Kingdom of Saudi Arabia
Prince Sultan College for Tourism & Business
Cooperative Training Report
FIN 490

CREDIT RISK
Al Rajhi Bank

Prepared By:
Omar Jameel Ajeeb
I.D # 08122

Supervised By:
Dr. Rasheed Small

In Partial Fulfillment with the Requirements
Of Bachelor Degree in Finance

2011

TABLE OF CONTENTS

|Description |Page |
|1. Introduction & Objective |3 |
|2. Al Rajhi Bank Overview |5 |
|3. My Department and its Functions |7 |
|4. Topic Learned during the Training |11 |
|5. Sample Daily Activities |15 |
|6. Examples of Key Skills Developed |17 |
|7. Opportunity to utilize the gained Skills |18 |
|8. Training Strengths |19 |
|9. Training Weaknesses |20 |
|10. The Challenges faced during the Training |21 |
|11. Link between Training Activities and the Academic Course |22 |
|12. Recommendations |28 |
|13. Conclusions |29 |
|References |31 |

1. Introduction & Objective

Praise to Almighty Allah for all his countless blessings and for always guiding me to the right path.

This report is about my training experience in Al Rajhi Bank as part of my Cooperative Training Program. The main subject of the report is the Credit Risk and the financial aspects related to it. Even if you are a hard worker with a sizable income and enough revenue to keep your family comfortable, at times your expenses might exceed your income and you might find need to seek a loan / credit to meet the sudden demand. Credit facilities are offered by the bank to deserving individuals or organizations who are looking for financial assistance and are generally able to provide guarantees that they can pay back the credited amount.

Credit facilities or personal finances can be used by individuals for any reason such as buying a house, car, paying for home repairs or remodeling, or any large purchases. Generally, banks have set terms and conditions which must be met by the individual who is applying for a loan. He will be asked to submit documents proving that he has a permanent address and income. The given amount depends upon the individual's income scale, mortgage value and credit balance.

Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. The risk of loss of principal or loss of a financial reward stemming from a borrower's failure to repay a loan or otherwise meet a contractual obligation.

So, the objective of this report is to focus on the credit risk involved with financing solutions at Al Rajhi Bank through my training experience for the completion of my coop report.

My objective as a student is to acquire practical experience on the operational, supervision and managerial levels in financial institutions or finance departments within different sectors. In my case, I have taken the training in Al Rajhi Bank at the Credit Department.

I have tried to link between what I have academically studied at the college and the practical actual experience I had in Al Rajhi Bank. Although there are certain procedures related to the bank's transactions with SAMA (Saudi Arabian Monetary Agency) which I have not got a chance to see academically but the general overall procedures are the same.

I have seen that credit risk is closely tied to the potential return of an investment, the most notable being that the yields on bonds correlate strongly to their perceived credit risk. The higher the perceived credit risk, the higher the rate of interest that investors will demand for lending their capital. Credit risks are calculated based on the borrowers' overall ability to repay. This calculation includes the borrowers' collateral assets and revenue-generating ability.

2. Al Rajhi Bank Overview

At Al Rajhi Bank, we believe that the one thing that holds the world together as peoples of different nationalities, creeds and beliefs are values. Values define us, unite us, and garner trust from those we serve. Al Rajhi Bank is established on the bedrock values of truth, honour and respect.

These values we uphold continually, thriving as the universal bank for ALL peoples. These values helped us become a prominent banking force in the Kingdom of Saudi Arabia. And these values continue to drive us forward in our efforts to honour modern financial demands via the use of technology, and innovation of bespoke banking products.

Values Statement:

Truth:
Our Shariah-compliant banking products and services are structured using fair and honest Islamic principles. The outcome? Equal win-win partnerships, and lasting banking relationships built on trust.

Honour:
At Al Rajhi, we do not believe in paying lip service to our capabilities. Honour means staying true to our word. We take pride in being a reliable banking partner that offers you the highest standards of banking professionalism, efficiency and compliance.

