Credit Appraisal and Credit Risk Management - 13437 Words

MANAGING CORE RISKS IN BANKING: CREDIT RISK MANAGEMENT Industry Best Practices BANGLADESH BANK CREDIT RISK MANAGEMENT Industry Best Practices PREPARED FOR: BANGLADESH BANK PREPARED BY: FOCUS GROUP ON CREDIT RISK MANAGEMENT Team Co-ordinator: Team Members: Sudhir Chandra Das Ali Reza Iftekhar Niaz Habib A.G. Sarwar Brian J. McGuire Naser Ezaz Bijoy Page 2 INTRODUCTION: Risk is inherent in all aspects of a commercial operation, however for Banks and financial institutions, credit risk is an essential factor that needs to be managed. Credit risk is the possibility that a borrower or counter party will fail to meet its obligations in accordance with agreed terms. Credit risk, therefore, arises from the bank’s dealings with or†¦show more content†¦The Lending Guidelines should be approved by the Managing Director/CEO Board of Directors of the bank based on the endorsement of the bank’s Head of Credit Risk Management and the Head of Corporate/Commercial Banking. (Section 2.1 of these guidelines refers) Any departure or deviation from the Lending Guidelines should be explicitly identified in credit applications and a justification for approval provided. Approval of loans that do not comply with Lending Guidelines should be restricted to the bank’s Head of Credit or Managing Director/CEO Board of Directors. T he Lending Guidelines should provide the key foundations for account officers/relatio nship managers (RM) to formulate their recommendations for approval, and should include the following:  § Industry and Business Segment Focus The Lending Guidelines should clearly identify the business/industry sectors that should constitute the majority of the bank’s loan portfolio. For each sector, a clear indication of the bank’s appetite for growth should be indicated (as an example, Textiles: Grow, Cement: Maintain, Construction: Shrink). This will provide necessary direction to the bank’s marketing staff. Types of Loan Facilities The type of loans that are permitted should be clearly indicated, such as Working Capital, Trade Finance, Term Loan, etc. Single Borrower/Group Limits/Syndication Details ofShow MoreRelatedEvaluating The Effectiveness Of Credit Risk Management Tools Essay1565 Words   |  7 Pagesloans arise from credit risk or default risk which as defined by Jorion(2003) is the risk of an economic loss from the failure of a counterparty to fulfill its contractual obligations. Its effect is measured by the cost of replacing cash flows if the other party defaults. Credit risk can thus be seen to contribute significantly to the profitability of an organization and hence the need to hedge against such risk. This study aims to assess the effectiveness of credit risk management tools which areRead MoreThe Trend Of Bad Loans Of The Bank During The Past Five Years Essay1324 Words   |  6 Pagesnational inflation causes many businesses to fold up therefore rendering those businesses that have accessed loan facilities unable to pay up. High interest rates on loans was the second most cited reason for loan defaults amongst Moreover poor credit appraisal, ineffective monitoring, death and diversion of funds were also some of the factors that accounted for bad loans. 5.2.3 To determine the sector that records higher bad loans Research question three sought to determine the sector that recordsRead MoreThe Importance Of A Credit Risk Management973 Words   |  4 Pagesin process of controlling credit risk management by the banking industries from all over the world. Proper consideration of these factors in for the proper credit risk management process is very essential. 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Risk management should be a continuous and developing process which runs throughout the organization‟s strategy and the implementationRead MoreHigh Cost Mortgages : A New Office Of Housing Counseling1498 Words   |  6 Pages Subtitle C – High-Cost Mortgages redefines High-cost mortgage as a â€Å"consumer Credit transaction that is secured by the consumer’s principal dwelling†. These include credit transactions secured by a consumer’s principal dwelling whose interest rate is 6.5% more than the prime rate for similar transactions, subordinated mortgages secured by a consumers principal dwelling, points and fees, excluding mortgage insurance, and if the points and fees can be collected more than 36 months after a loan. NewRead MoreProject Finance and Loan Analysis Essay1668 Words   |  7 PagesIt is increasingly emerging as the preferred alternative to finance fixed assets and other large-scale projects. As a study, Project Finance includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds. As per the International Project Finance Association, ‘Project Finance’ is defined as â€Å"The financing of long-term infrastructure, industrial projects and public services, based upon a non-recourse (ProjectRead MoreThe Risks Of The Wholesale And The Smes.credit Risk1561 Words   |  7 Pagesbusinesses such that they have to show their credit worthiness before they are given a loan. The UK has been fluctuating due to global inflation rates and therefore this has caused uncertainty of the business. This has made the lending institutions to be strict in evaluating the credit risks of the wholesale and the SMEs.Credit risk will measure the probability of a business getting a loss due to a business failure of settling loans. This convectional credit risks results from the the possibilities of defaultingRead MorePersonal Finanace Plan1061 Words   |  4 PagesPersonal Loan $20,000 Credit Card Balance $4,500 Total $231,000 This indicates that while there are significant liabilities, most notably in the remaining mortgage balance which relates to the specific property owned. In terms of financial health the value of the assets is considerably higher than the remaining liabilities which is a positive indicator. However, there are perhaps more liabilities than would be considered optimal particularly with regards to the Personal Loan and Credit Card Balance which