Credit Risk

In: Business and Management

Submitted By blackhawk1978
Words 3380
Pages 14
CHANGE MANAGEMENT
Abstract:
Change is an important characteristic of most organisations. Nothing is permanent except change. It is the duty of management to change properly. An organisation must develop adaptability to change otherwise it will either be left behind or be swept away by the forces of change. There are many forces which are acting on the organisation which make change not only desirable but also inevitable. These forces include technology, market forces and general socio- economic environments. These are the external forces which necessitate change in internal organisational variables like machinery, equipments and processes, policies and procedures, structural relationship.
Change may be proactive or reaction. A change initiated by the management is called proactive change. On the other hand, a change brought by the management due to pressure by external forces is known as reactive change. For example, when management introduces a new labour welfare scheme to improve employee motivation, it is a proactive change. If such a scheme is introduced due to pressure by the trade union, it is a reactive change.

INTRODUTION:

An organisation is a open system which implies that it is in a constant interact ional relationship with its external environment. Any change in its external environment, such as changes in consumer tastes and preferences, competition, economic policies of the government, etc., make it imperative for the organisation to make changes in its internal system. Further, organisation is composed of number of subsystems which are also in a dynamic relationship of interaction and interdependence with each other. Any change in a subsystem creates a chain of changes throughout the entire system. For instance, if the purchase manager of a company leaves the organisation and the purchase department fails to get timely supplies of raw…...

Similar Documents

Credit Risk

... was moderate while that of human was light. The weather condition was dry with clear visibility. I was driving at a speed of 50Kilometres per hour keeping to the right inner lane of the dual carriage way. On passing road junction to South “B” (Kapiti Road), I noticed pedestrians who were crossing the road from the left side to the right. They then stopped at the middle lane to allow the traffic on the middle lane to pass. This forced me also to slow down. Suddenly as I was passing, one of the pedestrians dashed on my lane and collided with my vehicle. The impact was with my vehicle’s front body panel. On impact, he fell on the right hand reserve lane having gone over the bonnet. As a result, he sustained injuries. I managed to stop the vehicle about 10 metres from the impact point. The victim was picked by Red Cross ambulance which rushed him to hospital. Police from Industrial Police Station came to the scene where they took scene details. I drove the vehicle to Industrial Area Police Station That is all I can state. R.O.C NAME : GEORGE S. OGUTU DATE : 5/7/2012 TIME : 1.30 P.M. SIGNED : ___________________ CREDIT RISK Most financial institutions devote considerable resources to the measurement and management of credit risk. Regulators have for many years required banks to keep capital to reflect the credit risks they are bearing. This capital is in addition to the capital, described in Business Snapshot 20.1, that is required for market risk. Credit risk arises from......

Words: 3863 - Pages: 16

Credit Risk

...Commercial Banking The first category of credit risk models are the ones based on the original framework developed by Merton (1974) using the principles of option pricing (Black and Scholes, 1973). * the default process of a company is driven by the value of the company’s assets and the risk of a firm’s default is therefore explicitly linked to the variability of the firm’s asset value. * The basic intuition behind the Merton model is relatively simple: default occurs when the value of a firm’s assets (the market value of the firm) is lower than that of its liabilities. * The payment to the debt holders at the maturity of the debt is therefore the smaller of two quantities: the face value of the debt or the market value of the firm’s assets. * Assuming that the company’s debt is entirely represented by a zero-coupon bond, if the value of the firm at maturity is greater than the face value of the bond, then the bondholder gets back the face value of the bond. * However, if the value of the firm is less than the face value of the bond, the shareholders get nothing and the bondholder gets back the market value of the firm. The payoff at maturity to the bondholder is therefore equivalent to the face value of the bond minus a put option on the value of the firm, with a strike price equal to the face value of the bond and a maturity equal to the maturity of the bond. Following this basic intuition, Merton derived an explicit formula for risky bonds which...

