Abstract:
The purposc of Ihis documcnt is to providc dircctional gUl(ielines to Ihc banking 8ector
that will Improve a) the risk managcmcnt culture, b) e~lablish minimum standards fot'
segregalion of duties and responsibi lilies, ,md c) as,,,,t in the ongoing IInprovement of the
banklllg ,ector m Bangladesh by ldentifying the lacking in the existing crcdil risk
managcmcnt system and ITIlnilTIlLingso by ~dopting a <;tandanlJ;,cd approach in the LOTIn
of credll fl5k grading (eRG) syslem, The policy and guidelincs suggested in this p~per
are 1I1tcndcd for use in lhe eorpor~tci commnewl banking businesses.
At present, the credlt nsk managcment technique is dominated by the Lendmg Risk
AnalysIs (LRA) manual introduced 1111993 by the Bangladesh Dank h<lshecn in practice
for m<lmi;ltory usc hI' the Banks & financial insti!Ll!ioJls for loan sizc of I3DT 10 million
and above.
Th~ Banking ,ector ,inc~ then h,lS changed a lot as cr~dil culturc has been SlllfLlIlg
towalds a morc proLc~'lOl\al and st,l11(brdl/cd Crcdit Risk Managcmcnt approach. To
o\'Clcome the lad.LIlg of Ihe cXlsting LRA (Lending Kisk AnalY'ls) systcm with a vi~w to
Ct'caling a susl<lmahle crcdit risk managell1~m clIllllre, pcrJonnance, envmlllmcnt and
l~chnique to render anced hascd simphficd and uscr friendly mode! for application by lhe
Banks and fmancial instllutions in proces;mg crcdit dccisions and evaluating thc
magnitudc of nsk involvcd thercill a rlew Strategy/~yslem in the foml of credit risk
gradmg (eRG) has becn cxplorcd and sugge,kd in this thesi~ "ork,
Cred,t risk grading suggestcd in this paper lS going to he an important tool for credit Ii,k
mllilagement as it is gOlng to help the Il<lnb & Jinanci,11institutions 10 undersland various
dimcn;lOns of risk iIwolved In dllTcrent credit tran,netiolls. rhc aggregation of stich grading
across the bonuwer" activities and lhe lmcs of busmc>s can provide better assessment of lhe
quality of credit portfolio of a bunk or a branch, Thc credil [1sk grading system is vital to take
decIsions bolh at lhe pre-sanction ,lage "'"w~lI as po,l-sanction stage.
