Credit Function of Jamuna Bank Ltd.

Credit Function of Jamuna Bank Ltd.

Introduction

A bank's main business can be roughly summarized in to just one word, "LENDING". Whatever a bank does beyond, that is to facilitate that one goal. The deposits a bank collects is to lend them to the borrowers and whatever interest the bank gives the depositors is only the price of the raw materials.

Compared to any other business firms, banks have to be more cautious to invest for profit. Ordinary business firms invest the capital of their shareholders and the shareholders are aware of the risk associated with the investment. On the other hand, banks (and also other financial institutions) invest capital taken from the depositors against the promise of sure return. For this obvious reason, banks have to be extremely cautious about what investment they venture to. In plainer words, banks have to be very careful who they loan money to.

Business firms have developed many models to study the feasibility of a project i.e. the profitability of investment. Banks also use methods like NPV, IRR and discounted Payback period to study the feasibility of not a project to invest but to ensure that the prospective borrower taking the loan invests in a feasible project.

But only studying the feasibility of a project is not enough to mitigate risks related to the banking business. Banks need to assess their customers, the borrowers themselves. To assist the banks there, tools like CRG (Credit Risk Grading) and CREDIT FUNCTION (Credit Risk Rating) have been developed. All to ensure that the banks can borrow to the people who have the willingness and the ability to pay up the debts with interest and in time.

In a perfect world, banks would have been successful and the borrowers would have been never late to pay up the debts and give interests. But reality is far from that. Banks suffer from loan delinquency i.e. non-performance of an investment for various reasons. Incidents like overdue, late payments, non-payments are common to day-to-day banking business. The reasons vary from labor strikes, natural calamities, price hikes to plain fraud. A bank is always vulnerable to the threats of losing a major share of profit to recompense the depositors for delinquent loans.

Jamuna Bank Ltd. Jamuna Bank being a private commercial bank in Bangladesh, is more so. Jamuna Bank's corporate banking division is in the business of lending to the corporate houses of all major industrial sectors of Bangladesh. Jamuna Bank serves customers on all three major levels of corporate businesses: medium enterprises, big enterprises and conglomerates.

Conceptional Issue:

The extent of services they offer is still at the primitive level, which conversely assisted the system to cover wide range of rural customers who have basic knowledge about banking financial system.