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Credit Risk Management in Banks

In: Business and Management

Submitted By esha795
Words 7402
Pages 30
Executive Summary
Eastern Bank’s tagline is “Simple Math”. But it is not so simple to serve the borrowers with the right package. A bank’s major liability is to deliver significant returns to their depositors. Unlike returns to shareholders, this return is promised. Unless delivered, depositors may take back the return with a vengeance; bankrupting the bank in the process. The banks developed various form of debtor selection processes to protect themselves against depositors grudge, i.e. delinquency of borrowers. CRG (Credit Risk Grading) and CRR (Credit Risk Rating) together makes one of those processes.
This report is titled “Predicting Delinquency of EBL’s Corporate Customers.” EBL is one of the leading private commercial banks of Bangladesh. After starting its operation in 1992, the bank established itself as one of the most technologically advanced banks of the country. EBL has been offering diverse portfolio of products to its customer.
CRG process is a borrower selection process advised by Bangladesh Bank. Private commercial banks in Bangladesh use CRG to predict the possibility of delinquency in the form of CRR. EBL uses the same process. This report first develops a model to test the CRR against financial data of a firm. Data obtained from 35 borrowers of EBL were used to run a linear regression taking CRR ratings of respective firms as dependent variable. Running the regression, the model shows that CRR of a firm does not reflect the firm’s financial data properly. This in turn shows that the qualitative variables influence CRR more than financial variables.
With a second model and taking presence of rescheduling as measure of delinquency, a logit regression is run to find a solution to predict the probability of delinquency. However, due to insufficiency of data and qualitative variables, the model was of little use.
Using CRR to select the borrowers…...

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