Respect:
Every customer is important, irrespective of race, social and religious backgrounds. No query is irrelevant, in respect to our products. Our strategy is tailor-made product solutions and customer care that respects your financial needs.

Our position today:

Today, our network covers over 570 bank branches, 2,750 ATM machines and 21,000 POS installed all over the Kingdom of Saudi Arabia. Backed by the full force of our established operations in the Middle East, Al Rajhi Bank made its maiden foray into the international banking market by setting up its first overseas operations in Malaysia in October 2006.

Starting with its first and main branch at Jalan Ampang on 16 October 2006, Al Rajhi now has 21 branches under in its wings, 15 in the Klang Valley, one each in Johor Bahru, Melaka, Penang, Kuching, Ipoh and Kota Bharu. We are currently expanding our suite of products and services to meet our growing customer pool.

3. My Department and its Functions

The department I have been trained in is the Credit Department and Business Section.

Department Function:

Our work starts when we receive the CA from the Relationship Manager. After we get it we make sure that all approvals are in place through the risk rating and the total of the facilities.

For example, if the risk rating is 2 and the facilities more than 300 mm, so according to the approval grid we need approval from the Area Manager, RM, Risk Manager.

Next step, we check the credit facilities information and the documentation we need from the customer.

Then we prepare the documents and send it to the customer for signature. These documents are:

▪ Credit agreement. ▪ Promissory note. ▪ Guarantees such as: o Personal guarantees if it is an establishment. o Joint and several guarantees if it is a company. o Local corporate guarantees if it is a holding company or more if it is a group of companies.

After we receive the documents, we send it to the Signature Verification Department (SV).

Then we start to input the facilities in the system. The facilities are:

▪ LC (sight, acceptance, refinance).

▪ LG (bid bond, performance bond, advance payment, guarantee, payment guarantee).

▪ Loans (short term, long term)

▪ Advance lines.

[pic]

The process for giving credit facility pass through the following functions which are performed by the department:

Customer Rating:

Having obtained all the required basic and financial information, the Relation Manager handling the credit application should enter all data into the Decision Moods Model (DMM) and run the Model. The customer's financial information must not be more than six months old. In absence of audited figures, in-house interims are sufficient. If neither is available then we may settle for the customer providing figures on Account Receivables and Inventory level for the period. This is a mandatory step to determine if the customer is qualified and fits the target market. The DMM outcome (risk rating) will be assigned to the customer. The credit process will continue if the resulting credit grade is 1 up to 10. If the credit grade is 9 or if the customer does not fit other basic target market criteria such as sales size, industry services, the customer will be rejected and the process stops.

Should the-DMM be included as an Appendix i.e. the SIC/CAC forms or just cross-referenced to the Credit Program. I think it should be included here given the importance of this step.

In some cases the customer rating will be prescreened manually if the provided basic and financial information is incomplete. This is done just to get a preliminary picture on whether the customer is within the target market or not. To conduct a manual prescreening, the Relation Manager will have to screen the customer against the approved Service Industrial Code (SIC). If the preliminary screening is positive, then the Relation Manager will move forward. If the result is negative, then the process stops. Once the missing information is received, the Relation Manager enters all the information into the DMM and runs the model.

The customer rating process should be repeated upon receipt of the updated audited or interim financial information, once an interim review is warranted, or at the annual review cycle.

Reference & Payment Checking:

The Relation Manager should ensure that all of the following checkings are documented.

Checking Client in SIMAH and Other Banks:

It is the prime responsibility of the Relation Manager to verify the information provided in this regard. Where the customer has current or previous relationship with AL RAJHI BANK, the available information should be reviewed to detect any defaults and ensure it was satisfactory. Any existing credit limits or outstandings must be noted. Checking the B, C and Classified/IRM lists is mandatory and is considered a critical factor in the credit decision making process. The customer's name as well as that of the principal shareholders and top management must be checked against AL RAJHI BANK's internal classified list (IRM list) and the SAMA circulated B-list. The customer's Commercial Registration Number must be obtained to facilitate the search. Checking of such lists at both the origination and maintenance stage is the responsibility of the Relation Manager. The credit application must be declined if the customer's name or that of a shareholder with 25% control is listed.

