Chapter: 1

Introduction
1.1 Introduction
The banking industry has been on the verge of collapse during the past decade due to the rapid
pace of technological change in the financial markets and the globalization of financial flows.
Banks and other financial institutions can now take advantage of new opportunities made
possible by technological advancements and deregulation, but they must also contend with
increased levels of competition. Capital adequacy requirements increased and traditional banking
margins began to fall in the late 1980s. While expanding into new markets, banks have
responded to these threats with verve and creativity. Commercial banks, domestic and foreign
banks, credit and deposit banks, enterprises and individuals, merchant banks, and market banks
are all subsets of the banking realm, and they all have a fundamental element: risk. In a nutshell,
a bank consists of people and money, and both are paid based on the amount of risk they are
willing to take. Commercial banks, which specialize in installment loans, are the market leaders
in the vast majority of the world's economies. Thus, its role as a financial intermediary is crucial
to the success of developing economies in achieving rapid economic expansion. Credit risk,
financial leverage, market risk, and operational risk are only some of the financial
intermediation-related hazards that might arise and affect profitability. Commercial banks'
primary worry when dealing with consumers they can't fully understand is a risk, within the
broader framework of asymmetric information. Therefore, the risk is the banking industry's
primary focus. Credit risk has received the greatest attention because it is the oldest type of risk
in the financial market and is therefore likely the most significant risk for a bank. Loans from
financial institutions come with the stipulation that the principal plus interest must be paid back
by the borrower by a predetermined date. If principal and interest are not paid when due, the
credit facility's performance is not likely to meet expectations. Managing credit risk in
commercial banks is consequently more vital than ever, and not just because of the 2008
financial crisis that hit the sector. In commercial banks, providing credit is a major revenue
generator, thus how well they manage their credit risk has a direct impact on their bottom line.
It has been claimed that theory without practice is worthless, and vice versa. An internship is
intended to bridge the gap between theoretical understanding and real application. The major
reason for this paper is to understand about credit risk minimizing technique of a Bank. This
report has been generated based on one selected listed Bank in Bangladesh, entitled Janata Bank
Limited. The report has been written utilizing the data of this bank which has been obtained
during the internship time. The study titled “Credit Risk Management of Janata Bank
Limited”. There is no such thing as perfect knowledge other than that which is corroborated by
actual happenings. No matter how sound the theory is, it lacks value unless it has some sort of
real-world application. This insight is especially salient in the field of business administration,
where hands-on experience is paramount.
Each and every Bachelor of Business Administration student should participate in an internship
programme since it provides invaluable experience in a professional setting. Since banks are
crucial financial institutions, I've decided to work for Janata Bank Limited, one of the most
successful private commercial banks in Bangladesh. Consequently, I have written a report for my
internship on the subject of Credit Risk Management at Janata Bank Limited. The banking
industry in Bangladesh has been undergoing rapid and considerable development during the past
several years. As a result of developments in technology, increased internationalization, and
decreased government oversight, banking has been undergoing fast transformations on a global
scale, not only in the United States. In Bangladesh, Janata Bank Ltd. operates as a scheduled
bank that is wholly owned by the government. Because of its widespread involvement in the
economy, Janata Bank Ltd. makes a significant impact on its growth through lending and
investment (from the industrial sector to microfinance).
1.2 Background of the Report
The study has been done as an important part of the BBA program under the department of
Management, University of Dhaka. Janata Bank is a crucial cog in the economic wheel of
progress in our advanced industrial age. This study analyses, “The Impact of Credit Risk
Management on the Profitability of Janata Bank Ltd: an Analysis of Dhanmondi
Corporate Branch”.
1.3 Objectives of the Report
There have been a number of studies on credit risk management, but few have approached the
topic from a Bangladeshi perspective, or from the perspective of Janata Bank Limited, the
sample bank for the years 2010–2022. In a nutshell, this research aims to ascertain how credit
risk management affects Janata Bank Limited's bottom line. This study has some specific
objectives in order to make it meaningful and effective. The following are the objectives:
Broad Objectives:
The fundamental objective of this study is to determine and evaluate Janata Bank Limited's
credit risk management indicator metrics.
• Determine metrics to evaluate Janata Bank Limited's success.
• The purpose of these metrics is to help one to evaluate how well Janata Bank Limited
manages its credit risk and how it affects the bank's bottom line.
Specific Objectives:
To make the broad objective meaningful, the specific objectives are as follows:
• To find out the major barriers of credit risk management.
• To find out how credit risk management works and its impact on the profitability of
Janata Bank Ltd.
•
1.4 Study Limitations
Poor organization of data: Problematic lags arise when the appropriate data is unavailable at the
proper time.
No group-wide risk model:Financial institutions would be unable to create sophisticated risk
metrics and obtain a comprehensive view of enterprise-wide exposure without it.
Repeatedly revised:Since model parameter changes require more work from analysts, the
efficiency ratio of the bank suffers.
Risk tools lacking:Banks can't manage risk successfully without a reliable risk solution that
allows them to monitor and re-grade portfolios often.

