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Md Jamal HossainID: 16-050Department of Banking and InsuranceUniveristy of DhakaCredit Risk Management Practice in Bank: A Study on BASIC Bank LimitedWhat is Credit Risk Management?Credit risk means the probability that a bank borrower or counterparty will fail to meet its obligations The objective of CRM is to minimize the risk and maximize banks risk adjusted rate of return.Importance of CRM for Banking Institutions: Banks and other financial institutions must balance risks as well as returns.If the interest rates in loan products are too low, the bank will suffer from losses.Bank Must keep substantial amount of capital to protect its solvency .CRM helps banks be in compliance with Basel II Accord and other regulatory bodies. Advantages of Credit Risk Management:CRM helps to identify the possible loss of asset. The manager can know that how difficult it will be if a large loan default and affect the performance of bank. Effective credit risk management improves the current and future financial performance.Challenages of Credit Risk Mangement: The CRM practice will shell out cash from the bank funds. Employee training should be provided to ensure proper execution of risk management.Employees needs to be motivated regularly.

CRM Process in Banks:Overview of Basic Bank LimitedProvide the best banking services to all kinds of people KASTLE core Softwarelong term rating BBB1, short term rating ST-3 5Credit Principles of BASIC Bank Limited:6CRM Practice in BASIC Bank LimitedGeneral provision and Specific provisionWith proper amount of down paymentFile Transfer, Legal Notice, Write off Management7CRM performance of BBL (Trend analysis)CRM performance of BBL (Trend analysis)9CRM performance of BBL (Ratio analysis)The Impact of CRM on Banks Profitability Dependant VariableReturn on asset Independent VariablesNon performing loan ratio, loan loss provision and capital adequacy ratio ROA = a + b1* NPLR + b2*LLPR + b3*CAR . (1)The Impact of CRM on Banks Profitability Name of TestResultR.999R2.998Adjusted R2.991SSE.05464Regression Analysis:R = 0.999 expresses that there is a high degree of positive relationship between the ROA ( Dependent) and the independent variables NPLR, LLPR and CAR.R2 = 0.998 indicates 99.8% of the variability in obtained ROA is explained by the independent variables LLPR, NPLR and CAR.If a variable (say for NPLR) is added to the model, R Square = 0.991 becomes larger even if the added variable is not statistically significant.The value 0.0564 show the amount of variability of our estimated result and the actual result of the observation.The Impact of CRM on Banks Profitability Coefficient Analysis:An unit change in the independent variable NPLR causes the dependent variable ROA to change by an amount of -.353.An unit change in the independent variable LLPR causes the dependent variable ROA to change by an amount of .010.ROA will change by 0.041 with a unit change in CAR the movement of these two variables will be also in the same direction as the LLPR.Name of TestResultConstant2.195NPLR-.353PPLR.010CAR.041The Impact of CRM on Banks Profitability Anova TestHo (Null Hypothesis): 1 = 0 H1 (Alternative Hypothesis): 1 0If H0 is rejected, I have enough evidence to deduce that two of the parameters are not equal to zero and that overall relationship between ROA, NPLR, LLPR and CAR are significant. The summary of F- test is given below: F = MSR/MSE = 0.462/.003 = 154.620Here we accept alternative hypothesis. Thus there is a relationship between ROA and the credit risk management.Name of TestResultMSR0.462MSE0.003F154.620Sig.0.059Summary of FindingsCredit risk is an investors risk of loss arising from a borrower who does not make payments as promised. The importance of credit risk management for banking is tremendous because Banks and other financial institutions make profit from their credit disbursement. The main challenges of CRM are additional cost for training and employee motivation.The process of CRM contains several elements such as Credit processing, Approval, Documentation, Administration, Disbursement, Monitoring Credit classification and Credit recovery etc.Summary of Findings (Cont.)The BBL follows the rules and regulation given by the Bangladesh Bank in practicing Credit risk management. It generally focuses on industrial credit policy rather than general credit. The level of credit risk of BBL is in moderate level. The amount of total loans, unclassified loans and classified loans is in increasing trend. BASIC Bank maintains good amount provision against the classified loans. The NPLR and STLR ratio is in good level for BBL.The relationship between CRM and Banks profitability is positive. Therefore, it can be said that effective CRM can contributes on Banks financial performance.RecommendationsBBL should have a clear written guideline for CRM. It should adopt a credit grading system in which all facilities should be assigned.Approval authority should be delegated to individual executives rather than Executive Committee/ Board to ensure accountability. The employees of BBL should carefully check the customers KYC form, and take enough collateral before providing them loan.BBL should follow the CRG model provided by the Bangladesh Bank.BBL should keep as much as provision against the loans.BBL should lessen the NPL ratio low by the proper management of loan.BBL should provide better training to the employees about CRM.Conclusion As a leading financial institution of Bangladesh, BASIC Bank Limited has been maintaining its operation in a smooth way. Though the bank faced many problems, its proper lending policy make it very much cautious about the risk. A very skillful CRM department is always working with its full capacity to analyze the risk of its products and services. So far it has proved itself as a successful organization in assessing risk and thus takes care of it.