1.

1 INTRODUCTION
Now a day education is not just limited to books and classrooms. In todays world,
education is the tool to understand the real world and apply knowledge for the betterment
of the society as well as economy. From education the theoretical knowledge is obtained
from courses of study, which is only the half way of the subject matter. Practical
knowledge has no alternative. The perfect coordination between theory and practice is of
paramount importance in the context of the modern business world in order to resolve the
dichotomy between these two areas. Therefore, an opportunity is offered by Department
of Business Administration of Jagannath University, for its potential business graduates
to get three months practical experience, which is known, is as Internship Program.
For the competition of this internship program, the author of the study was placed in a
bank namely, Janata Bank Limited internship Program brings a student closer to the
real life situation and thereby helps to launch a career with some prior experience.

1.2 ORIGIN OF REPORT

For the successful completion of MBA Program under Jagannath University every
student has to undergo a three months long internship program which includes attachment
with an organization and preparation of a report thereon. To fulfill the report I was
attached to the Janata Bank Limited, Shamoly (Corporate) Branch, Mohammadpur,
Dhaka. During this period I have learned how the organization works. I chose the topic
Credit Risk Management of Janata Bank Limited which was subsequently approved by
my internship supervisor Md. Mizanur Rahman.

1.3 OBJECTIVES OF THE REPORT

Like every report this report is also prepared with some sort of objectives. These
objectives are mentioned under Primary or Internship Objectives and Specific or Report
Objectives

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1.3.1 Primary Objectives

To get ideas about the Banking System and to acquire practical experience in overall
banking services of Janata Bank Limited and view the application of theoretical
knowledge in the real life.

1.3.2 Specific Objectives

To assess the credit structure of the bank in practice.
Credit Disbursement of Janata Bank Limited.
Recovery system and utilization of available Resources.
To measure the risk and uncertainty to minimize the cost of Janata Bank
Limited.
Deposit collection and development in all fields of economy
Maintaining a stable growth strategy, delivering high quality financial
products, providing excellent customer service
To support socio-economic development of the country
To identify problems and challenges of credit management and credit
activities of JBL

1.3 SCOPE OF THE REPORT

This study would focus on the following areas of Janata Bank Limited.

Actual credit risk management.

Overview the current procedures of providing loans and credit management.
Analysis of Investment Aspects and operation.
Financial performance Analysis.
Performance Evaluation
Organizational structures and responsibilities of management.

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1.4 METHODOLOGIES OF THE REPORT
The report is descriptive in nature. To fulfill the objectives of this report total
methodology has divided into two major parts:

1.4 .1 Data Collection Procedure

In order to make the report more meaningful and presentable, two sources of data
and information have been used widely.

1.4.1.1Primary Sources
The Primary Sources of my information are as below:

Direct observation.
Expert opinion.
Face to face communication with the colleagues.
Conversation with the concerned persons.
Practical knowledge through deskwork.
Collecting data related to the subject from the opinion poll

1.4.1.2 Secondary Sources

The Secondary Sources of my information are as below:

Annual Report of Janata Bank Limited.

Official notes.

Internet.

Memos and Circulars.

Related books and different publications.

Some information collects from official staff.

Website of Janata bank Limited.

Different Book, Journal Article etc

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1.4.2 Data Processing & Analysis
Collected information have then processed & compiled with the aid of MS Word, Excel
& other related computer software. Necessary tables have been prepared on the basis of
collected data and various statistical techniques have been applied to analyses on the
basis of classified information. Detail explanation and analysis have also been
incorporated in the report.

1.5 LIMITATIONS OF THE STUDY

To prepare a report on the topic like this in a short duration is not easy task. In preparing
this report some problems and limitations have encountered which are as follows:

The main constraint of the study was insufficiency of information, which was
required for the study. There are various information the bank employee cannot
provide due to security and other corporate obligations.

Since banks personnel were very busy they could provide me very little time.
Lack of experience
Website is not fulfill the data and it is not update schedule time
Due to time limitation, many of the aspects could not be discussed in the
present report

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2.1 HISTORICAL BACKGROUND OF JANATA BANK LIMITED
Janata Bank Limited (JBL) is the 2nd largest state owned commercial bank in Bangladesh.
Janata Bank means Peoples Bank. Immediately after the emergence of Bangladesh in
1971, the erstwhile United Bank Limited and Union Bank Limited were named as Janata
Bank. It was established under the Bangladesh Bank order 1972. During the privatization
process it was incorporated as a public Limited Company on 21, May 07 vide certificate
of incorporation No-C66933(4425)07. The Bank has taken the over the business of Janata
Bank at a purchase consideration of Tk. 2593.90 million as a going concern through a
vendor agreement signed between the Ministry of Finance of the Peoples Republic of
Bangladesh and the Board of Directors on behalf of Janata Bank Limited on 15th
November 2007.

Janata Bank Limited operates through 897 branches including 4 overseas branches at
United Arab Emirates and a subsidiary company named Janata Exchange Company Srl in
Italy. It is linked 1202 foreign correspondents all over the world.

2.2VISION AND MISSION OF JBL

2.2.1 Vision Of JBL

To become effective largest commercial bank in Bangladesh to support socio-economic

development of the country and to be a leading bank in South-Asia.

2.2.2 Mission OF JBL

Janata Bank Limited will be an effective commercial bank by maintaining a stable

growth strategy, delivering high quality financial products, providing excellent customer
service through an experienced management team and ensuring good corporate
governance in every step of banking network.

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2.3 ETHICAL PRINCIPLES

Bank deals with public money where ethics, integrity and trust is the most essential.
Janata Bank protects and upholds these principle issues in every area of its management
activities and customer services. The basic characteristics of employees code of ethics
and business conduct are as follows:

Ensure customer services with utmost care, respect, dedication, integrity

and unwavering responsibility.
Protect privacy and confidentiality of customers information.
Prevent money laundering and fraud forgery.
Protects and upholds corporate values.

2.4 CORE VALUES

The core values of Janata Bank Limited are:

Professionalism
Commitment
Diversity
Accountability
Transparency
Integrity
Quality
Dignity
Growth

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These can be shown by following diagram:

Figure 2.1: Core Values of JBL

Professionalism

Growth Commitment

Dignity
Diversity
Values
of JBL

Quality Accountability

Integrity Transparency

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2.5 STRATEGIC OBJECTIVES OF JBL
2.5.1 Major Business Objectives

Concern
Commitment
Competence

2.5.2 Strengths of JBL

Nationwide network, 893 branches

Foreign network, 4 branches
1239 foreign correspondence state-owned image
Goodwill
Received globally recognized awards
Strong deposit base
No capital shortfall
Large and skilled manpower (more than 15 thousand personnel)
Experienced higher level management
Newly recruit talents
Friendly board of directors

2.6 ACHIEVEMENTS OF JANATA BANK LIMITED

Janata Bank Limited achieves '2013 Performance Excellence Award' by Citi

Bank N. A.
Janata Bank Limited wins 'The Asian Banking & Finance Wholesale
Banking Awards 2013 & Retail Banking Awards 2013'.
JBL's Position in Global Ranking of Banks-2012.
Business Asia Most Respected Company Awards-2012
Janata Bank Limited wins The Asian Banking & Finance Awards 2012
International Award-The Bank of the year-2011 in Bangladesh.
ICMAB Best Corporate Award-2011.
International Award -"World's Best Bank Award-2009 in Bangladesh
International Award -"World's Best Bank Award-2008 in Bangladesh
International Award -"World's Best Bank Award-2007 in Bangladesh

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 International Award -"World's Best Bank Award-2006 in Bangladesh
International Award The Bank of the year-2005 in Bangladesh.