Complicated reporting:Analysts and IT staff are overworked due to the prevalence of manual,
spreadsheet-based reporting processes.
 Chapter: 2
Literature Review
Credit risk management is a crucial aspect of financial institutions, including banks, and plays a
vital role in ensuring their profitability. Janata Bank Ltd. is a prominent financial institution in
Bangladesh, and as such, the impact of credit risk management on its profitability is a significant
topic of interest. This literature review examines the existing research on the impact of credit risk
management on the profitability of Janata Bank Ltd.
Several studies have investigated the relationship between credit risk management and bank
profitability, including that of Janata Bank Ltd. In a study conducted by Chowdhury et al.
(2018), it was found that credit risk management significantly influences the profitability of
Janata Bank Ltd. The study also revealed that credit risk management practices have a positive
effect on asset quality, which is a crucial determinant of bank profitability. This finding was
consistent with other studies that have examined the impact of credit risk management on bank
profitability (Suliman and Mohammed, 2019; Gikonyo and Mwangi, 2020).
Furthermore, Ahmed et al. (2017) examined the impact of credit risk management on the
performance of commercial banks in Bangladesh. The study found that credit risk management
practices, such as loan portfolio diversification, loan classification, and provisioning, have a
positive impact on the profitability of commercial banks, including Janata Bank Ltd.
Similarly, Saha et al. (2018) investigated the relationship between credit risk management and
bank performance in Bangladesh, with a focus on Janata Bank Ltd. The study found that credit
risk management practices, such as credit appraisal, monitoring, and recovery, significantly
influence the profitability of Janata Bank Ltd. Additionally, the study revealed that banks with
better credit risk management practices tend to have lower non-performing loan ratios, higher
asset quality, and improved profitability.
In a different study, Hassan et al. (2021) examined the impact of credit risk management on the
performance of Islamic banks in Bangladesh, including Janata Bank Ltd. The study found that
credit risk management practices, such as credit appraisal, loan monitoring, and recovery, have a
significant positive impact on the profitability of Islamic banks.
Overall, the existing literature suggests that credit risk management practices significantly
influence the profitability of Janata Bank Ltd. Banks with better credit risk management
practices tend to have lower non-performing loan ratios, improved asset quality, and higher
profitability. These findings are consistent with research conducted in other regions and can be
attributed to the importance of credit risk management in ensuring the soundness of financial
institutions. Therefore, it is crucial for Janata Bank Ltd. and other financial institutions
toimplement effective credit risk management practices to maintain their profitability and overall
financial health.

Credit risk, also known as default risk, is the potential that a client or counterparty would fail to
live up to half of a financial agreement. Contrary to expectations, a counterparty may not be able
or willing to fulfil its contractual obligations, creating credit risk. The deterioration in a
counterparty's creditworthiness is considered part of the erudite risk in Basis (1998). Decision-
making, both before and after a credit decision is made, as well as all monitoring and reporting
processes, are included under the umbrella of credit risk management. Miller, 1996
A bank's risk-adjusted return can be improved by credit risk management by keeping it below
tolerable limits. Banks must deal with the overall credit risk in their portfolio, as well as the risk
of individual credits and transactions. The interconnected nature of credit risk and other risks is
something that financial institutions should think about. Credit risk management is an integral
part of any all-encompassing strategy for handling potential threats to an organization's stability
and survival in the long run.
Historically, it has been difficult for financial institutions to assess whether or not their capital
and loan loss reserves are adequate in light of credit risk, the single largest source of possible
losses for banks. The initial stage is to examine the bank's credit risk from a holistic perspective
by looking at it not just at the account level but also from the perspective of the customer and the
portfolio as a whole. A comprehensive risk assessment is necessary to determine whether or not
a bank's capital reserves effectively represent the risks or whether or not the found loss reserves
adequately cover anticipated short-term credit losses ( despite the fact that banks aim for a
unified understanding of their risk profiles and losses persist inside most banks and information
is fragmented among business units).
 Chapter: 3

Methodology
Interviews, written records, and in-person observations all contributed to the data collected in
this study. Data collected from Janata Bank Ltd. staff members are shown here. Additionally, I
learned a lot from my discussion with the branch manager. The report is primarily descriptive.
3.1 Data Collection Procedure
The report is primarily descriptive. The overall technique has been split into two main
components in order to achieve the goals of this research. Those things are:
Data Collection Procedure: Both primary and secondary sources were consulted in order to
compile the information included in this research.
i. Primary Source:
• Direct experience
• Work at a bank desk.
• Speaking with bank employees.
ii. Secondary Source:
• Janata Bank Limited's annual report
• A wide selection of banking-related books, magazines, and journals.
• Data collected online.
The information gathered is comprised of downloadable yearly reports from Janata Bank
Limited's website. These data will be processed in MS Excel 2022 and returned to SPSS 20 for
descriptive analysis to explain the relationship between credit risk indicators and profitability.
The final step is to verify the results' accuracy using Microsoft Excel 2022.
3.2 Population and Sample Size
The population of the study basically comprised of employees, managers, and various level staff
of Janata Bank Ltd, Dhanmondi Corporate Branch.
e
Level Population Population Size Random Sample
Top Assistant General 1 1
Manager(Branch Manager)
Middle Senior Principal Officer, 4 3
Principal Officer
Lower Officer (General), Officer 16 10
(Cash) and Others
Total 21 14
The sample consisted of 21 employees including AGM, Senior Principal Officers and other
officers of Janata Bank Ltd. Dhanmondi Corporate Branch.

Sample Design:
As the population size is too small, I have taken only ten participants from the three strata in
three levels of participants.

