Credit Risk 46-52
5.9.1 Financial Risk 46-47
5.9.2 Business Risk 48-50
5.9.3 Management Risk 50-51
5.9.4 Security Risk 52-53
5.7.5 Relationship Risk 54
5.10 Allocate weight ages to Principal Risk Components 55-57

CHAPTER 6: STUDY RESULTS & FINDINGS

6.1 Results 58-71
6.2 Findings 72

vii
CHAPTER 7: CONCLUSIONS & RECOMMENDATIONS
7.1. Conclusions 73
7.2. Recommendations 74-75

Appendix 1 75-76
Appendix 2 77

Bibliography 78

viii
 List of Figures

Page

Fig 01: Credit Risk Management Procedure 10

Fig 02: Credit Risk Assessment Technique 12
Fig 03: Qualitative Technique for Credit Analysis 13
Fig 04: Dimension of Character for Borrower Analysis 14
Fig 05: Dimension of Capacity for Borrower Analysis 15
Fig 06: Dimension of Collateral for Borrower Analysis 16
Fig 07: Dimension of Condition for Borrower Analysis 17
Fig 08: Line of Authority for Credit Operation 26
Fig 09: Steps of Credit Risk Analysis of JBL 31
Fig 10: Sectoral Credit Portfolio of JBL (2011) 36
Fig 11: Financial Risks 47
Fig 12: Classifications of Credit Risk 54
Fig 13: CRM Strategy of JBL 71

List of Tables

Page

Table 01: Table of Performance of JBL 23

Table 02: Sectoral Credit Concentrations of JBL 35

Table 03: CRG Matrix 57

ix
 Abbreviations

CC Cash Credit

CIB Credit Information Bureau

CRG Credit Risk Grading

CRM Credit Risk Management

JBL Jamuna Bank Limited

KYC Know Your Customer

LDBP Local Documentary Bill Purchase

NGO Non-Government Organization

SME Small & Medium Enterprise

SWOT Strength, Weakness, Opportunity & Threat

R&D Research and Development

RMG Ready Made Garment