Risk Management Essay




It details important credit risk management policies which have been recommended pertaining to adoption by all banks in Bangladesh. The guidelines contained herein format general guidelines that are designed to control the rendering of more detailed lending techniques and risk grading systems within person banks. Lending Guidelines

All banks should have established Credit Policies (" Lending Guidelines”) that clearly outline the senior management's view of business development priorities and the terms and conditions that ought to be adhered to to ensure loans to become approved. The Lending Suggestions should be updated at least annually to reflect modifications in our economic prospect and the progression of the bank's loan stock portfolio, and be sent out to all lending/marketing officers. The Lending Guidelines should be given the green light by the Taking care of Director/CEO & Board of Directors from the bank based on the recommendation of the bank's Head of Credit Risk Management and the Brain of Corporate/Commercial Banking. (Section 2 . 1 of these rules refers) Any departure or deviation from the Lending Recommendations should be explicitly identified in credit applications and a justification intended for approval supplied. The Loaning Guidelines should certainly provide the important foundations intended for account officers/relationship managers (RM) to make their tips for approval, and really should include the subsequent: Discouraged Organization Types: Banks should format industries or perhaps lending actions that are frustrated. As a minimum, this should be disappointed: a. a) Military Equipment/Weapons Finance

a. b) Remarkably Leveraged Transactions

a. c) Finance of Speculative Assets

a. d) Logging, Vitamin Extraction/Mining, or perhaps other activity that is a. e) Ethically or Environmentally Delicate

a. f) Lending to companies outlined on CIB black list or known defaulters a. g) Table parties in countries susceptible to UN calamite

a. h) Share Lending

a. i) Taking a great Equity Share in Borrowers

a. j) Lending to Holding Companies

a. k) Bridge Loans relying on equity/debt issuance being a source of repayment. Loan Center Parameters: Facility parameters (e. g., maximum size, maximum tenor, and covenant and security requirements) should be plainly stated. As a minimum, the following guidelines should be implemented: Banks should never grant facilities where the bank's security location is second-rate to that of any other loan company. For example , foreign trade documents negotiated for countries like Nigeria.

Credit Assessment & Risk Grading

Credit Assessment

A thorough credit and risk examination should be conducted prior to the granting of loans, and at least annually afterwards for all features. The results of this assessment should be offered in a Credit Application that originates from the relationship manager/account officer (" RM”), which is approved by Credit Risk Management (CRM). The RM should be the owner of the customer relationship, and must be held accountable to ensure the accuracy of the entire credit application published for endorsement. RMs must be familiar with the bank's Financing Guidelines and really should conduct due diligence on new borrowers, principals, and guarantors. It is essential that RMs understand their customers and conduct due diligence on new borrowers, rules, and guarantors to ensure this sort of parties are actually who that they represent themselves to be. Every banks really should have established Understand Your Customer (KYC) and Money Washing guidelines that ought to be adhered to at all times. Credit Applications should summaries the outcomes of the RMs risk assessment and include, as a minimum, the following details: Amount and type of loan(s) proposed.

Reason for loans.

Loan Structure (Tenor, Covenants, Repayment Schedule, Interest) Security Arrangements

In addition , this risk areas should be dealt with:


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