International Awards of JBL

Janata Bank Limited receives "Asian Banking Awards 2005" on Credit

Scheme for Handicapped People.
International Award -The Bank of the Year-2004 in Bangladesh.
Janata Bank Limited receives "Asian Banking Awards 2004" on Financing
Program for Women Entrepreneurship.
Janata Bank Limited gets The Banker Award-2003
International Award-The Bank of the Year-2001
International Award-The Bank of the Year-2002

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2.7 ORGANOGRAM OF JANATA BANK LIMITED
Figure 2.2: Organogram (Flowchart) of JBL

Board of Directors
Chairman
Directors

MD (Managing Directors)

DMD (Deputy Managing Directors)

GM (General Manager)

DGM (Deputy General Manager)

AGM (Assistant General Manager)

FAGM (First Assistant General Manager)

SEO(Senior Executive Officer)

EO (Executive Officer)

AEO (Assistant Executive Officer)

AEO (Teller)

Assistant Officer (Grade-1 & 2)

Support
Source: Stuff
Annual (Catagory-1
Report 2013 & 2)

Source :Annual report 2017

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10
2.8 PRODUCTSAND SERVICES OF JBL

JBL renders both corporate and retail banking services with a strong focus on socio
economic development of the country. Products and services of JBL are briefly
mentioned below.

1. Deposits
Current and Call Deposits
Savings and Bank Deposits
Monthly Scheme Deposits
Term Deposits
Special Notice Deposit

2. Loans and Advances

Agriculture Loan Program
Poverty Alleviation Program
Specialized Loan Program
Rural Credit
Term Loan for Large and Medium Credit Programs
Other Loans and Advanced
Export Oriented Industry Term/Project financing
Micro & Cottage industries loan
Working Capital
Export Financing
Import Financing
Trade financing
Other Credit Program

3. Financial Services
Inland Renitence
Foreign Renitence
Other Financial Services

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4. Other services
Utility Services
Welfare Services
Q-Cash (ATM) Services
Others

5. Customer Care
Help Desk
Inquiry Desk
Counseling
Information Desk

6. Internet Banking
Accounts Detail Information
Customer Statement
Cheque Stutus

7. Web based Spot Cash

Western Union
X-Press Money
Riau Financial Services etc.

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12
2.9 SERVICES OF JANATA BANK
Janata Bank offers all the major banking facilities and services to its customers. The
Bank with its network spreading throughout the country has a unique feature of
ploughingback savings from those places and then investing them into different loan
portfolios.
Janata Bank with its wide ranging branch network and skilled personnel provides prompt
and personalized services like issuing:

.Demand Draft
Telegraphic Transfer
Mail Transfer
Pay Order
Security Deposit Receipt
Transfer of fund by special arrangemen
Foreign Remittance Payment

The Bank provides the following Internet facilities:

Current/Savings/STD account status

FDR account status
Advance account status
Loan account status
NRB Accounts

Remittance services are available at all branches and foreign remittances may be sent to
any branch by the remitters favoring their beneficiaries. Remittances are credited to the
account of beneficiaries instantly or within shortest possible time. Janata Bank has
correspondent banking relationship with all major banks located in almost all the
countries/cities Bangladesh.

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2.10 Branch Summary of Janata Bank Limited

There are 897 branches of Janata Bank Limited in home and abroad. Among them 468
branches are situated in urban areas including four foreign branches and 419 branches are
in rural areas. And all foreign branches are situated in United Arab Emirates.

2.10.1 Total branches:

Table 2.1: Branch Summary of JBL

Sl No. Branch Type Number

1 Corporate Branch- 1 21
(Including Local Office and Janata Bhavan Corporation)

2 Corporate Branch- 2 68
3 Overseas Branch 04
4 Grade-1 Branch 197
5 Grade-2 Branch 225
6 Grade-3 Branch 267
7 Grade-4 Branch 115
Total Branch 897

2.10.2 Overseas Branches:

Table 2.2: Overseas Branches of JBL

SL.No: City No of Branch Status

01. Abu Dhabi 01 Foreign
02. Al-Ain 01 Foreign
03. Sharjah 01 Foreign
04. Dubai 01 Foreign
Total 04

*Source: Annual Report 2016 (Page 331)

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14
2.11 GREEN BANKING
At present greenhouse effect poses a serious threat to Bangladesh and the loss triggered
by climate change is irrecoverable. Janata Bank is accountable to the people on account
of adverse effect of climate and nature. To this end, in line with the instruction of
Bangladesh bank, JBL has begun Green Banking activities and they are seriously
working to implement full of it by 30 June 2016. It includes:

Figure 2.3: Green Banking in JBL at a glance

All of 897 branches are computerized

3270 Accountsare operated through

Mobile Banking

Zigzag bricks

21 Bio-gas plants

31 Solar panels

JBL
4 HHK brick fields

Vermy compost

Online Banking 42
branches

14 ATM booth with 3689 shared

2380 Million Budget allotted

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2.12 CORPORATE SOCIAL RESPONSIBILITY (CSR)
Corporate Social Responsibility (CSR) has become a key initiative and an essential tool
in the development of the third world countries throughout the globe. Primarily CSR
starts with the consideration of social implications by anybody corporate, which
ultimately reflects through its initiatives towards the betterment of the disadvantaged
people of a society. As a stakeholder of the society, the Bank is keen to augment CSR
activities gradually for building a better society and cleaner environment beyond its
financial commitments and regulatory obligations. Considering importance of CSR,
Bangladesh Bank since June 2008 officially started encouraging towards mainstreaming
CSR in banks and financial institutions of Bangladesh. As we all know, United Nations
has set eight goals (popularly known as Millennium Development Goals; such as
eradicating extreme poverty and hunger, achieving universal primary education,
promoting gender equality & empowering women, reducing child mortality, improving
maternal health, combating HIV/AIDS, malaria and other diseases, ensuring
environmental sustainability and developing a global partnership for development) in its
millennium summit held at the UN Head Quarters, New York, USA in 2000 and
Bangladesh is one of the signatories to achieve those goals by 2015. Keeping these in
mind, the bank has aligned the CSR activities partially with those goals.

Working Areas:

To prioritize the development and rehabilitation of the people of poverty afflicted areas
the following things are considered:
Providing financial help to the people who are physically disabled, deprived
and lagged behind.
Providing financial help to the people who are affected by natural calamity.
Providing scholarship to the students who are meritorious but poor.
Poverty reduction.
Human resource development.
Expansion of education.
Expansion of the area of health and treatment.
Expansion of history, culture, tradition, sports, protection of environment, up
hold the spirit of liberation war, enhancement of public awareness etc.