Words: 1011 - Pages: 5

Credit Risk

...Credit risk is the current and prospective risk to earnings or capital arising from an obligor’s failure to meet the terms of any contract with the Bank or otherwise to perform as agreed. Credit risk is found in all activities in which success depends on counterparty, issuer, or borrower performance. It arises any time bank funds are extended, committed, invested, or otherwise exposed through actual or implied contractual agreements, whether reflected on or off the balance sheet. Quantity of Credit Risk Indicators The quantity of credit risk is derived from the absolute amount of credit exposure and the quality of that exposure. How much credit exposure a bank has is a function of: • The level of loans and other credit/credit-equivalent exposures relative to total assets and capital and The extent to which earnings are dependent on loan or other credit/credit-equivalent income sources. • Banks that have higher loans-to-assets and loans-to-equity ratios and that depend heavily on the revenues from credit activities will have a higher quantity of credit risk. To determine the quantity of credit risk, the quantitative and qualitative risk indicators should be reviewed. These indictors can be rapid growth, high past-due levels, exceeds historical norms, or changes in trends or changes in portfolio mix. The following evaluation factors, as appropriate, should be used when assessing the quantity of credit risk. As assessment of low, moderate, or high......

Words: 283 - Pages: 2

Credit Risk

...W. Ruland, Spring 2009 Credit Risk The Issue Will the loans will be paid on-time and in full. Who Should Understand Credit Risk? Borrowers Prospective lenders including those who sell on account Should they lend? How should they structure the loan? Shareholders Potential purchasers of products or services Credit Ratings Important to the business Influences the cost of borrowing; perhaps the ability to borrow, Influences the market for its securities given that some investors such as certain pension funds may invest in a firm only if the credit rating exceeds a certain amount. The firms pay the agencies to be rated. Ratings are for specific debt issues; not the entire corporation. In early 2008, Defaultrisk.com reported that at that time, there were 64 rating agencies worldwide. SEC registration. Nationally Recognized S Ratings Organizations are credit rating services that meet certain criteria enabling them to register with the SEC. Eight firms qualified when the book was published; increased to 10 (as of Fall 2008). Page 4-25 managerial decision case. When businesses take measures to improve credit ratings, what are the potential costs? Evaluating Credit Risk -- the Five C’s Character Expected reaction when things get rough Capacity Ability to generate future cash flow for loan service Conditions The future of the business and the economy Capital The balance sheet Collateral...

Words: 1601 - Pages: 7

Credit Risk Modelling

...Statistical Methods in Credit Risk Modeling by Aijun Zhang A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy (Statistics) in The University of Michigan 2009 Doctoral Committee: Professor Vijayan N. Nair, Co-Chair Agus Sudjianto, Co-Chair, Bank of America Professor Tailen Hsing Associate Professor Jionghua Jin Associate Professor Ji Zhu c Aijun Zhang 2009 All Rights Reserved To my elementary school, high school and university teachers ii ACKNOWLEDGEMENTS First of all, I would express my gratitude to my advisor Prof. Vijay Nair for guiding me during the entire PhD research. I appreciate his inspiration, encouragement and protection through these valuable years at the University of Michigan. I am thankful to Julian Faraway for his encouragement during the first years of my PhD journey. I would also like to thank Ji Zhu, Judy Jin and Tailen Hsing for serving on my doctoral committee and helpful discussions on this thesis and other research works. I am grateful to Dr. Agus Sudjianto, my co-advisor from Bank of America, for giving me the opportunity to work with him during the summers of 2006 and 2007 and for offering me a full-time position. I appreciate his guidance, active support and his many illuminating ideas. I would also like to thank Tony Nobili, Mike Bonn, Ruilong He, Shelly Ennis, Xuejun Zhou, Arun Pinto, and others I first met in 2006 at the Bank. They all persuaded me to jump into...

