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Jamuna Bank Limited

Jamuna Bank Limited is a highly capitalized new generation Bank

Incorporate in on 2nd April 2001 under the Company act 1994

Authorized & Paid-up Capital are Tk 4000 mill and Tk.1621 mill

Currently the Bank has 54 branches all over the Country

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Banking Risk

Banking is an art & science of measuring &

managing risks in lending and investment

activities for commensurate profits based onthe risk perceptions.

Taking risks can almost be said to be the business ofbank management. A bank that run on the principle of

avoiding all risks will be in a stagnant institution, and a

bank that takes excessive risks will surely run into

difficulty.

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Credit Risk is the potential of loss arising out of the inability

or unwillingness of a customer or counterparty to meet its

commitments in relation to lending, trading, hedging,

settlement and other financial transactions

What is Credit Risk?

Philosophy of Credit Risk Management (CRM):Higher the risk, higher the expected reward

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JBL has its own Credit Policy Guidelines in line with the core risk guideline of

Bangladesh Bank according to Basel II

JBL has significantly improved risk management culture & established standard

for segregation of duties & responsibilities relating to credit operation of the bank.

CRM Practice of JBL

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Credit Risk Grading of JBL

The CRG scale consists of 8 Categories with short names and number are provided

as follows:

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Total Amount of Loans & Advances Year 2002-2009

Credit Operation of JBL

Throughout the year JBL was in constant efforts to explore different areas of credit

operation & could raise the credit portfolios to Tk. 32287.66 million in 2009 with an

increase of Tk. 11250.80 million (53.48%) over that of the preceding year.

Loanand dvances

.7.

.7

..8

.

3 .3

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007 2008 2009

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Deposit Mix from Year 2002-2009

Credit Operation of JBL

era e Depo it i Year

%%

%

%

%

% %

Average Deposit Mix CD and Others Bills Payable

Savings Deposit Fixed Deposit Short Term Deposit

Special Scheme Foreign Currency Deposit

JBLs credit facilities were concentrated on trade finance, agriculture & related

sectors, project finance, SMEfinance, wholesale & retail trade & structured financing

for developing infrastructure ofthe country.Jamuna bank always maintain well-

diversified portfolio.

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Sector wise Loans, Advances & Lease from Year 2002-2009

Credit Operation of JBL

JBLs credit facilities were concentrated on trade finance, agriculture & related

sectors, project finance, SME finance, wholesale & retail trade & structured financing

for developing infrastructure of the country. Jamuna bank always maintain well-

diversified portfolioAverage Sector Wise Loan & Advances (Yr 02-09)

14.00%

17.00

34.00%

4.00%

22.00%

4.00% 5.00%

griculture & isheriesLarge and Medium ndustry Working apitalE port redit ommercial reditSME Loans thers

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Regression Analysis:To examines how bank credit risk affects JBLs capital structure,

profitability and lending decisions.

Quantitative Analysis of CRM

Credit Risk Modeling for the Analysis

The following model is used to explain the relationship

between credit risk exposure and the capital structure,

profitability and lending:

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a set of hypotheses are developed and tested to show the degree of relationships

between credit risk management and risk management process of JBL.

H1: There is a significant relationship between credit risk and a banks capital

structure, profitability and lending decisions.

H2: There is significant relationship between Jamuna Banks credit riskmanagement practice based on Basel II Guideline of Bangladesh Bank and its

loan portfolio management, overall bank profitability.

Hypotheses Testing

The result of the regression analysis

clearly proves both the hypothesis.

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a set of hypotheses are developed and tested to show the degree of relationships

between credit risk management and risk management process of JBL.

H1: There is a significant relationship between credit risk and a banks capital

structure, profitability and lending decisions.

H2: There is significant relationship between Jamuna Banks credit riskmanagement practice based on Basel II Guideline of Bangladesh Bank and its

loan portfolio management, overall bank profitability.

Hypotheses Testing

The result of the regression analysis

clearly proves both the hypothesis.

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H1: There is a significant relationship between credit risk and

a banks capital structure, profitability and lending decisions.

The result of the regression analysis clearly proves the hypothesis that credit risk

affects a banks capital structure, profitability and lending decisions. The resultssupport earlier studies, as the study reveals that the larger the bank the higher

credit risk. The results also indicate a statistically significant negative relationship

between profitability on one hand and banks credit risk exposure on the other.

Profitable banks may generate sufficient resource to

manage their credit risk. The study also shows that, banks

exposed to higher credit risk will have larger equity capital,low liquidity and lower profits.

Assessment of Hypothesis

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H2: There is significant relationship between Jamuna Banks credit

risk management practice based on Basel II Guideline of Bangladesh

Bank and its loan portfolio management, overall bank profitability

The result of the regression analysis clearly proves the hypothesis. The study

reveals that capital structure (equity to total assets) of banks is positively related to

banks credit risk, overall profitability, and inversely related to JBLs size, liquid

assets and lending.

The result of the regression analysis

clearly proves both the hypothesis.

Assessment of Hypothesis

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From the analysis it is concluded that there is a substantial effort general

understanding of risk and risk management among the staff working in the risk

management department of the JBL.

JBL has substantial NPL and there is scope for improvement in CRM

The study finds that Credit Risk significantly affects JBLs capital structure,

profitability and lending decisions.

The study reveals that the larger the JBLs total asset grew the higher its

credit risk become.

The study reveals that capital structure (equity to total assets) of JBL is

positively related to banks credit risk, overall profitability, and inversely related

to JBLs size, liquid assets and lending.

Major Findings

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They houl i rease theireffi iencyonassessment of orrowers

financial soundnessandshouldmonitorcontinuallyso that thenoof

defaultercoulddecrease radually.

shouldemphasi eon loan recoverysystem y involvingmorewor

force.

n arly lert ccount systemshould e introduced tohaveadequate

monitoring,supervisionor closeattention ymanagement.

Recommendation

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This study of CRM of JBL illustrates that

credit risk affects a banks capital structure,

profitability and lending decisions. Theresults show that larger banks have higher

credit risk. The study also shows that, banks

that are exposed to higher credit risk turn to

have larger equity capital, low liquidity and

lower profits. Thus we conclude that Credit

risk management is not just a process or

procedure. It is a fundamental component of

the banking function.

Concluding Remarks

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