Core Risk of the Bank

Core Risk of the Bank

‘Risk” means chance of possibility of danger. Risk is an essential factor that  needs to be managed of kept at a minimum level.

There are seven areas of core risk:

01.  Investment (Credit) Risk.

02.  Asset & Liability / Balance sheet Risk.

03.  Foreign Exchange Risk.

04.  Internal Control & Compliance Risk

05.  Money Laundering Risk.

06.  I.T. Risk.

07.  Environment Risk.

Credit / Investment Risk Grading (IRG)

wewb‡qvM SzwK n‡”Q e¨vs‡Ki Ab¨Zg SzwK| G SzwK we‡k­lb Kiv, cwigvc Kiv Ges †m Abymv‡i SzwK e¨e¯’vcbv e¨vs‡Ki wbR¯^ mv‡_©B AwZe Ri“ix| evsjv‡`k e¨vsK 2006 mv‡ji 31 †k gvP© †_‡K 100 †KvwU ev Z`ya© wewb‡qv‡Mi †¶‡Î wewb‡qvM SzwK web¨vm g¨vbyqvj (CRGM) eva¨ZvgyjK K‡i‡Q|

SzwK cwigv‡ci cÖ‡qvRbxqZv t

01.   e¨vsK †Kvb wewb‡qvM w`‡e wKbv Zv wba©vib K‡i _v‡K|

02.  wewb‡qv‡M MÖvn‡Ki SzwK wba©viY K‡i †m Abymv‡I Z`viKx Kiv|

03.  SzwK Abymv‡i e¨vsK jvfevb n‡”Q wKbv Zv g~j¨vqb Kiv|

04.  SzwK e¨e¯’vcbvq bZzb c`‡¶c †bqv|

05.  SzwK Kgv‡bvi Rb¨ wewb‡qv‡Mi †¶Î, cwigvb, BZ¨vw` cwieZ©‡bi cwiKíbv Kiv|

SzwKi †gŠwjK Dcv`vb¸‡jv n‡jv wbæi“c t

01.   Avw_©K SzwK (Financial Risk)

02.  e¨vemvwqK SzwK (Business / Industry Risk)

03.  e¨e¯’vcbv SzwK (Management Risk)

04.  wbevcËv SzwK (Security Risk)

05.  cvi¯úwiK m¤úK© SzwK (Relationship Risk)

Dc‡iv³ SzwKi †¶Î¸‡jv Avevi wewfbœ Dcv`v‡b MwVZ| H me Dcv`v‡bi Rb¨ wfbœ wfbœ SzwKi gvÎv wba©vib Kiv Av‡Q& me¸‡jv SzwKi †hvMdjB n‡”Q mswk­ó wewb‡qv‡Mi †gvU SzwK| wb‡æ SywKi †gŠwjK Dcv`vb¸‡jvi SzwKi gvÎv D‡j­L Kiv n‡jv t

Total Marking: 100

A. Financial Risk	1. Leverage:	15
	2. Liquidity:	15
	3. Profitability:	15
	4. Coverage:	05
	Total Score Financial Risk	50

B. Business / Industry Risk	1. Size of Business (Sales in BDT crore)	5
	2. Age of Business	3
	3. Business Outlook	3
	4. Industry Growth	3
	5. Market Competition	2
	6. Entry/Exit Barriers	2
	Total Score-Business/Industry Risk	18

C. Management Risk	1. Experience	5
	2. Second Line/Succession	4
	3. Team Work	3
	Total Management Risk	12

D.  Security Risk	1. Security Coverage (Primary)	4
	2. Collateral coverage	3
	3. Support (Guarantee)	2
	4. Negative Lien on Collateral	1
	5. No Collateral
	Total Score- Security Risk	10

E.  Relationship Risk	1. Account Conduct	5
	2. Utilization of limit	2
	3. Compliance of Covenants/Conditions	2
	4. Personal deposits The extent to which the bank maintains a personal banking relationship with the key business sponsors/principals	1
	Total Score- Relationship Risk	10

D‡jwLZ SzwKi wfwˇZ wewb‡qvM MÖvnK‡`i‡K wbæwjwLZ 8 fv‡M fvM Kiv hvq t

IRG = Investment Risk Grading.

Number	Grading	Short	Score
1.	Superior	SUP	Fully cash secured, secured by Government/International Bank Guarantee
2.	Good	GD	85 +
3.	Acceptable	ACCPT	75 - 84
4.	Marginal / Watch list	MG/WL	65 - 74
5.	Special Mention	SM	55 - 64
6.	Substandard	SS	45 - 54
7.	Doubtful	DF	35 - 44
8.	Bad & Loss	BL	< 35