Words: 38376 - Pages: 154

Credit Risk Management

...INTRODUCTION 1.1 Origin of the Report Bachelor of Business Administration (BBA) Course at Shanto Mariam University of Creative Technology (SMUCT) requires a three months attachment with an organization followed by a report assigned by the supervisor in the organization and endorsed by the faculty advisor. As I am already working for Dhaka Bank Limited (DBL), I took the opportunity to do my internship in my own organization. … also approved the topic and authorized me to prepare this report as part of the fulfillment of internship requirement. 1.2 Background of the Report Last year Bangladesh Bank undertook a project to review the global best practices in the banking sector and examines in the possibility of introducing these in the banking industry of Bangladesh. Four 'Focus Groups' were formed with participation from Nationalized Commercial Banks, Private Commercial Banks & Foreign Banks with representatives from the Bangladesh Bank as team coordinators to look into the practices of the best performing banks both at home and abroad. These focus groups identified and selected five core risk areas and produce a document that would be a basic risk management model for each of the five 'core' risk areas of banking. The five core risk areas are as follows- a) Credit Risks; b) Asset and Liability/Balance Sheet Risks; c) Foreign Exchange Risks; d) Internal Control and Compliance Risks; and e) Money Laundering Risks. Bangladesh Bank in one of it’s circular...

Words: 19151 - Pages: 77

Credit Risk Managment

...Credit risk management with reference to Punjab national bank Naupad, thane Dissertation Submitted to the Padmashree Dr. D.Y. Patil University in partial fulfillment of the requirements for the award of the Degree of MASTERS IN BUSINESS ADMINISTRATION Submitted by: KUNAL JOSHI (Roll No. 01102) Research Guide MR. MANGESH JADHAV Assistant Professor Department of Business Management Padmashree Dr. D.Y. Patil University CBD Belapur, Navi Mumbai APRIL 2013 Declaration I hereby declare that the dissertation “Credit risk management with reference to Punjab national bank, naupada thane” submitted for the MBA Degree at University’s Padmashree Dr. D.Y. Patil Department of Business Management is my original work and the dissertation has not formed the basis for the award of any degree, associate ship, or any other similar titles. Place: Mumbai Date: KunalPratap Joshi CERTIFICATE This is to certify that the dissertation entitled “Credit risk management with reference to Punjab national bank, naupada thane” is the bonafide research work carried out by Mr. Kunal Joshi student of MBA, at Padmashree Dr. D.Y. Patil University's Department of Business Management during the year 2011 -2013, in partial fulfillment of the requirements for the award of the Degree of Master in Business Management and that the dissertation has not formed the basis for the award previously of any degree, diploma, associate ship, fellowship or any other similar...

Words: 18460 - Pages: 74

Credit Risk

... reinforce the change and allow employees to avoid the change and then do nothing about it. 10. Totally Unaccepted Changes Yet another change management issues is determining if a change will be good or bad. It is really that simple. A good idea on paper may not consider the human element and, therefore, not work at all, no matter how well thought out. Change in any area, no matter how large or small should be discussed and involve the people it will effect on every level. Allow for input from staff and consider that input wisely and compare it to your written change plan. Often, a competitor’s idea of change that worked doesn’t mean it will work for you. Tools and techniques to help companies transform quickly. 1. Represent the “human side” systematically: Any significant transformation creates “people issues.” New leaders will be asked to step up, jobs will be changed, new skills and capabilities must be developed, and employees will be uncertain and resistant. Dealing with these issues on a reactive, case-by-case basis puts speed, morale, and results at risk. A formal approach for managing change — beginning with the leadership team and then engaging key stakeholders and leaders — should be developed early, and adapted often as change moves through the organization. This demands as much data collection and analysis, planning, and implementation discipline as does a redesign of strategy, systems, or processes. The change-management approach...