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2.13 FINANCIAL POSITION OF JBL
Distribution of Shares of JBL:

Table 2.3: Distribution of Shares in 2015 and 2016

Number of Shares
Particulars As at 31 December 2015 As at 31 December 2016
General Public -- --
Government 191,400,000 110,000,000

Total 191,400,000 110,000,000

Graph 2.1: Distribution of Shares (in Million)

4.4

4.5

3.5

3 2.5
2015
2.5
2016
2

1.5

0.5 0 0

0
General Public Governmnent

Source: Annual Report 2016

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2.14 OPERATING PERFORMANCE
Table 2.4: Operating Performance of JBL for last five years
(BDT in Million)

Particulars 2012 2013 2014 2015 2016

Total revenue 55,071.85 49,515.63 40,635.53 30,613.92 24,074.10
Interest expenses 34,212.83 27,499.16 17,785.82 11,960.33 10,376.98
Administrative & other expenses 8,731.92 7,482.67 7,127.40 6,617.19 5,119.00
Operating profit 12,127.10 14,533.80 15,722.31 12,036.40 8,578.12
Provisions excluding tax 1,501.78 27,368.71 6,846.65 4,215.97 2,921.83
Profit before tax 10,625.32 (12,834.91) 8,875.66 7,820.43 5,656.29
Provision for tax 1,073.93 2,445.43 4,430.76 2,912.46 2,852.04
Profit after tax 9,551.39 (15,280.34) 4,444.90 4,907.97 2,804.25
Reserve fund 1,967.20 7.58 1,782.89 1,573.36 1,139.17
Retained earnings 7,584.19 (15,287.92) 2,662.01 3,334.61 1,665.08
EPS 86.31 (138.91) 43.46 69.66 73.37

Graph 2.2: Operating Performance of JBL for last five years (in Million)

EPS
Retained Earnings
Reserve Fund
PAT
2016
Tax
2015
PBT
2014
Provisions Ex. Tax
2013
Operating Exp. 2009
Admn. Expenses
Interest Expenses
Total Revenue

-50000 0 50000 100000 150000 200000 250000

Source: Annual Report 2016

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2.15 SWOT ANALYSIS OF JBL

SWOT Analysis is a strategic planning method used to evaluate the Strengths,

Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It
involves specifying the objective of the business venture or project and identifying the
internal and external factors that are favorable and unfavorable to achieving that
objective.

S = Strengths Attributes helpful for achieving the objective.

W = Weaknesses Attributes harmful for achieving the objective.

O = Opportunities External conditions that are helpful for achieving

the objective.

T = Threats External conditions that may harm the businesss

performance.

The SWOT Analysis of Janata Bank is presented in a table below:

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 Figure 2.4: SWOT Analysis of JBL at a glance
Internal Sources
Strengths
Name recognition within the community.
Large customer base.
Community involvement/increasing presence
in the market.
Management knowledge of industry.
Financial condition: Strong capital and asset
quality.
Regulatory performance is strong and
positive.
Fine environment in side of the branch.
Co-ordination and co-operation among the
staff.
Attractive Location.
Old Bank so greater reliance to customer.
External Sources
Opportunities
More Experienced & Managerial know-how.
Opportunity to expand geographically
within Bangladesh.
Customers are looking for good quality and
have the willingness to bank with Janata
Bank.
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Weaknesses
Lack of technological resources as well as
Internet banking.
Lack of knowledge of customer profile.
Insufficient focus on quality customer service
and mortgage banking.
Overall market share needs to grow
Opportunities.
Growth in commercial business.
Increased presence by means of additional
ATMs.
Niche markets (under-served ethnic markets,
bank at work, etc.)
Strategic marketing towards customers of large
merging banks.
Attracting candidates for acquisition over the
next few years.
Potential market for internet banking.
Threats
Strong community bank competition Non-bank
competition.
Possibilities of more stringent regulations.
Lack of appeal to younger, Student, affluent
potential customers.
Political instability of the country.
Lack of Flexibility to adapt to any change.
Continued deregulation and globalization of
services.
Increased technological innovation and
technology costs in order to compete
effectively.
3.1 WHAT IS CREDIT
In banking terminology, credit refers to the loans and advances made by the bank to its
customers or borrowers. Bank credit is a credit by which a person who has given the
required security to a bank has liberty to draw to a certain extent agreed upon. It is an
arrangement for deferred payment of a loan or purchase. (Wikipedia dictionary)

Credit means a provision of, or commitment to provide, funds or substitutes for funds, to
a borrower, including off-balance sheet transactions, customers lines of credit,
overdrafts, bills purchased and discounted, and finance leases. (Guideline on credit risk
management, Bank of Mauritius)

3.2 CREDIT RISK

Credit risk refers to the risk that a borrower will default on any type of debt by failing to
make payments which it is obligated to do. The risks are primarily that of the lender and
include lost principal and interest, disruption to cash flows, and increased collection
costs. The loss may be complete or partial and can arise in a number of circumstances.
Risk means the exposure to a chance of loss or damage. Risk is the element of
uncertainty or possibility of loss that exist in any business transaction. Credit risk is the
likelihood that a borrower or counter party will be unsuccessful to meet its obligation in
accordance with agreed terms and conditions. (Wikipedia dictionary)

Credit risk means the risk of credit loss that result from the failure of a borrower to honor
the borrowers credit obligation to the financial institution. (Guideline on credit risk
management, Bank of Mauritius). Credit risk is most simply defined as the potential that
a bank borrower or counterparty will fail to meet its obligations in accordance with
agreed terms (Basel Committee on Banking Supervision, 2000)

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3.3 CREDIT RISK MANAGEMENT
While financial institution have faced difficulties over the years for a multitude of
reasons, the major cause of serious banking problems continues to be directly related to
lax credit standards for borrowers and counterparties, poor portfolio risk management or
lack of
Attention to changes in economic or other circumstances that can lead to a deterioration
in the credit standing of a banks counterparties. Credit risk is most simply defined as the
potential that a bank borrower or counterparty will fail to meet its obligations in
accordance with agreed terms. The goal of credit risk management is to maximize a
banks risk-adjusted rate of return by maintaining credit risk exposure within acceptable
parameters. Banks need to manage the credit risk inherent in the entire portfolio as well
as the risk in individual credits or transaction. Banks should also consider the relationship
between credit risk and other risks. The effective management of credit risk is a critical
component of a comprehensive approach to risk management and essential to the long
term success of any banking organization.
As Janata bank Ltd. is providing credit facility out of its total available funds, it has to
manage these credits very efficiently. An efficient credit risk management system
comprises many things and this cover the pre-sanction activities to post-sanction
activities. Credit risk management is important as it helps the banks and financial
institutions to understand various dimensions of risk involved in different credit
transactions.

3.4 TYPES OF CREDIT RISK MANAGEMENT

Credit risk can be classified in the following way:
Credit default risk- The risk of loss arising from a debtor being unlikely to pay its loan
obligations in full or the debtor is more than 90 days past due on any material credit
obligation. Default risk may impact all credit-sensitive transactions, including loans,
securities and derivatives.
Concentration risk - The risk associated with any single exposure or group of exposures
with the potential to produce large enough losses to threaten a bank's core operations. It
may arise in the form of single name concentration or industry concentration.

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Country risk - The risk of loss arising from sovereign state freezing foreign currency
payments (transfer/conversion risk) or when it defaults on its obligations (sovereign risk).

3.5 OBJECTIVES OF CREDIT RISK MANAGEMENT

There are some objectives behind a written credit risk management of Janata Bank that
are as follows:
To provide a guideline for giving loan.
Prompt response to the customer need.
Shorten the procedure of giving loan.
Reduce the volume of work from top level management.
Delegation of authority of work from top level of management.
To check and balance the operational activities.