CREDIT RISK GRADING SCORE SHEET
Reference No.:	SIBL/NAO/INV/2014/		Date:	5-Aug-13
Borrower	Siddik Garments
Group Name (if any)		Aggregate Score:		75
Branch:	Naogaon
Industry/Sector		Risk Grading:	Acceptable
Date of Financials	1-Aug-13
Completed by	Mohd. Akhter Hossain
Approved by	Md. Motiar Rahman
Number	Grading	Short	Score
1	Superior	SUP	Fully cash secured, secured by government guarantee/international bank guarantee
2	Good	GD	85+
3	Acceptable	ACCPT	75-84
4	Marginal/Watchlist	MG/WL	65-74
5	Special Mention	SM	55-64
6	Substandard	SS	45-54
7	Doubtful	DF	35-44
8	Bad/Loss	BL	<35
Criteria                        Weight	Parameter	Score	Actual Parameter	Score Obtained
A. Financial Risk                  50%
1. Leverage: (15%)	Less than 0.25×	15	0.00	15
Debt Equity Ratio (×) - Times	0.26× to 0.35 x	14
Total Liabilities to Tangible Net worth	0.36× to 0.50 x	13
	0.51× to 0.75 x	12
All calculations should be based on	0.76× to 1.25 x	11
annula financial statements of the	1.26× to 2.00 x	10
borrower (audited preferred)	2.01× to 2.50 x	8
	2.51× to 2.75 x	7
	More than  2.75×	0
2. Liquidity: (15%)	Greater  than 2.74×	15	1940.00	15
Current Ratio (×) -Times	2.50× to 2.74 x	14
Current Assets to Current Liabilities	2.00× to 2.49 x	13
	1.50× to 1.99 x	12
	1.10× to 1.49 x	11
	0.90× to 1.09 x	10
	0.80× to 0.89 x	8
	0.70× to 0.79 x	7
	Less than  0.70×	0
3. Profitability: (15%)	Greater  than 25%	15	8.57%	10
Operating Profit Margin (%)	20% to 24%	14
(Operating Profit/Sales) X 100	15% to 19%	13
	10% to 14%	12
	7% to 9%	10
	4% to 6%	9
	1% to 3%	7
	Less than 1%	0
4.  Coverage: (5%)
Interest Coverage Ratio (×) - Times
Earning before interest & tax (EBIT)	More than 2.00×	5	6.00	5
Interest on debt	More than 1.51× Less than 2.00×	4
	More than 1.25× Less than 1.50×	3
	More than 1.00× Less than 1.24×	2
	Less than 1.00×	0
Total Score- Financial Risk		50		45
B. Business/ Industry Risk  18%
1. Size of Business (in BDT crore)	> 60.00	5	0.55	0
	30.00 – 59.99	4
The size of the borrower's business	10.00 – 29.99	3
measured by the most recent year's	5.00 - 9.99	2
total sales. Preferably audited numbers.	2.50 - 4.99	1
	< 2.50	0
2. Age of Business	> 10 Years	3	12-জানু	3
	> 5 - 10 Years	2
The number of years the borrower	2 - 5 Years	1
engaged in the primary line of business	< 2 Years	0
3. Business Outlook	Favorable	3	Stable	2
Critical assesment of medium term	Stable	2
prospects of industry, market share	Slightly Uncertain	1
and economic factors.	Cause for Concern	0
4. Industry Growth	Strong (10%+)	3	Good (>5% - 10%)	2
	Good (>5% - 10%)	2
	Moderate (1%-5%)	1
	No Growth (<1%)	0
5. Market Competition	Dominant Player	2	Moderately Competitive	1
	Moderately Competitive	1
	Highly Competitive	0
6. Entry/Exit Barriers	Difficult	2	Average	1
	Average	1
	Easy	0
Total Score- Business/Industry Risk		18		6
C. Management Risk            12%
1. Experience	More than 10 years in the related line of business	5	More than 10 years in the related line of business	5
Quality of management based on total	5–10 years in the related line of business	3
# of years of experience of the senior	1–5 years in the related line of business	2
management in the Industry.	No experience	0
2. Second Line/ Succession	Ready Succession	4	Succession within 2-3 years	2
	Succession within 1-2 years	3
	Succession within 2-3 years	2
	Succession in question	0
3. Team Work	Very Good	3	Very Good	3
	Moderate	2
	Poor	1
	Regular Conflict	0
Total Score- Management Risk		12		10
D. Security Risk                   10%
1. Security Coverage (Primary)	Fully Pledged facilities/substantially cash covered / Reg. Mortg. for HBL	4	Simple hypothecation/Negative lien on assets	1
	Registered Hypothecation (1st Charge/1st Pari passu Charge)	3
	2nd charge/Inferior charge	2
	Simple hypothecation/Negative lien on assets	1
	No security	0
2. Collateral Coverage (Property Location)	Registered Mortgage on Municipal corporation/Prime Area property	4	Registered Mortgage on Pourashava/Semi-Urban area property	3
	Registered Mortgage on Pourashava/Semi-Urban area property	3
	Equitable Mortgage or No property but Plant and Machinery as collateral	2
	Negative lien on collateral	1
	No collateral	0
3. Support (Guarantee)	Personal Guarantee with high net worth or Strong Corporate Guarantee	2	Personal Guarantees or Corporate Guarantee with average financial strength	1
	Personal Guarantees or Corporate Guarantee with average financial strength	1
	No support/guarantee	0
Total Score- Security Risk		10		5
E. Relationship Risk              10%
1. Account Conduct	More than 3 years Accounts with faultless record	5	Less than 3 years Accounts with faultless record	4
	Less than 3 years Accounts with faultless record	4
	Accounts having satisfactory dealings with some late payments.	2
	Frequent Past dues & Irregular dealings in account	0
2. Utilization of Limit	More than 100%	2	More than 100%	2
(actual/projection)	More than 60%	1
	Less than 60%	0
3. Compliance of Covenants /	Full Compliance	2	Full Compliance	2
Conditions	Some Non-Compliance	1
	No Compliance	0
4. Personal Deposits	Personal accounts of the key business Sponsors/ Principals are maintained in the bank, with significant deposits	1	Personal accounts of the key business Sponsors/ Principals are maintained in the bank, with significant deposits	1
	No depository relationship	0
Total Score- Relationship Risk		10		9
Grand Total - All Risk		100		75