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Crediy Risk Management

In: Business and Management

Submitted By ekhlas12
Words 6885
Pages 28
Chapter – One

Introduction

1. Preclude

Credit is an arrangement whereby bank acting at the request and on the instructions of a customer or on its own behalf to make a payment to or to the order of a third party or is to accept and pay bills of exchange drawn by the beneficiary. In an economy banks play the role of an intermediary that channels resources from the surplus group to the deficit group. So obviously one of the core functions of Commercial banks is to sanction Credit facility to it’s customers as per requirement. UTTARA BANK LTD. Bank’s Mission is to actively participate in the growth and expansion of our national economy by providing Credit to various customers in most efficient way of delivery and at a competitive price.

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 may fail to meet its obligations in accordance with agreed terms. Credit risk therefore, arises from the bank’s dealings with or lending to corporate, individuals and other banks or financial institutions.

In general, a banking system aggregates a high number of low value deposits to fund enterprises with a smaller number of high value loans. This intermediation through a well functioning bank helps to achieve some economic benefits for the depositors, the borrowers and above all -- the economy. The Bank must allocate loans effectively for achieving these broad objectives of the Economy. While identifying profitable enterprises, the Bank – in fact -- identifies risks of the borrower and business in order to allow loan in the context of

its risk–return profile. In other words, Banks are in the business of risk taking; as such risk management is viewed as a...

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