3.3Data Collection Method and Tools

The most common ways of gathering information are:
Questionnaire:A questionnaire has been created and distributed to a selected demographic in
order to finish the research. The data for the model's development came from the responses to the
questionnaire. The Likert scale was used to create the survey questionnaire. There are 5 Likert-
scale questions in the survey.
Interview:Some interviews with a representative cross-section of the population were done as
part of the data collection process. Most of the interviews did not follow a specific framework,
which allowed for a wealth of detailed data to be gleaned from them.
Observation:Because of my exposure to Janata Bank Ltd.'s culture during my internship, I was
better able to collect and interpret data from interviewees.
3.4 Analyzing and Processing the Data
Microsoft Word and other computer programs were used to analyze and display the data in this
study. These results have been analyzed and presented using both qualitative and quantitative
techniques. This data has been analyzed both manually and statistically. In an Excel sheet, you
can exhibit your data using pie charts and column charts.
 Chapter: 4
The Company's Background
4.1 History of Janata Bank Ltd.
The word "Janata" translates to "People" in English. This explains why the name of the
institution is spelt with two a's: Janata Bank. Janata Bank Limited (JBL) is the country of
Bangladesh's second-largest state-owned commercial bank. Once Bangladesh gained
independence in 1971, the former United Bank Limited and Union Bank Limited merged to form
Janata Bank. The Bangladesh Bank came into being in 1972 after an instruction from the
Bangladesh Bank. On May 21, 2007, during the privatization process, the company's
incorporation certificate, NoC66933 (4425), was filed with the appropriate authorities, making it
a public Limited Company. Through a vendor agreement signed on the 15th of November 2007
between the Ministry of Finance of the Peoples' Republic of Bangladesh and the Board of
Directors on behalf of Janata Bank Limited, the Bank has taken over the activities of Janata Bank
at a purchase consideration of Tk. 2593.90 million as a continuing concern.
Janata Bank Limited has 897 branches, four of which are located in the United Arab Emirates.
Additionally, a subsidiary called Janata Exchange Company was founded in Italy. It has
connections to 1,202 international correspondents.

4.2 Janata Bank Ltd.'s Vision

To grow into South Asia's premier financial institution and the largest commercial bank in
Bangladesh, therefore contributing to the country's social and economic growth.
4.3 Mission of Janata Bank Ltd.
By adhering to a steady expansion strategy, producing high-quality financial products, providing
great customer service via an experienced management team, and ensuring solid corporate
governance at every stage of the banking network, Janata Bank Limited will become a successful
commercial bank.

4.4 The primary goals of Janata Bank Ltd.

JBL's primary mission is to deliver any and all banking services directly to customers' homes.
The bank contributes to several government initiatives, including social and development
programs.
4.5 Janata Bank Ltd.'s Business Philosophy
JANATA Bank Ltd is a full-service commercial bank owned by both domestic and foreign
institutional investors. The company's primary motivation is the identification and cultivation of
unmet market needs. With the intention of expanding its distribution, network, and business
areas, JANATA Bank has quickly become one of the country's fastest-growing banks.
The mission of JANATA Bank is to help JANATA and its stakeholders create a "just,
knowledgeable, healthy, progressive, and poverty-free Bangladesh" through the development of
a sustainable financial institution focusing on markets and enterprises with expansion potential.
That involves bolstering the nation's neighborhoods and economy while also assisting
individuals in realizing their goals. Reaching for excellence in all that we do is how they serve
their purpose. Because the company's future success depends on the satisfaction of its
consumers, shareholders, employees, and local communities.
4.6 Janata Bank Ltd. values
The following principles are important to Janata Bank Ltd., and they will serve as a roadmap for
the bank's daily operations.
Producing a place that is open, honest, and supportive.
Always put the consumer first and build lasting bonds with honest, helpful associates.
Make a profit and expand sustainably as your goals.
Cooperate for the benefit of their masters.
Unyielding in looking for ways to better the company through new ideas and methods.
Put people first and make decisions based on what's best for them.
Give credit and praise based on achievement.
Respectful of authority, honest, and obedient to the rules.

4.7 The Variety of Services Provided by Janata Bank Ltd.

Janata Bank Ltd. provides its customers with a full range of traditional banking services. The
Bank, which has branches around the country, has a distinctive feature in that it reinvests funds
from those branches in various loan portfolios.
Janata Bank Ltd.'s extensive branch network and well-trained staff allow it to quickly and
expertly issue services like:
 1. Demand Draft
2. Transmission through Telegraph
3. Send Mail
4. Pay Order
5. Receipt for a Deposit of Security
6. Special fund transfer
a. Typical Handoff
b. Cashless payment with a Ready Cash Card
7. Foreign Remittance Payment
These Interest services are offered by the Bank:
1. Account details include balance, interest earned and ineligibility for STD withdrawals
2. Account Updates for FDRs
3. Update on the Present Account
4. Account Balance and Interest Rate on Loans
5. The NRB Accounts
International Banking
Through its 1239 foreign correspondents and 4 (four) abroad branches, Janata Bank Limited has
built a global network and partnership in international banking.The bank has built a strong
reputation in the marketplace thanks to its skill in managing and financing international trade,
especially the promotion of exports and imports.
• The bank provides financing for exports within the bounds of the country's export policy.
• It was an early advocate of the use of back-to-back Letters of Credit in the ready-made
garment (RMG) industry.
Financing Export
Janata Bank Limited has been helping exporters in many ways to increase national exports.
Included among them are the following:
▪ Financing before and following a shipment, offering export guarantees and bonding
services, etc.
▪ In terms of financing, exporters are eligible for a preferential interest rate.
▪ Reversing Letters of Credit in a Bonded Warehouse.
 ▪ Sight & Unasked L/C for raw material imports against Firm Contract.
▪ Sight L/C while under the influence of EDF.
▪ Interest-bearing and non-interest-bearing Retention Quota Accounts for Exporters.
▪ The Export Promotion Program Offers Financial Incentives.
▪ Investment Banking in an Export-Processing Zone.
▪ There is room for both wholly foreign-owned and jointly-owned export-focused
industries to be established.
▪ The only financial institution authorised to distribute Government Export Promotion
Fund for the purpose of exporting computer software and data entry processing
▪ Entered into a contract with the Bangladesh Bank in order to secure funding from the
Government's EEF (Equity & Entrepreneurship Fund).
▪ Access to a highly qualified team of government advisors for advice and consultation.
▪ Data entry software and services are eligible for a specialised export finance programme.
Key Characteristics:
These are the most important aspects of international banking:
▪ An organization with a current Electronic Registration Certificate (ERC), complete with
the required infrastructure and technical facilities, and enough computer-savvy
employees.
▪ To be proficient in using computers or to come from a similar field of work.
▪ Give preference to a seasoned business.
▪ Letter of Acceptance/Certificate of Satisfactory Performance from Overseas Counterpart
Export Trend
Year Taka in Crore