The consumer black list (C-list) must also be checked against the principal shareholders and top management's names. Personal I.D's, Iqama numbers, CR Numbers obtained for account opening purposes should be used to facilitate the C-list checking. Any listing has to be investigated and clearly documented. The same verification and checking will be performed on the guarantors. Checking the C-list is the responsibility of the Relation Manager.

Any negative checkings will result in the customer being down graded and rejected. Exceptions (if warranted) must be justified & approved by the respective approval level.

Bank Checking

Usually, the Credit Administration, Monetary and Control Department (CAMC) handles this function once they receive a request which must contains the customer's name, address and commercial registration number. There is a standard credit checking format used between the local banks. The CAMC also handles the same unction to obtain credit information from SIMAH. It is the responsibility of the Relation Manager to request the CAMC to obtain credit checking from both SIMAH and local banks that are provided to accelerate the credit facilities to the prospect. In certain cases, local banks will not provide specific or accurate information and some of the information provided is vague. Credit report provides important information on the company against credit facilities extended by local banks in terms of lines and amounts outstanding etc. The availability of ample credit facilities with other banks is comforting as it reflects the extending banks' confidence in the company. In some cases, other banks credit facilities may be used to repay or reduce this bank's exposure. Hence, it is crucial to analyze such information and ensure that the company is not over utilizing or exceeding its credit facilities with the banks.

Trade Checking

The source of such information is the customer-suggested list of references, AL RAJHI BANK Corporate customers and other commercial customers as applicable. This is an on-going process and it is the prime responsibility of the Relation Manager to conduct and fill the pre-designed Trade Reference Check Form (one form should be used for each reference).

Informal Checking

This is an ongoing process and it is the responsibility of the Relation Manager to conduct informal contacts to ascertain the customer character and commitment to settling obligations as per KYC (Know Your Customer).

Frequency of Reference Checking

This is also an ongoing process and the following guidelines should be complied with:
• Bank and SIMAH checking should be conducted at the start stage and on annual basis thereafter.
• Trade checking should be conducted at the Initial Reviews only and every year thereafter unless there are clear signs of deterioration in the credit (deferred or waiver).

Once all the reference checkings are complete and the Relation Manager is satisfied with the checking results, the credit process will continue. The preparation and submission of the Credit Approval (CA) package can continue pending receipt of the reference checking responses but approval should not be given until sufficient satisfactory checkings have been obtained.
4. Topic Learned during the Training

Credit analysis:

Credit analysis is the method by which one calculates the creditworthiness of a business or organization. The audited financial statements of a large company might be analyzed when it issues or has issued bonds. Or, a bank may analyze the financial statements of a small business before making or renewing a commercial loan. The term refers to either case, whether the business is large or small.

Credit analysis involves a wide variety of financial analysis techniques, including ratio and trend analysis as well as the creation of projections and a detailed analysis of cash flows. Credit analysis also includes an examination of collateral and other sources of repayment as well as credit history and management ability.

Before approving a commercial loan, a bank will look at all of these factors with the primary emphasis being the cash flow of the borrower. A typical measurement of repayment ability is the debt service coverage ratio. A credit analyst at a bank will measure the cash generated by a business. The debt service coverage ratio divides this cash flow amount by the debt service that will be required to be met. In other words, the debt service coverage ratio should be 1.2 or higher to show that an extra cushion exists and that the business can afford its debt requirements.

Credit risk:

Credit risk is the risk of loss due to a debtor's non-payment of a loan or other line of credit (either the principal or interest (coupon) or both).