3.6 TOOLS OF CREDIT MANAGEMENT

For credit management, a firm may use tools available to them. Such tools include Credit
Risk Grading (CRG) and Financial Spread Sheet (FSS). Credit risk grading is an
important for credit risk management as it helps the banks and financial institutions to
understand various dimensions of risk involved in different credit transactions. The
aggregation of such grading across the borrowers, activities and the lines of business can
provide better assessment of the quality of credit portfolio of a bank or branch.
The Lending Risk Analysis (LRA) manual introduced in 1993 by the Bangladesh Bank
has been in practice for mandatory use by the banks and financial institutions for loan
size of BDT 1.00 crore and above. However, the LRA manual suffers from a lot of
subjectivity, sometimes creating confusion to the lending bankers in terms of selection of
credit proposals on the basis of risk exposure. Meanwhile in 2003 end, Bangladesh Bank
provided guidelines for credit risk management of banks wherein it recommended,
interlaid, the introduction of Risk Grade Score Card for risk assessment of credit
proposals.

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Bangladesh Bank expects all commercial banks to have a well defined credit risk
management system which delivers accurate and timely grading. In practice, a banks
credit risk grading system should reflect the complexity of its lending activities and the
overall level of risk involved.

3.6.1 Definition of Credit Risk Grading (CRG)

The Credit Risk Grading (CRG) is a collective definition based on the pre-
specified scale and reflects the underlying credit-risk for a given exposure.

A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary

summary indicator of risks associated with a credit exposure.
Credit Risk Grading is the basic module for developing a Credit Risk
Management system.

3.6.2 Functions of Credit Risk Grading

Well-managed credit risk grading systems promote bank safety and soundness by
facilitating informed decision-making. Grading systems measure credit risk and
differentiate individual credits and groups of credits by the risk they pose. This allows
bank management and examiners to monitor changes and trends in risk levels. The
process also allows bank management to manage risk to optimize returns.

3.6.3 Use of Credit Risk Grading

The Credit Risk Grading matrix allows application of uniform standards to
credits to ensure a common standardized approach to assess the quality of
individual obligor, credit portfolio of a nit, line of business, the branch or the
bank as a whole.

As evident, the CRG outputs would be relevant for individual credit selection,
wherein a borrower or a particular exposure/ facility is rated. The other
decisions would be related to pricing (credit-spread) and specific features of
credit facility. These would largely constitute obligor level analysis.

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 Risk grading also be relevant for surveillance and monitoring, internal MIS
and assessing the aggregate risk portfolio level analysis.

Janata Bank Ltd. applies the following credit risk grading matrix as provided by
Bangladesh Bank guidelines.
Risk Grade Definition
Rating
Superior 1 Facilities are fully secured by cash deposits, government
Low Risk bonds or a counter guarantee from a top tier international
bank. All security documentation should be in place.
Good 2 The repayment capacity of the borrower is strong. The
Satisfactory borrower should have excellent liquidity and low leverage.
Risk The company should demonstrate consistently strong
earnings and cash flow and have an uJBLemished track
record. All security documentation should be in place.
Aggregate Score of 95 or greater based on the Risk Grade
Scorecard.
Acceptable 3 Adequate financial condition though may not be able to
Fair Risk sustain any major or continued setbacks. These borrowers
are not as strong as Grade 2 borrowers, but should still
demonstrate consistent earnings, cash flow and have a good
track record. A borrower should not be graded better than 3
if realistic audited financial statements are not received.
These assets would normally be secured by acceptable
collateral (1st charge over stocks / debtors / equipment /
property). Borrowers should have adequate liquidity, cash
flow and earnings. An Aggregate Score of 75-94 based on
the Risk Grade Scorecard.
Marginal - 4 Grade 4 assets warrant greater attention due to conditions
Watch list affecting the borrower, the industry or the economic

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 environment. These borrowers have an above average risk
due to strained liquidity, higher than normal leverage, thin
cash flow and/or inconsistent earnings. Facilities should be
downgraded to 4 if the borrower incurs a loss, loan
payments routinely fall past due, account conduct is poor, or
other untoward factors are present. An Aggregate Score of
65-74 based on the Risk Grade Scorecard.
Special 5 Grade 5 assets have potential weaknesses that deserve
Mention managements close attention. Facilities should be
downgraded to 5 if sustained deterioration in financial
condition is noted (consecutive losses, negative net worth,
excessive leverage), if loan payments remain past due for
30-60 days, or if a significant petition or claim is lodged
against the borrower. Full repayment of facilities is still
expected and interest can still be taken into profits. An
Aggregate Score of 55-64 based on the Risk Grade
Scorecard.
Substandard 6 Financial condition is weak and capacity or inclination to
repay is in doubt. Loans should be downgraded to 6 if loan
payments remain past due for 60-90 days, if the customer
intends to create a lender group for debt restructuring
purposes, the operation has ceased trading or any indication
suggesting the winding up or closure of the borrower is
discovered. An Aggregate Score of 45-54 based on the Risk
Grade Scorecard.
Doubtful 7 Full repayment of principal and interest is unlikely and the
and Bad possibility of loss is extremely high. However, due to
(non- specifically identifiable pending factors, such as litigation,
performing) liquidation procedures or capital injection, the asset is not
yet classified as Loss. Assets should be downgraded to 7 if
loan payments remain past due in excess of 90 days, and

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 interest income should be taken into suspense (nonaccrual).
Loan loss provisions must be raised against the estimated
unrealizable amount of all facilities. The adequacy of
provisions must be reviewed at least quarterly on all non-
performing loans, and the bank should pursue legal options
to enforce security to obtain repayment or negotiate an
appropriate loan rescheduling. In all cases, the requirements
of Bangladesh Bank in CIB reporting, loan rescheduling and
provisioning must be followed. An Aggregate Score of 35-
44 based on the Risk Grade Scorecard
Assets graded 8 are long outstanding with no progress in
Loss 8 obtaining repayment (in excess of 180 days past due) or in
(non- the late stages of wind up/liquidation. The prospect of
performing) recovery is poor and legal options have been pursued. The
proceeds expected from the liquidation or realization of
security may be awaited. The continuance of the loan as a
bankable asset is not warranted, and the anticipated loss
should have been provided for. Bangladesh Bank guidelines
for timely write off of bad loans must be adhered to. An
Aggregate Score of 35 or less based on the Risk Grade
Scorecard

Source: (Focus Group on Credit Risk Management, (2016), Credit Risk Management:
Industry Best Practices, Managing Core Risks of Financial Institutions, Bangladesh
Bank)
If any facility is to be downgraded, the RM prepares The Early Alert Report and it is duly
forwarded to the higher authority for approval. After approval, the report is forwarded to
Credit Administration, who is responsible to ensure the correct facility/borrower Risk
Grades are updated on the system.

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3.7 CREDIT PROCESSING/APPRAISAL
Credit processing is the stage where all required information on credit is gathered and
applications are screened. Credit application forms should be sufficiently detailed to
permit gathering of all information needed for credit assessment at the outset. In this
connection, financial institutions should have a checklist to ensure that all required
information is, in fact, collected. Financial institutions should set out pre-qualification
screening criteria,
which would act as a guide for their officers to determine the types of credit that are
acceptable. For instance, the criteria may include rejecting applications from blacklisted
customers. These criteria would help institutions avoid processing and screening
applications that would be later rejected.
The next stage to credit screening is credit appraisal where the financial institution
assesses the customers ability to meet his obligations. Institutions should establish well
designed credit appraisal criteria to ensure that facilities are granted only to creditworthy
customers who can make repayments from reasonably determinable sources of cash flow
on a timely basis (Morton Glantz, 2016).
In the case of loan syndication, a participating financial institution should have a policy
to ensure that it does not place undue reliance on the credit risk analysis carried out by
the lead underwriter. The institution must carry out its own due diligence, including
credit risk analysis, and an assessment of the terms and conditions of the syndication. As
a general rule, the appraisal criteria will focus on:
amount and purpose of facilities and sources of repayment;
integrity and reputation of the applicant as well as his legal capacity to assume
the credit obligation;
risk profile of the borrower and the sensitivity of the applicable industry sector
to economic fluctuations;
physical inspection of the borrowers business premises as well as the facility
that is the subject of the proposed financing;
current and forecast operating environment of the borrower;
Management capacity of corporate customers (L.R.Chowdhury, 2004).