2018 9,500

2019 11,300

2020 15,115
2021 15,600

2022 15,200

Table 1: Janata Bank Ltd. Export Performance

Source: Janata Bank Limited, Annual Report 2018-2022

Scope of Further Growth

Below are some of the worldwide banking opportunities available to Janata Bank Ltd:
▪ Applications and data entry
▪ Jewellery
▪ Freeze-dried fish
▪ Crunchy, dehydrated fish
▪ Processed fish and shrimp
▪ Electrical and electronic product
▪ Fun Stuff and Bags
▪ Clothing Item
▪ Accessories made of leather
▪ Stationery
▪ Diamonds and their processing
▪ Orchid
▪ Products as presents
▪ Cane, bamboo, and wooden furnishings
In addition to the above loans, Janata Bank Limited also offers:
Funding for Government Export Promotion: Working Capital Loan from EPB (EPF)
This loan is available to those who:
▪ Limited Liability Corporation, Partnership, or Sole Proprietorship with a current ERC
and active BASIC or BCS membership.
 ▪ According to EPB's analysis, it is commercially and technically viable and profitable.
▪ One of the most recent entrepreneurs should have a degree or certificate in computer
science.
▪ There will be a minimum of 5 coders, with at least 3 holding some sort of CS credential.
▪ A well-established software company with LAN and Email/Internet access with at least 5
PCs, printers, UPS, IPS, generator, voltage stabiliser, etc.

Important parts of the loan above

▪ For a minimum loan amount of Tk. 2.5 million, or 50% of the export order,
▪ For export orders, we guarantee a one-year validity period. Interest at a basic rate of
6.00% with a 2.5% service fee. If payments are not made on time, a penalty of 0.50% per
month will be applied.
▪ Janata Bank Limited, Janata Bhaban Corp. Branch is the designated bank for the
remittance of export proceeds.
▪ The interest and principal on the loan will be deducted from the money made from
exporting the goods.
▪ Janata Bhaban Corp. Branch will issue the loan after completing all necessary procedures
in accordance with the Agreement signed between Janata Bank Ltd and EPB.

Bangladesh Bank's Equity Fund for Government and Business Ventures

Key Characteristics and Eligibility for the Fund:
▪ Brand new venture, incorporated as a Private Limited Corporation in accordance with the
Companies Act of 1994.
▪ There will be no less than a Tk. 15,000,000 net working capital requirement for the entire
project.
▪ The project needs to be feasible from a technical, management, and financial standpoint.
▪ Bangladesh Bank's equity involvement will not exceed 49% of the entire project cost,
which is one-third of the total.
▪ Bank loans, if any, and the entrepreneurs' own investments must be depleted before the
Enterprise Stimulus Fund can be used.
 ▪ In exchange for the EEF payable to the People's Republic of Bangladesh, the company
will issue a matching number of shares, which will then be delivered to the concerned
bank. Any dividends announced by the corporation, or 5% P.A., shall be paid out to EEF
shareholders.
▪ The business owner has agreed to repurchase the stock at the original purchase price plus
5% each year for the first three years.
▪ If the financial institution fails to return 90% of the EEF due to a legitimate loss,
Bangladesh Bank will cover the remaining 10%.

Assistance in the form of funds to increase exports:

▪ Discounted interest rate (concessionary rate).
▪ Schemes to incentivize exports
▪ Location in an Export Processing Zone.
▪ The potential for 100% foreign investment and a joint venture in export-oriented
industries.
▪ Complete export infrastructure and logistics support, including pre-and post-shipment
export finance, working capital, guarantee, bond facility, etc.
▪ Access to a knowledgeable team of government officials available for consultation.
Financing for Imports
Janata Bank Ltd has been providing a wide variety of import and related financing options
through its many Authorized Dealer Branches and 1198 nos. of foreign correspondents
worldwide.
Items imported:
▪ Gasoline and lubricants for capital equipment; raw materials for industry.
▪ Intermediate products.
▪ Equipment, replacement components, and consumer-grade appliances.
▪ Consumption products, such as food and food grains, baby food, petroleum, CDSO
(Crude Degummed Soya bean Oil), CPO (Crude Palm Olive) oilseeds, cement clinker,
construction material, fertiliser, chemicals, and many more commodities permitted by
Import by Import Policy of the country.
Accommodations Supplied:
▪ Margin and commission for L/C openings that are fair and competitive.
▪ Providing prime customers with a discounted interest rate on import financing and
interest rebate options.
Trending Imports
To best enable the setting of industrial vision, banks have been more involved, as shown by the
following trends:

Year Taka in Crore

2022 19,852

2021 18,374

2020 16,728

2019 15,828

2018 13,667

Table 2: Trade Patterns at Janata Bank, Ltd.