Words: 3380 - Pages: 14

Credit Risk Management

...I. Information Asymmetry Information asymmetry exists in transactions where one party has more or better information than the other leading to an imbalance of power. Adverse Selection is the associated problem of information asymmetry that arises before the parties to a contract reach an agreement. It occurs when bad credit risks (firms with poor investment channels and high inherent risks) become more probable to acquire loans than good credit risks (firms with better investment opportunities and less inherent risks). Moral Hazard is the associated problem of information asymmetry that arises after the parties to a contract reach an agreement. It arises when the borrower has an incentive to breach the loan covenants by investing in ‘immoral projects’ which are unacceptable to the borrower and also have a high possibility of default. Both these risks occur because of the lenders’ imperfect knowledge about the borrowers and their activities. For Financial institutions, information asymmetry inherent to credit disbursement is a key risk that needs to be managed. II. Bangladesh Bank Guidelines for Credit Risk Management As the central bank and apex regulatory body for the country's monetary and financial system, Bangladesh Bank provides a number of recommended policy and procedural guidelines to the financial sector that are directional in nature and aims to improve the risk management culture. Policy guidelines of Bangladesh Bank include Lending Guidelines, Credit...

Words: 2136 - Pages: 9

Credit Risk

...ABSTRACT Risk Management is the application of proactive strategy to plan, lead, organize, and control the wide variety of risks that are rushed into the fabric of an organization„s daily and long-term functioning. Like it or not, risk has a say in the achievement of our goals and in the overall success of an organization. Present paper is to make an attempt to identify the risks faced by the banking industry and the process of risk management. This paper also examined the different techniques adopted by banking industry for risk management. To achieve the objectives of the study data has been collected from secondary sources i.e., from Books, journals and online publications, identified various risks faced by the banks, developed the process of risk management and analyzed different risk management techniques. Finally it can be concluded that the banks should take risk more consciously, anticipates adverse changes and hedges accordingly, it becomes a source of competitive advantage, and efficient management of the banking industry. KEYWORDS: Risk Management, Banking Sector, Credit risk, Market risk, Operating Risk, Gab Analysis, Value at Risk (VatR) _____________________________________________________________________________________ INTRODUCTION Risk is defined as anything that can create hindrances in the way of achievement of certain objectives. It can be because of either internal factors or external factors, depending upon the type of risk that...

Words: 3810 - Pages: 16

Credit Risk

...Credit Risk Management: Credit risk can be defined as risk of failure of customer/counterparty of the bank to meet financial obligations. Another major source of credit risk could be concentration risk, which arises when a bank’s credit portfolio tend to be non-diversified i.e. large single borrower exposure or lending exposure to clients having similar economic factors (single sub-sector, industry, geographic region etc.) that would adversely impact the repayment ability of mass obligor during any possible economic downturn. To ensure the portfolio health, the bank has distributed the overall credit concentration among different segments/industry/trading. For example, branches are primarily responsible for sourcing of potential clients and initiate limit (credit) approval process for review of Credit Risk Management Division (CRMD), this division (CRMD) ensure the quality of credit proposal before limit approval, a separate division known as Credit Administration (CAD) monitors the documentation aspects of approved credits and finally the Legal Recovery Department manages the deteriorating accounts. It is mentionable that the bank has own credit risk management guideline. All other remaining risk in regards to credit portfolio are addressed by the Risk Management Unit (RMU), the primary responsibility of this unit isto identify and assess the severity of risks and highlight the same to the management for strategic decision making. Below are risk wise list of few global...

Words: 571 - Pages: 3

Credit Risk Management

...2.1Introduction This section discusses some empirical and theoretical literature on the effect of credit risk management on financial performance, and introduces an overview of BancABC and its credit risk management practices 2.2Brief Company overview ABC Holdings Limited is the parent company of a number of banks operating under the BancABC brand in Sub-Saharan Africa, with operations in Botswana, Mozambique, Tanzania, Zambia and Zimbabwe. A group services office is located in South Africa.Historically, BancABC was a merchant bank offering a diverse range of services including wealth management, corporate banking, treasury services, leasing, asset management, and stock broking.ABC Holdings had Its primary listing on the Botswana Stock Exchange, and a secondary listing on the Zimbabwe Stock Exchange (BancABC annual report 2009) During 2014, the ABC Holdings Group was acquired by Atlas Mara. As at 31 December 2014, Atlas Mara had a 98.7% equity stake in ABC Holdings, held directly (60.8%) and indirectly (37.9%). Subsequent to the takeover, ABC Holdings was delisted from the Botswana Stock Exchange on 30 January 2015, and from Zimbabwe Stock Exchange on 12 February 2015.Atlas Mara is a British Virgin Islands registered company with a standard listing on the London Stock Exchange(BancAbc Annual report 2014) The seeks to review the credit risk management methods implemented by the bank . Definition of terms 2.3.1Credit According to Onyeagocha (2001), the term...