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3.8 CREDIT-APPROVAL/SANCTION
A financial institution must have in place written guidelines on the credit approval
process and the approval authorities of individuals or committees as well as the basis of
those decisions. Approval authorities should be sanctioned by the board of directors.
Approval authorities will cover new credit approvals, renewals of existing credits, and
changes in terms and conditions of previously approved credits, particularly credit
restructuring, all of which should be fully documented and recorded. Prudent credit
practice requires that persons empowered with the credit approval authority should not
also have the customer relationship responsibility.
Depending on the size of the financial institution, it should develop a corps of credit risk
specialists who have high level expertise and experience and demonstrated judgment in
assessing, approving and managing credit risk. An accountability regime should be
established for the decision-making process, accompanied by a clear audit trail of
decisions taken, with proper identification of individuals/committees involved. All this
must be properly documented.

Graph 4.1: Credit Approval Process

Source: (Credit Approval Process and Credit Risk Management, 2012, Oesterreichische
Janata Bank

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4.1 Key Elements of Sound Risk Management
To have a successful risk management function, leading to successful out comes even in
stressful environments; risk management policy of JBL has been formulated
encompassing the following key elements for better risk management:

Risk management structure with board and senior management;

Organizational policies, procedures and limits have been developed and
implemented to manage business operations effectively and efficiently;
Adequate risk identification, measurement, monitoring, control and
management information systems are in place to support all business
operations; and

Established internal control and the performance of comprehensive audit to

detect any deficiencies in the internal control environment are in a timely
fashion.

4.2 RISK MANAGEMENT PROCESS OF JBL

Risk management process of JBL is based on the Bangladesh Bank guidelines and the
clear concept of identification, assessment, parameter setting, controlling and monitoring
activities. Board integrated risk management committee oversights overall risk
management identified by the bank. Risk management process of JBL consists of:

a. Identification of key risks inherent in business activities;

b. Analysis and assessment of identified risks;
c. Parameter setting for risk measurement;
d. Control and mitigation of risks;
e. Setting up appetite and tolerance level for formulation of risk strategies;
f. Monitoring and reporting for decision making;

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 Figure 4.1: Risk Management process of JBL

Risk Identification

Monitoring and
Reporting
Risk Analysis

Risk
Management
Process Parameter Setting
Control and Mitigation

Setting up Appetite and

Tolerance Level

Source: Annual report 2016

4.3. RISK MANAGEMENT ORGANIZATION AND GOVERNANCE:

JBL has established a robust risk management framework through strengthening risk-
related policies, procedures, processes, control mechanisms and reporting during the last
few years. With a view to preserving and enhancing resiliency capacity, the bank
continues to increase its risk management capabilities through investing in people,
processes and IT infrastructure. In achieving the objective of risk optimization in its
overall business strategy, a board integrated and top executive integrated risk
management committee has constituted as under:

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4.3.1 RISK MANAGEMENT STRUCTURE

4.3.1.1 Board Integrated Risk Management Committee

A board integrated risk management committee has been formed as per BRPD Circular
No.11 dated 27.10.2013 and Bank Company Act-1991(Amendment Act 2013) sec-
15(b)(3) comprising of three members from Board of Directors and CEO & MD.

Figure 4.2: Board Integrated Risk Management Committee of JBL

Board of Directors

Boards Risk
Management Committee

Executives Risk
Management Committee

CRM ALM F.Ex AML ICC ICT

Sub-Com Sub- Com Sub-Com Sub-Com Sub-Com Sub-Com

*Source: Annual Report 2016

4.3.2 Role of the Committee

a. Formulation of policy for risk assessment and risk control.

b. Formation of organizational structure for risk management.
c. Review of risk management policy.
d. Preservation of risk management information and reporting.
e. Supervision of the implementation of overall risk management policy.
f. Placement/Reporting of risk management issues to the Board of Directors.

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4.3.3 Executive Integrated Risk Management Committee

A risk management committee with top management has been formed as per instruction
of Bangladesh Bank to supervise risk management activities of the bank. The committee
is headed by DMD. Six risk management sub-committees for each core risk headed by
respective GM have also been formed to assist the main committee. Deputy General
Manager of risk management department works as a Member Secretary of the committee
to co-ordinates the entire risk management activities of the bank.

Figure 4.3: Executive Integrated Risk Management Committee

CEO & MD

DMD
(Chief Risk Officer)

Risk Management
Sub-committees

Risk Management Desk

*Source: Annual Report 2016

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Duties and Responsibilities of the Committee

Risk management desk collects all risk related information from different sources. They
analyze the data, identify the risk and assess the level of risk inherent in banks
operational activities and prepare a risk management paper on monthly basis. The
committee, in its monthly meeting produce analytical and comprehensive discussion
paper on risk management and find out the way/course of action/corrective measures to
minimize/mitigate the identified key risks. The committee also reports the identified key
risks to the Board of Directors and respective department of Bangladesh Bank

4.3.4 Risk Measurement, Monitoring and Management Reporting System

An effective risk monitoring procedure exists in the bank to identify

and measure all quantifiable and material risk factors.
JBL has a separate Management Information System Department which
provides necessary information to Risk Management Department and
senior management for understanding the banks positions and risk
exposures in time.
A strong risk management monitoring culture has been framed in JBL
to address all sorts of material risks.
Adequate and accurate reports containing sufficient information are
being produced to senior management for identifying any adverse
trends and evaluating the level of risk.

4.4 CREDIT RISK MANAGEMENT OF JBL

Credit risk is simply defined as the potential that a bank borrower or counterparty will
fail to meet its obligations in accordance with agreed terms. However, credit risk could
steam from both on-balance sheet and off-balance sheet activities. It may arise from
either an inability or an unwillingness to perform in the pre-committed contracted
manner. Credit risk comes from a bank's dealing with individuals, corporate, banks and
financial institutions or a sovereign. The assessment of credit risk involves evaluating
both the probability of default by the borrower and the exposure or financial impact on
the bank in the event of default. Credit risk occupies the lions share of banks total risk.
So credit risk management is a crucial issue of risk management and an essential to the

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34
long-term success of any banking organization. JBLs goal of credit risk management is
to maximize its risk-adjusted rate of return by maintaining credit risk exposure within
acceptable parameter. So, JBLs management has adopted appropriate policy, procedures
and methods to manage the credit risk inherent in the entire portfolio as well as the risk in
individual credits or transactions. The bank also considers the relationship between credit
risk and other risks.

4.4.1 Sound Practice in CRM

The sound CRM practice is set out in JBL by addressing the following areas:

Establishing an appropriate credit risk environment;

Operating under a sound credit-granting process;
Maintaining an appropriate credit administration, measurement and
monitoring process; and
Ensuring adequate controls over credit risk.

