Internship Proposal

Title of the study: Credit Risk Grading of Eastern Bank Limited

Submitted to:
Name: Mazeda Sultana
Assistant Professor
Department of Accounting & Information System
Jagannath University

Submitted by:
Name: Fatema Akter
ID.NO: M18150201775
 Credit Risk Grading of Eastern Bank Limited

Brief Introduction of the Study

Title of the Study: Credit Risk Grading of Eastern Bank Limited.

Executive Summery

This paper is entitled “Credit Risk Grading and Limit Setting at Eastern Bank Limited”
originated from the fulfillment of the internship program. To examine the financial practice in
Banking Business, EBL is the pioneer in banking history to implement the Credit Risk
Grading Setting and practice it in their banking business.

Credit Risk Grading Manual of Bangladesh Bank was circulated by Bangladesh Bank vide
BRPD Circular No. 18 dated December 11, 2006 on Implementation of Credit Risk Grading
Manual which is primarily in use for assessing the credit risk grading before a bank lend to its
borrowing clients. The Credit Risk Grading Manual developed for a Bank shall be an
effective tool to help a Bank to take a sound decision in analyzing credit risk on another bank
and to set up a credit limit for money market and other business operations. All Banks should
adopt this credit risk grading system outlined in this manual for assessing the credit risk in
case they need to take exposure on another bank.

To assess Risk Management of Financial Sector I analyze 30 Banks & 15 Non-Bank

Financial Institutions (NBFIs) according to Credit Risk Grading Manual of Bangladesh Bank.

Credit Risk Grading is the basic module for developing a Credit Risk Management system.
Well-managed credit risk grading systems promote bank safety and soundness by facilitating
informed decision-making. Grading systems measure credit risk and differentiate individual
credits and groups of credits by the risk they pose. The process also allows bank management
to manage risk to optimize returns. EBL has decided to entail all details of the bank’s single
Borrower/Group limits to be included as per Bangladesh Bank guidelines. The Bank’s Head
of Credit or Managing Director/CEO should approve Credit Applications that do not adhere
to the bank’s Lending Guidelines. EBL has adopted a credit risk grading system. Borrower
Risk Grades thus clearly stated on Credit Applications.

Irrespective of credit score obtained by a particular bank and irrespective of credit risk rating
assigned to a particular Bank in line with this Credit Risk Grading Setting, grading of any
banks by the Bangladesh Bank inferior to this rating shall be mandatory and Eastern Bank
Limited should adjust its credit rating in line with Bangladesh Bank rating. This means that if
a credit rating by Bangladesh Bank is inferior then the credit rating as arrived as per this
CRGS then the Eastern Bank credit rating for the banks shall prevail and the lender Bank has
to adjust its credit rating accordingly. EBL’s Head of Credit Risk Management may also
downgrade credit risk grading of a Bank in the normal course of inspection or during the
periodic portfolio review. We have reviewed both quantitative and qualitative aspects taking
the Credit Risk Grading Manual of Bangladesh Bank into consideration. We have analyzed
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 Credit Risk Grading of Eastern Bank Limited

spreadsheet of 30 Banks (out of total 58 Banks) and rated them accordingly as Bangladesh
Bank guidelines through Focus Group report- Managing Core Risk in Banking on Asset
Liability Management and Foreign Exchange Risk Management to be adhered to.

Credit Risk Grading is an important tool for credit risk management as it helps a Bank to
understand various dimensions of risk involved in different credit transactions.

Background of the organization where the study conducted: Internship report is the
outcomes of perfect coordination between theoretical and practical experience throughout the
session of 12 weeks. This report is on International Division of Eastern Bank Limited
generated based on author’s 12 weeks practical experience with International Division of
Eastern Bank Limited and their recent project on Credit Risk Grading Setting.

This report mainly consists of two parts, are; organizational part and learning part. The
organizational part consists of various aspects of Eastern Bank Limited (EBL) as, mission,
vision, historical review, financial condition, various departments and divisions, management
aspects, branches, products and services, social responsibilities etc. The later part focuses the
department author worked with and the learning experiences I gathered during the session as,
functions of the department, policy and practices, objectives, mission, vision, SWOT
analysis, structure, activities performed by the author etc. Now-a-days, education is not just
limited to books and classrooms. In today’s world, education is the tool to understand the real
world and apply knowledge for the betterment of the society as well as business. From
education the theoretical knowledge is obtained from courses of study, which is only the half
way of the subject matter. Practical knowledge has no alternative. The perfect coordination
between theory and practice is of paramount importance in the context of the modern
business world in order to resolve the dichotomy between these two areas.