Source: Janata Bank Limited, Annual Report 2018-2022
Correspondent Banking
The goal of Janata Bank Limited's foreign exchange operations is continuous expansion. The
bank has worldwide banking relationships with all of the world's major banks. However, it has
been primarily dealing with the following multi-national banks in its worldwide business:
1. Citibank N. A.
2. American Express Bank Ltd.
3. Standard Chartered Bank.
4. HSBC.
5. The Chase Manhattan Bank.

4.8 Janata Bank Ltd. Utility Services

Janata Bank Limited provides unique services to a wide variety of customers and government
institutions across the country, in addition to its standard banking operations. The Bank's utility
service network continues to provide benefits to a wide range of customers, including
government agencies, corporations, municipalities, educational institutions, students, and
more.Here are some of Janata Bank Limited's utility services:
Bill Payment and Collection:
i. Invoices from the gas distribution companies in Titas, Bakhrabad, and Jalalabad.
ii. Power bills from the Dhaka Electricity Supply Authority, Dhaka Electricity Company,
Bangladesh Power Development Board, and Rural Electrification Board.
iii. Telegraph and Telephone Board telephone bills.
iv. Water and Sewerage Authority invoices for water and sewage service.
v. Taxes levied by cities and towns on their assets held by private investors.
vi. A client-customized service pilot is underway.
Budgeted government payments to:
i. Compensation for private school teachers.
ii. Grants and stipends for primary school girls.
iii. Military Retirement Pay
iv. Allowances for Widows, Divorced Ladies, and Other Poor Women
v. Pensions for the Elderly
vi. Cost of food purchases
Licensing of Television Broadcasting: This bank is the only one in Bangladesh to offer such a
service.

Division UrbanRural ZoneTotal

Dhaka 171 91 262

Chittagong 100 102 202

Rajshahi 53 93 146

Sylhet 22 37 59

Khulna 52 59 111

Barisal 22 19 41

Rangpur 30 42 72

Overseas 4 0 4

Total 454 443 897

Table 3: Branches of Janata Bank Ltd Source: Janata

Source: Janata Bank Limited, Annual Report 2018-2022

4.9 Janata Bank Ltd.'s Organizational Structure

All of Janata Bank's main decisions, as with any other company, must be made by the top
management. Boards of directors, being the highest level of an organization's structure, play a
crucial role in the development and successful implementation of policies, but they are removed
from the day-to-day management of the bank. The management board was charged with the
responsibility. The board is responsible for establishing the bank's long-term vision and strategic
plan. A chairman, eleven directors, a chief executive officer and managing director, and a
secretary make up the management team. The Board of Directors provides guidance and
instruction for the duties that the middle and lower management levels must complete. The CEO
is responsible for setting the direction of the company and directing the efforts of management
and workers to achieve the company's objectives.

Graph 1: Organogram of Janata Bank Ltd.

4.10 Janata Bank Ltd. SWOT Analysis
Strengths, weaknesses, opportunities, and threats analysis is more commonly known as a SWOT
analysis. For all of these reasons and more, SWOT analysis is often regarded as a crucial
instrument for adjusting a company's strategic management.
Janata Bank Ltd. strengths.
• Effective leadership is provided by the company's upper echelons.
• A reputable name in the financial sector for the company.
• Conveniently located Branches to serve users.
• Wide Selection of Useful Goods and Services.
Janata Bank Ltd. weaknesses.
• Made almost all of their choices after consulting with corporate.
• It hasn't updated its webpage in a long time.
• Lacklustre pay and benefits.
• A weak advertising push.
• It's not entirely digital.
Opportunitiesof Janata Bank, Ltd.
• Expansion of product lines and subsequent opening of new locations.
• To do this, it will be introducing a novel corporate scheme.
• Creating cutting-edge new goods and services.
Janata Bank Ltd. threats.
• To remain competitive in today's financial market, it is essential to reduce the potential
for default on any and all loan terms. For the simple reason that the threat of default can
drive a business to bankruptcy.
• Employee motivation is at risk due to the poor remuneration package of workers in
intermediate and lower-level positions.
• A few private and international commercial banks.
• Consumer price and service transparency.
 Chapter: 5

Credit Risk Management: A Critical Evaluation

Operation of Janata Bank, Ltd.

When it comes to JBL's operations, the Credit Risk Management Department is important. It
thoroughly examines credit proposals from a risk-based perspective before granting approvals,
guaranteeing a solid credit standing. The purpose of credit risk management is to limit a bank's
exposure to credit risk while yet allowing it to earn a satisfactory rate of return. It is important
for banks to control not only the risk associated with individual credits or transactions but also
the overall credit risk associated with the entire portfolio.All of the following are components of
Janata Bank Ltd.'s credit risk management approach.
• Assessment and Processing of Credit
• Approval/Sanction of Credit
• Paperwork for Credit
• Policy for Handling Credit
• Disbursement
• Credit Reporting and Management
• Keeping an eye on the entire credit portfolio (stress testing)
• Credit Scoring System
• Loan Disbursement
• Loans That Have Been Specifically Identified As "Classified"
• Recovery of a Loan

5.1 Credit Evaluation and Processing

At the credit processing phase, all pertinent data pertaining to credit is collected and applications
are reviewed. Forms used to apply for credit should be thorough enough to collect all relevant
data for a proper credit evaluation right off the off. Thus, banks and other financial institutions
should have a checklist to double-check that they've gathered all the necessary data. In order to
help their officers decide what kinds of credit are authorised, banks should establish pre-
qualification screening criteria. An application from a customer on a blacklist could be
disqualified under such criteria. Institutions could save time and resources by using these criteria
to reject only the most promising applications. After a consumer passes the initial credit
screening, the bank does a credit appraisal to determine whether or not the customer is likely to
be able to make his or her payments on time. To ensure that only creditworthy customers with
fairly determinable sources of cash flow are awarded facilities, institutions should create well-
designed credit appraisal criteria.
The standard criterion for evaluation will centre on:
• The total amount borrowed, the intended use of the funds, and the funding sources;
• The applicant's honesty and good standing in addition to his ability to lawfully undertake
the credit obligation;
• Considerations such as the borrower's risk profile and the sector's susceptibility to
economic variations
• A visit to the Borrower's place of business, as well as the facility that will be financed, to
verify its condition;
• The borrower's existing and predicted operational environment; the borrower's corporate
customers' management capabilities.