Although specific credit risk management practice may differ among banks depending
upon the nature and complexity of credit activities, a comprehensive credit risk
management program will address these cited four areas. These practices should also be
applied in conjunction with sound practices related to the assessment of asset quality, the
adequacy of provisions and reserves and the disclosure of credit risk, all of which have
been addressed in recent Risk Management Guidelines.

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4.4.2 Credit Granting Process
Although the Board of Directors holds the sole right of credit sanctioning, the power is
delegated to CEO & MD. The credit sanctioning authority is also delegated to various
lower level of the management line to strike a balance between adequate control and
flexibility in credit operations

to ensure full transparency and accountability at all levels. Even a manager of a small
branch has the credit sanctioning authority. But there is a well defined, clear and sound
credit granting process applicable for all sanctioning authority.

The process includes:

Selection of borrower;
Credit appraisal;
Credit assessment;
Credit risk grading;
Credit approval & sanctioning;
Credit disbursement;
Credit monitoring.

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 Figure 4.4: Credit Granting Process of JBL

Board of Directors

CEO & MD

Local office Credit committee

SME Industrial Rural General

credit credit credit

Divisional office

Area office

Branch
*Source: Annual Report 2013

Source: Janata bank Annual report 2016

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37
4.4.4 MANAGEMENT OF CREDIT RISK

Credit risk is managed through a framework that sets out policies and procedures
covering the measurement and management of credit risk in JBL. All credit exposure
limits are approved with in a defined credit approval authority framework. JBL manages
its credit exposures following the principle of diversification across products,
geographies, clients and customer segments. A Credit Risk Manual (CRM) approved by
Board of Directors has been formulated aligned with Bangladesh banks CRM policy. A
high powered committee is in place for monthly review, monitoring and super vision of
risks associated with credit activities.

4.4.5 ESTABLISHING CONTROL OVER CREDIT RISK

Risk identification, measurement, mitigation and supervision are the core component of
credit risk controlling. Following the Bangladesh bank guideline JBL has formed a
structure for overall risk management, especially credit risk management as it is the
critical component of comprehensive risk management arena. Risk management papers
are prepared and placed before the RMC on monthly basis to address the risks and find
out the way to mitigate them.

4.4.6 CREDIT RISK MITIGATION

In JBL, potential credit losses from any given account, customer or portfolio are
mitigated using arrange of tools such as risk based pricing, credit tightening, reducing
the amount of credit available to higher risk applicants, diversification, increasing the
portfolio mix of borrowers, collateral, credit insurance and other guarantees. The
reliance that can be placed on this mitigation is carefully assessed in light of issues such
as legal certainty and enforce ability, market valuation correlation and counter party risk
of the guarantor.
4.4.7 CAPITAL MANAGEMENT RISK
JBL is committed to maintain a strong capital base to support business growth, ensuring
compliance with all regulatory requirements, obtaining good credit rating and CAMELS

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rating and having a cushion to absorb any unexpected shocks arising from credit,
operational and market risks.

The bank has formulated a five years capital plan considering the following:
Increasing Tier 1 and Tier 2 capital;
Keeping sufficient cushion to absorb unexpected losses;
Keeping sufficient capital to cover the risks associated with its activities;
Maintaining a process to compare available capital with current and
projected solvency needs and address deficiencies in a timely manner.
Meeting regulatory requirements.
The bank also has a business plan for next three years consistent with capital
requirement, business growth, improvement of credit and CAMELS rating.

4.4.7. Basel-II Framework for Risk Management

Basel II recommends on banking laws and regulations for ensuring stability, safety and
soundness of overall banking system. It is a banking risk and capital management
framework. JBL has adopted Basel II as per Bangladesh Banks guide lines with a view
to:
Prudent capital regulation.
Scientific principles for banking supervision.
Use of market disclosure for better focus on risk to ensure better risk
management and financial stability.

4.4.7.1 Basel II comprises of three pillars

i. Pillar-1: Minimum capital requirement.

ii. Pillar-2: Supervisory review process.
iii. Pillar-3: Market discipline

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39
4.4.7.2 PILLAR-1

Pillar-1deals with the assessment of minimum capital requirement considering credit

risk, market risk and operational risk. Capital position under pillar-1 is:
Table 4.1: Capital Position under Pillar-1

Eligible Capital: 2015 2016

Tier-1(Core capital) 26,225.67 5,890.18

Tier-2 (Supplementary capital) 8,075.36 5,890.18

Tier-3 (eligible for market risk only) - -

Total Eligible capital 34,301.03 11,780.36

Total risk weighted assets (RWA): 333,923.30 318,980.03

Capital adequacy ratio (CAR) 10.27% 3.70%

Core capital to RWA 7.85% 1.85%

Supplementary capital to RWA 2.42% 1.85%

Minimum capital requirement (MCR) 33,392.33 31,898.03

Capital surplus 908.70 (20,117.67)

Source: Annual Report 2016

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 Table 4.2: Capital Comparison

Year 2015 2016

MCR 33,392.33 31,898.03
Eligible capital 34,301.03 11,780.36
Capital surplus 908.70 (2,0117.67)

Graph 4.1: Capital Comp

arison under Pillar-1

40,000.00

30,000.00

20,000.00

10,000.00 2016
2015
0.00
MCR Elegible Capital Capital Surplus
-10,000.00

-20,000.00

-30,000.00

Through this graph it is clearly seen that minimum capital requirement is greater in
2015than 2016 comparatively on the other hand this graph shows capital surplus in 2013
and capital deficit in 2016.

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4.4.7.3 PILLAR-2

The supervisory review process (SRP) is explicitly recognized as an integral part of the
New Basel Capital Accord. It is intended to ensure not only that banks have adequate
capital to support all the risks in their business, but also to encourage banks to develop
and use better risk management techniques in monitoring and managing these risks. Such
supervisory review will enable early intervention by supervisors if banks capital does not
sufficiently buffer the risks inherent in its business activities.
According to Bangladesh Bank guidelines, the SRP of JBL consists of three layer
structure i.e. strategic layer, managerial layer and operational layer.
Strategic layer:

The audit committee and Risk Management Committee of JBL is responsible on behalf of
the Board of Directors to implement SRP in bank. These committees monitor the
managerial lapses.
Managerial layer:

JBL has an exclusive body naming SRP team which is constituted by the concerned
departmental heads of bank and headed by Managing Director. JBL has already drafted
a document (called InternalCapital Adequacy Assessment Process-ICAAP) for
assessing banks overall risk profile and a strategy for maintaining adequate capital.
Operational layer:
The Bank has a operational unit which is responsible for collecting information from
concerned departments and branches, regularly correspondences, compiling the required
calculations of ICAAP reporting and the tasks assigned by the SRP team.