Words: 9034 - Pages: 37

Credit Risk

...STANDARDS OF SOUND BUSINESS PRACTICES CREDIT RISK MANAGEMENT © 2005 The Bank of Jamaica. All rights reserved Bank of Jamaica February 1996 Credit Risk Management Page 2 CREDIT RISK MANAGEMENT A. PURPOSE This document sets out the minimum policies and procedures that each licensee needs to have in place and apply within its credit risk management programme, and the minimum criteria it should use, to prudently manage and control its credit portfolio and exposure to credit risk. Experience indicates that credit quality goes hand in hand with financial soundness. Deterioration in credit quality is often a sign of problems in an institution. The major risk accompanying a weakening of the credit portfolio is the impairment of capital or liquidity. For most institutions, extending credit comprises the major portion of their business. To a great extent, therefore, the quality of an institution’s credit portfolio determines the risk to depositors Credit risk management must be conducted within the context of a comprehensive business plan. Although this document focuses on an institution’s responsibility for managing and controlling its credit portfolio and exposure to credit risk, it is not meant to imply that credit risk can be managed in isolation form asset/liability management considerations, such as the need to maintain adequate liquidity, or other risks. B. DEFINITION Credit is the provision of, or a commitment to provide funds or substitutes for funds (both...

Words: 4318 - Pages: 18

Credit Risk Management

.... If you choose to provide this option be sure to develop a sound credit application process which includes a thorough check of client credit ratings before granting approval. Allowing some clients to purchase on credit is like offering them an interest free loan, and you are not obliged to provide credit to risky clients. Allowing clients to defer payments increases the risk of bad debts occurring and draining your cash flow, so it's vital that you identify good customers and screen businesses with a poor credit history to minimise bad debts and avoid cash flow problems. Develop a credit application form and have the draft checked by your lawyer. The credit application and approval process could include, but is not limited to the following steps: * the completion of a credit application form which requests full business and personal contact details, trading name, credit guarantors, referees, Australian Business Number ( ABN ) and the number of years in business; * asking for details of suppliers who can be contacted as referees and then checking the client's payment habits with the referees; * requesting bank references; * asking the client to sign a directors' guarantee which makes the directors of a company personally liable for any debts incurred with your business; * checking the client's business registration on the Australian Business Register; * obtaining a credit report to determine whether the client is credit worthy. A range of......

Words: 1444 - Pages: 6

Credit Risk

...CREDIT RISK In the process of financial intermediation, the gap of which becomes thinner and thinner, banks are exposed to severe competition and hence are compelled to encounter various types of financial and non-financial risks. Risks and uncertainties form an integral part of banking which by nature entails taking risks. Business grows mainly by taking risk. Greater the risk, higher the profit and hence the business unit must strike a trade off between the two. The essential functions of risk management are to identify, measure and more importantly monitor the profile of the bank. While Non-Performing Assets are the legacy of the past in the present, Risk Management system is the pro-active action in the present for the future. Managing risk is nothing but managing the change before the risk manages. While new avenues for the bank has opened up they have brought with them new risks as well, which the banks will have to handle and overcome. When we use the term “Risk”, we all mean financial risk or uncertainty of financial loss. If we consider risk in terms of probability of occurrence frequently, we measure risk on a scale, with certainty of occurrence at one end and certainty of non-occurrence at the other end. Risk is the greatest where the probability of occurrence or non-occurrence is equal. As per the Reserve Bank of India guidelines issued in Oct. 1999, there are three major types of risks encountered by the banks and these are Credit Risk, Market Risk...

Words: 879 - Pages: 4