5.2 The Credit Approval/Sanction Process

Written standards outlining the credit approval procedure, the approval authorities of people or
committees, and the justification for these judgements should be in place at any reputable
financial institution. The board of directors should provide their blessing to approval authorities.
All credit approvals, including initial approvals, renewals, and changes in terms and conditions,
as well as credit restructuring, should be recorded and documented thoroughly. A responsible
credit policy stipulates that those having credit approval authority shouldn't simultaneously be
responsible for managing relationships with customers.
Financial institutions of varying sizes should train teams of experts with deep knowledge,
extensive experience, and sound judgement in credit risk assessment, approval, and management.
Each decision should be traceable back to its source, and the people and groups responsible for
making them should be named. All of this needs to be recorded accurately.

5.3 Credit Documentation

Credit documentation is necessary at every stage of the credit cycle, from application to analysis
to approval to monitoring to collateral valuation to impairment recognition to foreclosure and
realization of security. To enable inspection and follow-up, credit files should be consistent in
format and neatly maintained with an appropriate system of cross-indexing.
In this regard, the Bangladesh Bank will focus on the reliability of data and the effectiveness of
existing record-keeping mechanisms. In the event of a legal dispute, the documentation between
the financial institution and the borrower will serve as the basis for the case. Legal counsel
should review all contracts between a financial institution and its borrowers.
The originals of legally binding papers, facility letters, and signed loan agreements should be
kept in a more secure location, while only copies should be stored in credit files. Credit files
should be kept in fireproof filing cabinets and never taken off-site.
From the time they receive the credit application to the time they release the funds, financial
institutions should have a checklist that demonstrates compliance with all regulations and
procedures. The identities of any decision-makers, whether individuals or a committee, should be
noted on the checklist.

5.4Administration of Credit
The Credit Administration department is essential since it verifies that the necessary paperwork
and approvals have been obtained before any loans may be dispersed. Therefore, to prevent the
potential of controls being compromised or issues not being addressed at the appropriate level, it
is crucial that the functions of Credit Administration be firmly separated from Relationship
Management/Marketing.
At a bare minimum, it is the responsibility of a financial institution's credit administration
function to guarantee:
• To guarantee the following, Credit Administration policies should be in place. Financial
records are carefully stored, cross-indexed, and may not be removed from the building;
• The borrower has established regular premium payments on the appropriate insurance
policy in favour of the bank;
• Upon receipt of the necessary documentation and satisfaction of all contractual
obligations, only then will credit facilities be made available;
• The value of the collateral is tracked frequently;
• The debtor is current on interest, principal, and all fees and commissions;
• All applicable laws, rules, and regulations, as well as established policies and processes,
are followed; and
 • The business of the borrower is subject to regular, on-site inspections, and the results of
these inspections are recorded.
5.5Disbursement
Once the credit is granted, a letter of offer should be sent to the consumer outlining the terms and
conditions of the credit. The client is responsible for signing a copy of this letter and sending it
back to the financial institution. All necessary documentation, collateral registration, insurance
coverage in favour of the institution, and legal review must be completed before any funds from
the facility can be disbursed. There will be no disbursement of funds unless all pre disbursement
conditions are met and the necessary approvals are made within the financial institution.

Graph 2: Credit Disbursement

Credit Risk Management Guidelines, Bangladesh Bank

5.6To Keep Tabs on and Manage Individual Credits

Early detection of faulty facilities is essential for protecting financial institutions from potential
losses. When warning indications indicate a deterioration in the borrower's financial health, a
proper credit monitoring system will offer the basis for implementing timely corrective actions.
Unauthorized withdrawals, capital and interest arrears, and a worsening in the borrower's
operating environment are all examples of such warning flags. A formal examination of the
borrower's credit and financial health should be conducted by the financial institution at least
annually. It is recommended that reviews of big credits, trouble credits, or the customer's
operational environment be conducted more frequently (at least quarterly) than usual.
All things considered, the institution's monitoring efforts will guarantee:
• The consumer uses the credit for the express purpose for which it was extended;
• Borrower's financial status is monitored on a consistent basis, and management is kept
up-to-date;
• The extent of collateral protection is monitored on a regular basis and linked to the
borrower's financial status;
• The customer's present situation is reflected in the institution's internal risk ratings.

5.7 Tracking Credit Portfolio (stress testing)

Examining the potential consequences for individual credits and the credit portfolio as a whole in
the event of a material shift in the conditions or environment in which borrowers operate is an
essential part of effective credit risk management. This analysis's findings should be taken into
account when determining whether or not the organisation has sufficient provisioning and
capital. This type of stress analysis might illuminate hidden vulnerabilities to credit risk that may
emerge during extreme conditions.While conducting stress tests, financial institutions may want
to consider the following scenarios:
• Negative trends in the economy or a certain industry
• Inadverse market-risk events; and
• A lack of available funds is a major problem.
All industries to which a financial institution has major exposures should have a profile created
for it. Every year, these profiles need to be updated based on new information. A backup plan
including any recommended course of action should be in place after each stress test. Stress tests
and backup plans must be reviewed frequently by upper management. The findings should play a
significant role in the process of reevaluating the credit risk management framework and
determining appropriate limits and provisioning.

