In the previous sections of this report we have critically analysed Dhaka Bank’s existing credit risk management system as well as Bangladesh Bank’s best practices guidelines for managing credit risk. Comparing Dhaka Bank’s current credit risk management system with the BBK best practices guideline we see that Dhaka Bank lacks some of the best practices in banking industry which can be generated in the following way-

5.1Credit Policies/ Lending Guideline: In the above analysis we have seen that Dhaka Bank limited has no written credit policy though it follows some policy.  As there is no written credit policy, branch managers sometimes get confused whether to go with a project or not.

Thus Dhaka Bank limited should have a lending guideline available in every branches so that credit officers can take quick decision whether to accept or reject a project. The lending guideline should include the following-

• Industry or business segment focus.
• Types of loan facilities
• Details of single borrower/ group limit
• Lending caps
• Discouraged business type
• Loan facility Parameters
• Cross Border risk

5.2 Credit Assessment & Risk Grading: Though credit is properly assessed in DBL, but there is no risk grading system applied here. It should adopt a credit risk grading system to ensure account management, structure and pricing are commensurate with the risk involved.

5.3 Approval Authority: In Bangladesh Bank’s guideline it is written that “Approval authority should be delegated to individual executives and not to committees to ensure accountability in approval process”. But in Dhaka Bank limited we see that every credit goes to the board via credit committee. As a result, wastage of time occurs and no one is held accountable for a bad loan.

5.4 Segregation of Duties: According to Bangladesh Bank Guideline Banks should aim to segregate the following lending functions to improve the knowledge levels and expertise in each department:

- Credit Approval/ Risk Management
- Relationship Management/ Marketing
- Credit Administration

But in Dhaka Bank limited there is no such depertmentation or segregation of duties. In small branches of DBL only single loan officer do all the jobs like loan marketing, risk assessing and credit administration.

5.5 Internal Audit: Dhaka Bank limited has a segregated internal audit/ control department charged with conducting audit of all departments as suggested by Bangladesh bank guideline.

5.6 Preferred Organizational Structure: Currently Dhaka Bank does not follow the preferred management structure as suggested by BBk guideline. The key feature in the preferred management structure is the segregation of Marketing/ Relationship function from approval/Risk management/ Administration function.

5.7 Approval process: According to BBk best practice guideline, ‘the recommending or approving executives should take responsibility for and be held accountable for their recommendations and approval’. The recommended delegated approval authority levels are as follows

 Head of Credit/CRM Executives    up to 15% of capital
 Managing Director/ CEO               Up to 25% of capital
 EC/ Board                                     All exceed 25% of capital

But in Dhaka Bank we see that every credit proposal goes to Executive committee i.e. board.

5.8 Credit Administration: The BBk guidelines suggest that Credit administration be strictly segregated from relationship management/ marketing. As a result the possibility of controls being compromised or issues not being highlighted at the appropriate level can be avoided. The credit administration has the following functions-

• Disbursement
• Custodial duties
• Compliance requirement

In Dhaka Bank credit officers under supervision of Branch Credit In-charge or Manager also carry out all the three functions of credit administration. But Credit Marketing and administration is yet to be segregated.

5.9 Credit Monitoring: To minimize credit losses, monitoring procedures and systems should be in place that provides an early indication of the deteriorating financial health of a borrower. Early identification, prompt reporting and proactive management of Early Alert Accounts are prime credit responsibilities of all relationship Managers. An early Alert Account is one that has risks or potential weakness of a material nature requiring monitoring, supervision or close attention by management.

In Dhaka Bank credit monitoring is also done by credit In charge or branch managers. As a result Early Alert Accounts do not get that much attention as needed.

5.10 Credit Recovery: According to BBk guideline the recovery unit (RU) of CRM should directly manage accounts with sustained deterioration. On a quarterly basis, a Classified Loan review (CLR) should be prepared by the RU Account Manager to update the action/ recovery plan, review and assess the adequacy of provisions, and modify as appropriate.

In Dhaka Bank the non-performing loan is very low (below 3%) and the recovery unit is yet to be formed. But for personal loan program, Personal Banking Division has a recovery unit.

5.11 Incentive Program: The BBk guideline also encourages Banks to introduce incentive programs for the Recovery Unit Account Managers to bring down the NON Performing Loans (NPLs)
Dhaka Bank Limited currently has no incentive program as it does not have any Recovery Unit.