Banking

Investment Risk Grading

Introduction:

One of the most significant risks a bank is exposed to is Investment risk. Since the largest slice of income generated by a bank and a major percentage of assets is subject to this risk, it is obvious that prudent management of this risk is fundamental to the sustainability of a bank.

Investment risk is the possibility that a borrower will fail to meet its obligations accordance with agreed terms. It can also be described as potential loss arising from the failure of a borrower to perform as per contractual agreement with the bank. The failure may result from unwillingness of the borrower or decline in either his financial condition or in the market scenario.

Investment Risk Grading is an important tool for Investment risk management as it helps the banks to understand various dimensions of risk involved in different Investment transactions. It provides a better assessment of the quality of Investment portfolio of a bank.

“A Credit Risk Grading deploys a number/alphabet/symbol as a primary summary indicator of risks associated with a credit exposure.” It defines the risk profile of borrowers to ensure that account management, structure and pricing are adequate with the risk involved.

Objectives of the study:

The principal objective of the study is to evaluate the overall Investment Risk Grading Status of different investment clients of Islami Bank Bangladesh Ltd. Rajshahi Branch. To accomplish this principal objective, following specific objectives have been covered:

1. To evaluate financial risk, business/industry risk, management risk, security risk, relationship risk of different investment clients of Islami Bank Bangladesh Ltd. Rajshahi Branch.

2. To evaluate the ‘Early Warning Signals’ status of investment clients of Islami Bank Bangladesh Ltd. Rajshahi Branch

3. To evaluate the frequency for Investment Risk Grading review.

Rationale of the study:

Methodology:

Types & sources of data and...