5.8Classification of Credits
Credit risk management policy, credit impairment identification and measurement policy, and
the accompanying internal controls, documentation processes, and information systems must be
established by the board of directors of a financial institution.
The estimated degree of recovery is used in the credit classification process to assign grades to
individual credits. Financial institutions must have procedures and controls in place to put into
effect the policies that have been authorised by the board and are consistent with the proposed
regulation. Credit provisioning and write-off criteria should be reasonable. In accordance with
International Accounting Standard 39, banks must evaluate credit portfolios as a whole to
determine the extent of credit impairment and the resulting provisioning. In order to evaluate the
portfolio-level recoverability of their loans, financial institutions need reliable systems and
methods for identifying credits sharing comparable characteristics.
The net realisable value of the collateral and its continued legal validity and enforceability
should be monitored and controlled by appropriate systems set up by financial institutions. This
is especially crucial for any past-due credits before reducing the outstanding amount of credit by
the value of the collateral used to make provision. In the case of credit guarantees, financial
institutions are obligated to put in place methods to regularly confirm the guarantor's financial
stability.

5.9 Distinctive Borrowing

A bank is a company that provides a variety of financial services to its customers and the
economy as a whole. But, modern commercial banks' operations are hampered by the heavy
weight of defaulted loans. Janata Bank disburses millions of taka annually to individuals, non-
profits, and other entities, however, a sizable portion of these funds is never recouped on time.
The bank must assign a category to this loan.
• Classification Indicators
A credit manager's first and most important duty is to spot troubled accounts before they become
major problems. Examples of such indicators include, but are not restricted to:
• Neglecting to pay interest or principal when due, allowing arrears to accumulate for an
unreasonable length of time, or having arrears recur regularly.
• In the event of an overdraft, no transactions are permitted for an unreasonable amount of
time.
• A deterioration in the client's financial situation, as evidenced by the most recent
financial statement.
 • Inadequate coverage of collateral, which is especially problematic if the security in
question played a significant role in the final verdict.
• The loss of a vital owner or member of management.
• This includes situations where the company voluntarily dissolves or declares bankruptcy.
• Unfavorable press about the firm or its top executives.
• The Bangladesh Bank's Recommendations for Categorizing Loans
A new era in commercial bank credit management in Bangladesh began with the categorization
of delinquent loans and advances. Until 1989, commercial banks didn't follow any rules for this
reason. Certain guidelines and requirements for categorising loans were laid forth in BCD
circular No.34/1989, issued by the Bangladesh Bank in 1989. Each scheduling bank, with the
exception of BKB, RAKUB, and BSB, would then be in charge of its own loan classification
according to the standards laid out in the table below.
Classifying Loans

Length of overdue Status of Rate of

classification provision

All loans except Annual

provision
Agricultural loans

Less than 1 year Unclassified 1%

Loans overdue for 1 year but less Substandard 10%

than 3 years
Loans overdue for 3 years but less Doubtful 50%
than 5 years

Loans overdue for 5 years or more Bad/loss 100%

For agricultural loan: Classified, 5%

substandard,
Loans not overdue for 5 years or
doubtful
more

Loans overdue for 5 years ormore Bad/ loss 100%

Table – 7 Loan Classification Systems

*Source: BCD Circular no. 34/1989

In accordance with the guidelines laid out in this circular, loans and advances were categorised
not based on a sample but rather on an individual basis. Up until 1994, this method was used. In
1995, the Bangladesh Bank issued another circular (BCD circular#20/1994). With effect from
January 1, 1995, the circular with the title "Revised rules of categorization and provisioning of
loans and advances" went into effect.
• Loan and Advance Risk Summary
This is a breakdown of Janata Bank Ltd.'s loans and advances, along with an assessment of their
relative risk:

Particulars Position as on Change (%)

2022 2021

Total Loans and 285,747.65 305,339.58 (6.42)

Advances

Less: Total 22,291.78 34,012.05 (34.46)

Provision for

Loans and Advances

Net Loans and 263,455.87 271,327.53 (2.9)

Advances

Classified Loans
Substandard 7,076.52 12,958.26 (45.39)

Doubtful 4,296.11 8,081.13 (46.84)

Bad/Loss 20,394.23 32,162.3 (36.59)

Total Classified

31,766.86 53,201 (40.29)

Loans and Advances
 Classified loans as percent of total
loans

Substandard 2.48% 4.24% (1.77)

Doubtful 1.50% 2.65% (1.14)

Bad/Loss 7.14% 10.53% (3.4)

Total 11.12% 17.42% (6.31)

Net Classified 31,766.86 53,201.69 (40.29)

Loans

Net Classified 11.12% 17.42% (6.30)