Objectives of the Study

The writing of this report contains two objectives: General objective and Specific objective.

 General Objective: As per requirement of EMBA program of Jagannath

University, a student needs to work in a financial organization for one to three
months to acquire practical knowledge about real business operations of a company.
Keeping that in mind, I have decided to work on an issue which is very important
for business perspective. As a topic, I will work on “Credit Risk Grading of Eastern
Bank Limited”.
 Specific Objective: To line with the topic of the study, the specific objectives of the
study are summarized as below:
 To familiarize with practical job environment
 To have an exposure on the financial institutions such as banking environment of
Bangladesh
 To gain experience on different functions of banking business in Bangladesh
 To examine the Financial practice in Banking Business
 To examine the Credit Policies and practices at EBL

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 Credit Risk Grading of Eastern Bank Limited

 To acquire in–depth knowledge over EBL’s International Division’s work flow

and their inter division dependencies where my knowledge of finance will be
practiced
Methodology of the Study
In order to make the report more meaningful and presentable, two sources of data and
information have been used widely. These are both primary and secondary data.
The primary sources are:
 Direct communication with the clients.
 Interviewed the EBL officials for getting more information.
The secondary sources are:
 Annual report of EBL.
 Website of EBL.
 Different circular of Bangladesh Bank.
 Different articles regarding banking functions.

Scope of the Study

EBL has a great opportunity to implement their mission, objectives very easily through Credit
Risk Grading. The report has been made through worthy conversation with the bank
employees and the clients. The scope of conversion is limited to the branch level only. This
report does not generalize the Credit Risk Grading of banking industry as a whole. The study
covers idea, knowledge and activities about Credit Risk Grading of Eastern Bank Limited.
Sole performance analysis of the branch is avoided due to unavailability of data.

Limitations of the Study

It should be certainly mentioned that the time two months is very short to get the total view of
the banking functions.
 Time is the major constraint to gather data about all the information required here.
 As the officers were very busy with their day-to-day work, they could not provide
sufficient time.
 Unwilling to provide data because of confidentially.
 Green banking is a new topic in Bangladesh. So, I have lack of knowledge on it.
 It is too much difficult to comment and suggest based on the annual report and
information supplied by the organization.
 Also my lack of experience to make such report is also a factor.

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 Credit Risk Grading of Eastern Bank Limited

Table of Contents
Particulars Page
No.
Chapter One Introduction & Background of the Study 1-4
1.1 Background of the Study 2
1.2 Rationale of the Study 2
1.3 Methodology of the Study 3
1.4 Objectives of the Study 3
1.5 Scope of the Study 4
1.6 Limitations of the Study 4
Chapter Two Profile of the Organization: EBL 5-21
2.1 Overview of Eastern Bank Limited 6
2.2 Mission of Eastern Bank Limited 6
2.3 Vision of Eastern Bank Limited 6
2.4 Objectives of Eastern Bank Limited 7
2.5 Hierarchy of Eastern Bank Limited 7
2.6 Different Wings of Eastern Bank Limited 8
2.7 Shareholding Structure of Eastern Bank Limited 9
2.8 Products of Eastern Bank Limited 10-21
2.8.1 Deposit Product 10
2.8.2 Loan Product 16
Chapter Three Theoretical Exposure on Credit Risk Grading 22-26
3.1 Credit Risk 23
3.2 Components of Credit Risk 23
3.3 Credit Risk Banking Practice in Bangladesh 23
3.4 Rules & Regulations Credit Risk in Bangladesh 24
3.5 Challenges towards Credit Risk in Bangladesh 24
3.6 Benefits of Maintain Credit Risk in Bangladesh 25
3.7 Retail And SME Banking Risk 25
Chapter Four Credit Risk Analysis & Practice in EBL 27-38
4.1 Credit Risk Analysis Activities of Eastern Bank Limited 28-29
4.1.1 In-house Risk Analysis 28
4.1.2 Risk Activities other than In-house 28
4.2 Analysis on Retail Risk of Eastern Bank Limited 30
4.3 Retail And SME Banking Risk of Eastern Bank Limited 31
4.4 Analysis on NPL of Eastern Bank Limited 34
Chapter Five Findings of Study 39-40
Chapter Six Conclusions & Recommendations 41-44
References & Appendix 45-52