MANAGING CORE RISKS IN BANKING:

CREDIT RISK MANAGEMENT
Industry Best Practices

BANGLADESH BANK

CREDIT RISK MANAGEMENT
Industry Best Practices

PREPARED FOR:
BANGLADESH BANK

PREPARED BY:
FOCUS GROUP ON CREDIT & RISK MANAGEMENT

Team Co-ordinator: Team Members:

Sudhir Chandra Das Ali Reza Iftekhar Niaz Habib A.G. Sarwar Brian J. McGuire Naser Ezaz Bijoy

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INTRODUCTION: 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 will fail to meet its obligations in accordance with agreed terms. Credit risk, therefore, arises from the bank’s dealings with or lending to corporates, individuals, and other banks or financial institutions. Credit risk management needs to be a robust process that enables banks to proactively manage loan portfolios in order to minimize losses and earn an acceptable level of return for shareholders. Central to this is a comprehensive IT system, which should have the ability to capture all key customer data, risk management and transaction information including trade & Forex. Given the fast changing, dynamic global economy and the increasing pressure of globalization, liberalization, consolidation and dis- intermediation, it is essential that banks have robust credit risk management policies and procedures that are sensitive and responsive to these changes. The purpose of this document is to provide directional guidelines to the banking sector that will improve the risk management culture, establish minimum standards for segregation of duties and responsibilities, and assis t in the ongoing improvement of the banking sector in Bangladesh. Credit risk management is of utmost importance to Banks, and as such, policies and procedures should be