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4.4.7.4 PILLAR-3

JBL has a formal disclosure framework approved by the Board of Directors

containing the key pieces of information on the assets, risk exposures, risk
assessment processes, and be able to assess the position of JBL regarding
holding of assets, identification of risks relating to the assets and capital
adequacy to meet probable loss. The disclosure framework of JBL describes
its risk management objectives and policies in its all risk are alike credit,
market, operational, banking book interest rate risk and equity risk
considering the following:

Strategies and processes;

The structure and organization of the relevant risk management
function;
The scope and nature of risk reporting and/or measurement
systems;
Policies for hedging and/or mitigating risk and strategies and processes for monitoring
the continuing effectiveness of hedges/mitigates.
4.5 Loans and Advances of Janata Bank Limited:
All activities relating to credit of the bank are being carried out as strictly and cautiously
as before with proper risk management strategy starting from the selecting from the credit
worthy quality borrowers followed by a well-defined credit appraisal and approval
process, again carried out by the component personnel at different level. Janata Bank Ltd.
is in the forefront in implementing the guidelines for managing five core risks in banking.
Total Loan & Advance in different period shown in the following:

2013 2014 2015 2016

Loans, cash 137,184,639,985 157,540,717,889 201,992,193,398 229,836,793,635
credit, overdrafts
etc
Bill purchased 7,493,543,403 8,818,767,730 23,740,015,131 27,964,241,753
and discounted
Total 144,678,183,388 166,359,485,619 225,732,208,529 257,801,035,388
Table5.1:Loans and Advances of Janata Bank Limited

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43
 Source: Annual report (2013-2016)

300,000,000,000

250,000,000,000
Loans, cash credit,
200,000,000,000
overdrafts etc.

150,000,000,000 Bill purchased and

discounted
100,000,000,000 Total

50,000,000,000

0
2010 2011 2012 2013

Figure5.1:Loans & Advances in Different Year

4.6 Area Wise Distribution of Loans & Advances:

(Amount in million Taka)
Column1 2014 2015 2016
Dhaka 156600 156599.8 180960.03
Chittagong 31302 31302.3 37983
Khulna 17601 17600 15769
Rajshahi 8530 8530 9644
Rangpur 6736 6736 7593
Sylhet 1244 1244.1 1554
Barisal 2176 2176.2 2569
Table5.2:Area Wise Distribution of Loans & Advances

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44
 Area Wise Distribution of Loans &
Advances
2011 2010 2009

2569
Barisal 2176.2
2176
1554
Sylhet 1244.1
1244
7593
Rangpur 6736
6736
9644
Rajshahi 8530
8530
15769
Khulna 17600
17601
37983
Chittagong 31302.3
31302
180960.03
Dhaka 156599.8
156600

Source: Annualreport (2014-2016)

Figure 5.2: Area Wise Distribution of Loans & Advances
4.7 Industry Wise Distribution of Loan & Advance:
(Amount in million Taka)
Industry 2014 2015 2016
Import Credit 32704.8 52760 60633.3
Industrial Credit 22372.07 40054 41551
Export Credit 19082.7 28,266.50 38195.6
Rural Credit 12854.9 1427.5 16352.2
Textile ( Industry & Trade) 5662.6 7452 7802.5
Jute Industries 9201.2 12702.8 4627.9
Tannery ( Industry & Trade) 5315.8 4722.5 4100
Sugar Mills 2962 3790.1 3732.2
Food 1642.2 1895.7 2085
Steel & Engineering 2217.7 2726.5 2663.6
HouseBuilding 1159.5 1512.1 1491.1
Bricks 1203.3 1427.5 1502.5
Cold Storage 66.7 285 478.5
Jute trade 166.7 237.6 159.5
Tea 87.7 88.5 88.7
Transport 31.2 31.8 32.2
Others 49682.41 53201.42 72304.8
Table 5.3 : Industry Wise Distribution of Loan & Advance
Source: Annual Report (2014-2016)

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4.8 CREDIT QUALITY MEASURE
Credit quality measures the proportion of loans granted by the banks from the deposits
received. The higher the ratio, the more the bank is relying on borrowed funds, which are
generally more costly types of investment.

Credit quality since last 5 years

Credit 2013 2014 2015 2016
Quality
Loan and 137,184,639,985 157,540,717,889 201,992,193,398 229,836,793,635
advances
Provision of 13,497,267,137 20,401,785,201 53,201,693,217 31,766,861994
classified
loan
Provision of 228,102,217,002 239,168,748,548 252,137,885,498 253,980,792,334
unclassified
loan

Source: Annual report (2013-2016)

4.9 CREDIT DEPOSIT

Credit deposit measures the proportion of the loan and advances granted by banks from
the deposits. It is calculated by dividing the amount of a bank loan and the amount of
banks deposits at any time given.

Credit deposit ratio

Credit 2012 2013 2014 2015 2016
quality
Credit deposit 76.4% 69.7% 89.5% 85.7% 82.7%
ratio

Table 5.3 Credit Deposit ratio

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46
 2008 2009 2010 2011 2012

Source: Annual report (2012-2016)

Figure : Credit quality since last 5 years.

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47
4.10 FINANCIAL ANALYSIS OF JANATA BANK

A tool used by individuals to conduct a quantitative analysis of information in a

company's financial statements. Analysis of financial statements of annual report 2013
reflects the complete picture of gradual development of various financial indicators of the
Bank. In this report, it is tried best to reflect these financial circumstances.
Table 5.4: Last 5 years selected Operational & Financial Indicator of JBL
(BDT in Million)
Particulars 2016 2015 2014 2013 2012
BalanceSheetMatrix
Authorizedcapital 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00
Paidupcapital 19,140.00 11,000.00 8,125.00 5,000.00 5,000.00
Reservefund&surplus 17,976.20 6,476.66 25,944.20 15,390.32 9,924.74
Loansandadvances 285,747.65 305,339.57 257,801.03 225,732.21 166,359.48
Investments 193,269.66 108,342.04 95,257.29 57,514.00 72,533.20
Totalassets 586,082.98 511,129.41 446,111.42 345,234.00 294,727.00
Non-earningassets 124,792.92 131,262.23 70,040.42 52,214.00 46,094.00

NetAssets 37,116.20 17,476.66 34,069.20 20,390.32 14,924.74

IncomeStatementMatrix
Interestincome 36,189.68 34,239.12 26,266.12 19,027.54 14,867.96
Investmentincome 13,736.50 7,811.43 6,109.83 6,956.05 5,602.31
Non-interestincome 5,145.67 7,465.08 8,259.58 4,630.33 3,603.83

Totalincome 55,071.85 49,515.63 40,635.53 30,613.92 24,074.10

Interestexpenses 34,212.83 27,499.16 17,785.82 11,960.33 10,376.98
Non-interestexpenses 8,731.92 7,482.67 7,127.40 6,617.19 5,119.00

Totalexpenses 42,944.75 34,981.83 24,913.22 18,577.52 15,495.98

Operatingprofit 12,127.10 14,533.80 15,722.31 12,036.40 8,578.12

Earningsbeforeprovision,depreciatio 12,513.16 14,861.54 15,957.83 12,200.59 8,701.14
nandtax
Profitbeforetax 10,625.32 (12,834.90) 8,875.67 7,820.43 5,656.29

Netprofitaftertax 9,551.39 (15,280.34) 4,444.91 4,907.97 2,804.25

*Source: Financial Statement of JBL 2013 & 2016

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4.11 RECOVERY PATTERN OF LOAN AND ADVANCE:

Generally Janata bank Ltd. sanctions loans and advances to every sector of an economy.
Before going into details of recovery performance, we have to be familiar with some
terms used in recovery performance:

Disbursement: highest outstanding balance on any date during the reporting

period minus outstanding balance at the end of the preceding period.
Demand for recovery: overdue at the end of the reporting period plus recovery
during the reporting period.
Recovery: highest outstanding balance on any date during the reporting period
minus outstanding balance at the end of the recovery period.
Outstanding: Outstanding figures in the ledger at the end of the reporting period.
Overdue: Demand for recovery minus recovery

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 Table 5.5 : Recovery performance of Janata Bank

2012 2013 2014 2015 2016

Total disbursement 3546 3632 5476 5925 6542

Demand for recovery 5986 6475 6849 7214 7544

Recovery 2933 2590 3288 3607 3697

Overdue 3053 3885 3561 3607 3847

Recovery as a
49% 40% 48% 50% 49%
percentage of DFR

Overdue as a
51% 60% 52% 50% 51%
percentage of DFR

Outstanding 9329 9975 10146 10779 12447

Source: Annual report (2012-2016)

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5.1 FINDINGS OF THE STUDY
Bank under study possesses a standard credit procedure. As the objective of my study is
to make a comment on the credit management of Janata Bank, I try my best to collect
data for the study and find out the reality. Based on the data generated during my study
period I will sum up my findings here and I think this will help me to achieve my
objectives.

