CHAPTER 1

1.1 Introduction
Credit

Risk

management

in

financial

institution

starts

with

the

establishment of sound lending principles and an efficient framework for

managing the risk. Credit Risk management is very important to banks as it
is an integral part of the loan process. Adequately managing credit risk in
financial institutions is critical for the survival and growth of the financial
Institution. In the case of banks, the issue of credit is even of greater concern
because of the higher levels of perceived risks resulting from some of the
characteristics of clients and business conditions that they find themselves
in. Financial institutions play an important role to develop economical
conditions of any country. Banking sector is one of the largest sectored
among them. Bangladesh is a developing country. There are two types of
banks like private and public banks .These banks specially work in the field
of promotion of capital encouragement of entrepreneurship, employment
opportunist etc. Due to globalization, money transfer and other important
task is easily done by banks. In the garment sector most of the institution
stake loan from bank and they also give the payment of buyers through
bank, for opening LC bank is also needed. For our agriculture sector farmers
take loan from agricultural bank, Not only the giving loan but also in
other task like mortgage , deposit , social task and many other sector
bank has involved. Open market of free economy concept is used all over
the world.
1.2 Background of the report
The report entitled Credit Risk Management System of Islamic Bank
Bangladesh Limited: An analysis on CDA Avenue Branch has been prepared
as an internship report fulfillment of MBA Program

authorized

by

the

Department of Business Administration of

International Islamic University

University, Chittagong.
1.3 Objective of the report
The main objective of the report is to identify and evaluate the credit risk
management system of Islamic Bank Bangladesh Limited ( IBBL), which
includes the following specific objectives:
Specific objectives:
To know the practices of credit structure of the bank IBBL CDA Avenue
Branch.
To identify

the

recovery

system

performed

by the

bank

CDA

Avenue Branch.
To measure the effectiveness of the bank in the utilization of available
resources.
To asses and highlight the legal actions flowed by the Branch in terms
of credit recovery.

1.4

Rationale of the Study

Credit risk is one of the most vital risks for any commercial bank. Credit risk
arises from non performance by a borrower. It may arise from either an
inability or an unwillingness to perform in the pre-commitment contracted
manner. The credit risk of a bank is also effect the book value of a bank.
The more credit of a particular is in risk, the more probability of a bank to
be insolvent. Therefore, the status of depositor in the bank is at risk and
probability of incurring loss from their deposited value. Thats why; I am
interested to prepare the report on the basis of Credit Risk Management
Practices of the Commercial Banks in Bangladesh

1.5 Scope of the further study

The study would focus on the following areas of Islamic Bank Bangladesh
Limited (IBBL).
Credit Risk Management process.
The Credit operations Portfolio (loans & advances) management of
Islamic Bank Bangladesh Limited (IBBL).
Preferred Organization structures and responsibilities of Credit Risk
management.
The analyses of some factors related to the credit risk.

1.6 Methodology of the study

To, conduct this study the following methodology was implemented:
1.1.1 Collection of data:
In this study both primary & secondary data were collected.
I.

Primary source :
Personal observation
Desk work in different section, of the bank.
Conversation with banks employees.
II.
Secondary Source:
Annual report IBBL Limited
Variety of books, articles & journal related to banking.
Information from the internet.
1.1.2 Collection of data:
As, the, data which I collected from both sources, were segregated, for
fulfilling the purpose of
this report.
1.1.3 Processing of data:
As, I, have collected data, these were further processed, to fulfill the
purpose of this study.
1.1.4 Presentation of data:
The collected data were segregated &then processed, after that those
were inserted in tables & charts & presented in the body of this report.
So, to prepare this report combinations of the following method
of research in social science have been followed:
Interview method

1.7

Observation method
Desk study method

Significance of the study

After successful completion of this report , both the findings and literature
review will be significant in the following ways;
i. To scholars and researchers, the findings of the study are expected to
contribute to the existing literature about the credit risk management
and its impact on the overall performance.
ii. To managers and supervisors in an organization like Islami Bank
Bangladesh

limited, the study will guide them on credit risk

management and its effects on firm performance

iii. The accomplishment of the study will further enable the researchers to
acquire hand on skills about processing of research work and data
analysis. This proficiency will enable the researchers to handle such
1.8

related work with a lot of precision and proficiency.

Limitations of the Study
In preparing these reports I have faced some problems which are as
follows:

Difficulties in gathering information which were very crucial for

generating the needed results which may also limit the level of
credibility of the findings.
Prompt attention would not be given to the answering of the
questionnaires as researchers were working within a specified time
frame. As a result of limited time within which to complete this work,
the study was carried out using a case study approach.
Financial constraints and cooperation from the group members would

also limit the researchers efforts

Bank employees are very busy; they could not pay enough time.
Legal action related information was not available.
Some consumers of the bank did not give answers in some issues.
All the clients whom I interviewed