Definition of Credit Management: CM is the process of managerial activities/functions includes planning, organizing, staffing, directing, motivating & controlling

to achieve the objective of credit (which is known as maximization of business profit). It is the process of accomplishing various tasks relating to deciding grant or not granting credit to others, determination of terms & conditions, proper documentation, frequent monitoring & reviewing the performance of borrowers & taking necessary steps to ensure smooth recovery of credit which ensure profit maximization of the bank. Banks in the developing countries often do not have a well developed credit management process and the main deficiencies of these are 1) The absence of written policies 2) the absence of portfolio concentration limits excessive centralization or decentralization of lending authority 3) poor industry analysis 4) a cursory financial analysis of borrowers 5) an excessive reliance on collateral 6) infrequent custom contract 7) the inadequate cheeks & balances in the credit process 8) absence of loan supervision 9) a failure to improve collateral position as credit deteriorate 10) poor control on loan documentation 11) excessive overdraft lending 12) incomplete credit files. Changing Status & Qualification of Credit management (Evolution of CM): The major factor contributing to the changing status & qualifications for credit management has been the rapid & tremendous growth of industry & commerce. When business was mostly under the control of a sole proprietor & relatively small in size, the approval of credit was simple & personal matter. 50 to 60 years ago, it was customary that lenders were to visit markets once or twice in a year. At that time borrowers were personally known to lenders, the size of business was small & for a number of years bookkeepers were in control of the credit management task. Parallel to the commercial & industrial developments of last couple of centuries a high degree of administrative efficiency has been attained through better organization & specialization. Significant relationships of credit to business finance, production, marketing & financial operations of the business sought out credit work as group & need an increased number of highly qualified people. Now credit management has moved up to the status of an established business groups, with prerogatives, responsibilities, standards & ethics. Formerly, a credit officers attitude was depends largely on the safety of lenders fund. Now this attitude has changed & it includes the attitude of how can I help my customers? Modern business techniques & the operation of an effective credit department demand that credit manager will be intimately knowledgeable about the relationships of credit to business finance, production, marketing, and other aspects of the business. All this has entitled a broadening the base of qualifications of a credit manager with greater emphasis upon formal training in both the specialized & general areas of credit management.

By using more scientific approach, the credit analyst has been able to discern with greater accuracy the trends of customers business & its future events with somewhat greater degree of confidence than in the past. This increased efficiency has enabled him to view the problem in another light. The lending credit officer/credit officer: Rwegasira (1992) defined a lending credit officer as, The credit officer will be defined to be any individual working on behalf of bank and empowered to decide whether or not to lend to bank customers at some determined interest rate. In his word, a lending credit officer is economically rational and expected to be utility maximize. For attaining the objective of utility maximization, credit officer would try to trade off between risk and returns. In this case the relevant returns or income in the form of interest payments to the bank, & the risk is in terms of default of a business firm or a company. The credit officers decision making process: Credit officers decision making activity can be compared with production & accounting process. Each of these systems is characterized by specific inputs, a process & output. The following figure exhibits the lending credit officers decision making process.

A credit officer

1. Financial Information 2. Non-financial information 3. Skills 4. Goals 5. Perception of analysis I

Decision Process

Lending decision e.g., Whether or not to grant loan

The actual inputs of productive unit include material, manpower, equipment, energy & other monetary & non-monetary economic resources from the environment. The process of the firm consists of the productive transformation of inputs into goods and services. The task of a credit officer is like as production unit and he or she is interested in finding out the ability & willingness of the firm to service the loan to be advanced. To perform this analysis the credit officer has to acquire various type of information regarding the prospective borrowers integrity, history, intention & perhaps most important of all his financial ability to service the debt. Steps in credit management: 1) Strategic plan for target markets: Every bank should develop a strategy by targeting markets where they are interested to invest in current year & in future. Bank management can be able to determine the profitable sectors by analyzing adequate data about the economy and the prospect of the sectors.

2) Credit Policy formulation: Credit policy reflects the wisdom of banks & their intention about what they are actually wanted to do & what not. A credit policy gives loan officers & bank management specific guidelines in making individual loan decisions & in shaping the banks overall loan portfolio. 3) Initiation, client request, Relationship marketing: In the most developed countries, commercial banks have introduced the relationship marketing which means credit officers are approaching borrowers for marketing their credit. Most of the banks in developing countries and also banks in Bangladesh are now thinking to introduce relationship marketing. 4) Client interview: the goal of loan interview primarily is to collect information to judge the creditworthiness of borrowers & the query of credit officer about the information written in application form or not written application form. 5) Credit investigation: Investigate the clients house (with informing or not) to judge the authenticity of the information in step 3 & 4 and to collect further information if required. 6) Credit analysis: Credit analysis is the process whereby both quantifiable & subjective factors are evaluated simultaneously & judged. It is to judge the prospective borrowers ability and willingness to pay the obligation as stated in the loan agreement. 7) Credit analysis report: Credit analysis reports are part of a loan approval process. The report should always describe the proposed loan structure, appraise repayment ability, summarize strength & weakness & recommended alternatives that reduce credit risks. 8) Credit approval: It is the step for granting or not granting credit. Credit officer sent the appraisal of borrower to the credit committee, credit committee examines the proposal and makes decision whether approve it or not. 9) Credit structuring, pricing, repayment: Credit structuring means determination of loan tenure, in pricing, repayment mode, covenants, security & others. Credit officer have to be careful because logically unsound credit structuring might results the non-performing loans. 10) Credit negotiation: A contract or agreement of loan will be signed between the credit officer & the borrower after accepting terms & conditions by the borrower. 11) Credit documentation: The legal relationship between the borrowers & the lender establish through proper documentation. The credit officer should collect necessary documents or papers for loan, like security. 12) Credit disbursement: How loan will be disbursed is generally mentioned in the credit negotiation. It is customary that term loans are disbursed on installment basis & short term loans are transferred to borrowers account. 13) Internal audit: It is necessary to audit the credit to verify whether credit has been made by all the guidelines of credit set in the credit policy to make accountable of the credit officer.

14) Credit monitoring & review: After disbursing credit, credit officers task is to continuously monitor or communication with the clients to ensure recovery of credit or to find the problem loan. 15) Handling problem loan: Loan losses can be minimized by early detection of problem & its efficient handling. It can be handled by advocacy or counseling, rescheduling of loan and the legal acting to recovery loan. 16) Recovery of credit: It is the last step of credit management process. After the tenure it may happen that some loans are not still recovered. In that case some banks use moral persuasion to recover credit, some banks sale the loan to 3rd party or some appoint 3rd party. If all these techniques come into failure then lenders have no alternative rather taking legal action.