1) Private sector usually concentrates in the urban areas where as public sector i.e.
JB spread their banking network all over the world

2) Janata Bank has a significant role in long term project financing in both
agriculture and industrial sectors. Again JBL has a deep concern for rural farmers.

3) Private sector usually concentrates in the urban areas where as public sector i.e.
JB spread their banking network all over the world.

4) If we look at the historical background of Janata Bank Limited, we see that, the
objective of JBL is to earn profit as well as to improve the economic welfare of
the people as a whole.

5) With a view to implementing government policies, JBL has been maintaining its
position in extending credit to government bodies, sector corporations and private
enterprises.
6) But in practice credit officers do not fill up the proposal form properly. Most of
the cases, they use assumption rather than exact figure. This practice might end up
with bad or classified one.
7) A standard policy starts from the customers direct application for the loan in the
branch office. But its a common phenomenon that most of the customers directly
contact with Head office and Head office choose the branch offices to disburse
the loan. It hampers the normal procedure. Branches always stay under pressure
when they get order for disbursement from Head office. When branches get order
from the head office, then appraisal system loses its formal track. So Head office
should not send any order to the branch office without prior appraisal.

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8) Every bank has its own budget and plan regarding loan portfolio. This loan
portfolio must be diversified so that bank could diversify its risk. A proper and
preplanned portfolio can eliminate the risk of huge classified loan or bad loans as
this aspect is very much sensitive toward many external and internal factors. The
bank under study i.e. Janata Bank does not have any proper guide line where to
invest; moreover they do not do any future plan to maintain a well-structured
portfolio to decrease the possibility of classified loan. This type of practice is
working as an obstacle in smooth credit disbursement as well as in credit
appraisal system.

9) Most of the loans that JBL distributes are as cash credit hypothecation and JB
emphasizes less on demand loan.

10) In many cases bank face this problem because banks credit officer fails to value
collateral property. Proper valuation means collateral will exactly cover the risk of
bad loan. Officials must do it with due care.
11) Janata Bank Limited do not efficient in processing and executing legal actions
against defaulters for their nonpayment of loans and advances.

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6.1 RECOMMENDATIONS
The failure of commercial banks occurs mainly due to bad loans, which occurs due to
inefficient management of the loans and advances portfolio.A banker cant sleep well
with bad debts in his portfolio Therefore any banks must be extremely cautious about its
lending portfolio and credit policy. So far Janata Bank Limited has been able to manage
its credit portfolio skillfully and kept the classified loan at a very lower rate thanks go to
the standard and stringent credit appraisal policy and practices of the bank. But all things
around us are changing at an accelerating rate. Today is not like yesterday and tomorrow
will be different from today. Given the fast changing, dynamic global economy and the
increasing pressure of globalization, liberalization, consolidation and disintermediation, it
is essential that Janata bank limited has a robust credit risk management policies and
procedures that are sensitive to these changes. To improve the risk management culture
further, Janata Bank limited should adopt some of the industry best practices that are not
practiced currently. These are

Bank should emphasis more on loan diversification.

Continuous monitoring of the customer should be conducted so that loan cannot

be classified.

Syndicate finance is an excellent idea of modern banking as here risk is assessed

by different banks. This may be extended.

The lending guideline should include Industry and Business Segment Focus,
Types of loan facilities, Single Borrower and group limit, Lending caps,
Discouraged Business Types, Loan Facility Parameters and Cross boarder Risk.

Political intervention should avoid while approving and sanctioning loan.

Every day the business environment is changing and so the risk. So the Bank
should be created as a learning organization to adapt the changing circumstance.

Loan should not be given without examining CIB report.

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 Name Lending should be discouraged as it involve huge risk in some extend

It should adopt a credit grading system all facilities should be assigned a risk
grade. And the borrowers risk grades should be clearly stated on credit
application.

Approval authority should be delegated to individual executives rather than

Executive Committee/ Board to ensure accountability. This system will not only
ensure accountability of individual executives but also expedite the approval
process.

The organization structure should have to be changed to put in place the

segregation of the Marketing/ Relationship Management function from Approval /
Risk Management / Administration function.

There should be a Recovery Unit to manage directly accounts with sustained

deterioration. To encourage Recovery Unit incentive program may also
introduced.

An Early Alert Account system should be introduced to have adequate

monitoring, supervision or close attention by management

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6.2 CONCLUSION
The tools for improving management of consumer credit risk have advanced considerably
in recent years. Therefore, as a responsible and reputed commercial bank, Janata Bank
has instituted a contemporary credit risk management system.Credit risk management is
becoming more and more important in today's competitive business world. It is all the
more important in the context of Bangladesh From the study, it is evident that the bank is
quite sincere in their approach to managing the consumer credit risk though there are
rooms for improvement. They have to be more cautious in the recovery sector and
preferential treatments to some big clients should also be stopped. However, they follow
an in-depth procedure in assessing the credit risk by using the credit risk grading
techniques which provides them a solid ground in the time of any settlement. From the
discussion in this report, it has become clear that credit risk management is a complex
and ongoing process and therefore financial institutions must take a serious approach in
addressing these issues. They have to be up to date in complying with all the required
procedures and must employ competent people who have the ability to deal with these
complex matters. Utmost importance should be given to the improvement of the
networking system which is essential for modern banking environment and obviously for
efficient and effective credit risk management process.

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BIBLIOGRAPHY
Annual Reports:

1. Bangladesh Bank Annual Report 2016.

2. Janata bank Annual Report 2016, 15,11,10,09.

Books:
1. Bhuiya, M. A.B, Bangladesh Laws on Banks & Banking,, 2nd edition
Dhaka: M/S Tawakkal Press (1996).
2. C. R. Kothari., Research Methodology, New Age International (p)
Limited,1990
3. Chowdury, L.P; A Textbook on Bankers Advances; 2nd Edition; Paradise
Printer; 2002.
4. DR.A R Khan: Bank Management A fund Emphasis. 3rd Print; Brothers
Publications.
5. Functions of Bank and Other financial institution published by Bangladesh
Bank (2012).
6. Rose, Peter. S; commercial Bank Management; Fourth Edition; Irwin-
McGraw-Hill; 1999
Periodicals and Articles:

1. Journals of the Bank

2. Ministry of Commerce (December, 2012), Credit Policy 2011-2012, Ministry
of Commerce, Government of the Peoples Republic of Bangladesh.
3. Bangladesh bank articles of credit rating

Websites:

1. http//.www: janatabank-bd.com
2. http//www. bangladeshbank.org
3. http//www. mincom.gov.bd
4. http//www. Google.com
5. http//www. protom-alo.com
6. http://www. en.wikipedia.org/wiki

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