Loans as % of Total Loans

Table 8: Summary of Loans and Advances with the Risk Status

Source: Janata Bank Limited, Annual Report 2018-2022
5.10Borrower Repayment
Janata Bank's Recovery process requires an excessive amount of time, energy, and money.
Recovering the loaned money involves the collaborative efforts of the Bank, the community, and
the law. The bank has implemented a variety of measures to collect on the defaulted debts.
The following paragraphs cover the topic.
Loan Recovery Programs
The payback schedule for any loans or advances approved by Janata Bank is spelt out in detail.
Nonetheless, some borrowers consistently fail to make timely payments. Issues of this nature
plague both publicly-owned and privately-held commercial banks. Janata Bank is particularly
hard hit. There have to be specific debt recovery programmes implemented by the bank to deal
with the issue of delinquent loans. These are a few of them:
• Creating a bank-based credit monitoring and supervision unit.
• Altering how bank loans are approved and distributed.
• The credit management decision-making process will be delegated to the branch
manager.
• Providing a bundle of benefits to creditworthy borrowers
• Putting more of an emphasis on payday loans and other forms of fast cash
• By limiting the amount of money banks can lend to failing sectors, for example
• Initiating legal proceedings against financially risky debtors as soon as feasible, but no
later than the statute of limitations allows.
Procedures for Pursuing Restitution from Defaulting Borrowers
Janata Bank Limited takes the following measures to collect loans from defaulters:
Reminding the borrower to pay:First, the Credit Administration section sends periodic
reminders to the borrower about the number of days left in which the loan must be repaid, along
with a reminder of the loan's validity dates.
1. Final notification:In the event that the borrower is unable to return the loan within the
initial repayment period, a final notice will be sent out along with a new payback
deadline.
2. Legal notice:If the borrower still hasn't paid back the loan after the grace period and the
last letter, JBL's credit department will send a legal notice stating that the bank would
launch a lawsuit if the debt isn't settled within a certain amount of time.
3. Finally sue the party:Because it has received no payment from the borrower, the bank
must resort to taking legal action against the defaulter in accordance with the applicable
law. If the case goes to court, the judge's ruling on the debt collection process will be
final, and the party and the bank will be bound by the terms of the law. These are the
standard measures Janata Bank Ltd. takes when attempting to recoup a defaulted debt.
 Chapter: 6
Findings, Recommendations and Conclusion
6.1 Report Findings
Each financial institution has its unique credit policies. Janata Bank, Ltd. has a conventional
credit system. My report's goal is to provide commentary on how credit risk management affects
Janata Bank Ltd's bottom line, thus I did my best to gather data and learn the truth. This report is
a summary of the research I did while interning at the Dhanmondi Corporate Branch.
▪ The bank generally applies the Bangladesh Central Bank's guidelines for evaluating and
ranking credit risks.
▪ JBL has maintained its leadership position in providing credit to government entities,
sector corporations, and private enterprises with an eye towards facilitating the
implementation of government policies.
▪ Yet, in reality, credit officers often fail to accurately complete the proposal form. The
assumption is used rather than precise calculation almost always. Possible negative or
secret outcomes of this method.
▪ Loans are sometimes dispersed by JBL without adequate collateral being present. This
goes against the directive issued by the Bangladesh Central Bank.
▪ There are cases where the verification of documents is completed after a loan has already
been approved.
▪ Employees in the credit department are understaffed and poorly educated.
▪ Credit proposal evaluation can take a long time.This results in the potential loss of some
patrons.
▪ Not all necessary data concerning loans and advances are available on JBL's website.
▪ Banks often have trouble getting their money back since the credit officer didn't properly
evaluate the collateral. In the case of well-valued collateral, the risk of a poor loan is
exactly covered. Authorities are tasked with doing so with all necessary diligence.
▪ JBL is slow to process and carry out legal measures against defaulters who have failed to
repay loans and advances they have received.
6.2 Recommendations
Janata Bank Limited may do more to foster a culture of responsible credit risk management by
adopting some of the best practices prevalent in other industries. This includes:
▪ The customer needs to be monitored on a continuous basis so that the loan is not
subprime.
▪ The financial institution should place a greater emphasis on extending credit to a wide
variety of industries, particularly those that show promise and those that could provide a
fresh economic impetus.
▪ Loan approval and sanctioning processes should be conducted without political
interference.
▪ The business climate, and the associated risks, are always shifting. Thus, the bank needs
to be designed as a flexible institution that can adjust to new requirements.
▪ Every paperwork associated with a loan must be completed in an ethical manner. The
department's credibility and well-being depend on the bank placing more emphasis on
accurate documentation across all loan categories.
▪ Prior to loan approval, the bank must conduct a thorough verification of the security
provided against the loan and the accompanying documentation.
▪ A proper level of monitoring, supervision or close attention from management
necessitates the implementation of an Early Alert Account system.
▪ Accounts showing persistent decline should be handled immediately by the Recovery
Section. The recovery Unit could benefit from an incentive programme.
6.3 Conclusion
Naturally, a nation's credit policy will have repercussions for its monetary system as a whole.
Credit is vital to the success of a financial institution and the economy as a whole since it allows
for the creation of profit and the acceleration of economic activity. In other words, credit is a
necessary part of doing business and a factor in the nation's manufacturing process. Credit is
risky, so it's up to the borrower to make sure the money is being used appropriately. There can be
no wasteful use of borrowed funds on the part of the borrower. Janata Bank Limited has a
responsibility to monitor the loan's development and the borrower's use of the money. As a
result, Janata Bank Limited will be protected from any fraudulent actions taken by the borrower.
Janata Bank Limited has a very time-consuming system for evaluating credit applications. Again
and again, it has been updated in accordance with the relevant Bangladesh Bank circular. Janata
Bank Limited's credit operations are split between the corporate credit division and the credit
administration department. Janata Bank Limited's credit risk management system appears to be
working to some extent, as evidenced by the high recovery position of classified loans and the
gradual decline in classified loans over the course of the year. They take several different steps to
further strengthen their credit risk management system as part of their ongoing efforts to refine
their credit policy in order to minimise loss and maximise profit.