Faced by lenders to consumers

Most lenders employ their own models (Credit Scorecards) to rank potential and existing customers according to risk, and then apply appropriate strategies. With products such as unsecured personal loans or mortgages, lenders charge a higher price for higher risk customers and vice versa. With revolving products such as credit cards and overdrafts, risk is controlled through careful setting of credit limits. Some products also require security, most commonly in the form of property.

Faced by lenders to business

Lenders will trade off the cost/benefits of a loan according to its risks and the interest charged. But interest rates are not the only method to compensate for risk. Protective covenants are written into loan agreements that allow the lender some controls. These covenants may:

▪ limit the borrower's ability to weaken his balance sheet voluntarily e.g., by buying back shares, or paying dividends, or borrowing further. ▪ allow for monitoring the debt requiring audits, and monthly reports ▪ allow the lender to decide when he can recall the loan based on specific events or when financial ratios like debt/equity, or interest coverage deteriorate.

A recent innovation to protect lenders and bond holders from the danger of default are credit derivatives, most commonly in the form of a credit default swap. These financial contracts allow companies to buy protection against defaults from a third party, the protection seller. The protection seller receives a periodic fee (the credit spread) as compensation for the risk it takes, and in return it agrees to buy the debt should a credit event ("default") occur.

Faced by business

Companies carry credit risk when, for example, they do not demand up-front cash payment for products or services. By delivering the product or service first and billing the customer later - if it's a business customer the terms may be quoted as net 30 - the company is carrying a risk between the delivery and payment.

Significant resources and sophisticated programs are used to analyze and manage risk. Some companies run a credit risk department whose job is to assess the financial health of their customers, and extend credit (or not) accordingly. They may use in house programs to advise on avoiding, reducing and transferring risk. They also use third party provided intelligence. Companies like Moody's and Dun and Bradstreet provide such information for a fee.

For example, a distributor selling its products to a troubled retailer may attempt to lessen credit risk by tightening payment terms to "net 15", or by actually selling fewer products on credit to the retailer, or even cutting off credit entirely, and demanding payment in advance. Such strategies impact sales volume but reduce exposure to credit risk and subsequent payment defaults.

Credit risk is not really manageable for very small companies (i.e., those with only one or two customers). This makes these companies very vulnerable to defaults, or even payment delays by their customers. The use of a collection agency is not really a tool to manage credit risk; rather, it is an extreme measure closer to a write down in that the creditor expects a below-agreed return after the collection agency takes its share (if it is able to get anything at all).

Faced by individuals

Consumers may face credit risk in a direct form as depositors at banks or as investors/lenders. They may also face credit risk when entering into standard commercial transactions by providing a deposit to their counterparty, e.g. for a large purchase or a real estate rental. Employees of any firm also depend on the firm's ability to pay wages, and are exposed to the credit risk of their employer.

In some cases, governments recognize that an individual's capacity to evaluate credit risk may be limited, and the risk may reduce economic efficiency; governments may enact various legal measures or mechanisms with the intention of protecting consumers against some of these risks. Bank deposits, notably, are insured in many countries (to some maximum amount) for individuals, effectively limiting their credit risk to banks and increasing their willingness to use the banking system.

5. Sample Daily Activities

My work started at 08:00 AM. I went to the Credit Department and I check with my supervisor if there are any pre-scheduled tasks I should do on that day. He gave me some common problems faced by Relation Manager and as well as some customer requirements, and asked me to find ways to think of a way to solve it.

For that purpose I had to check both my academic information and the Bank's Policy and Procedures.

Relation Manager / Request: Received the request and analyzed it as per the Bank's standards and policies.

The following is an example of a daily schedule for me in the bank:

|Timing |Work |
|08:00 – 10:00 |Receive the daily Relation Manager / Customer request |
|10:00 – 12:00 |Analyze it as per bank policy |
|12:00 – 01:00 |Break time |
|01:00 – 05:00 |Process the requests and get the approval and process it into |
| |bank system |

6. Examples of Key Skills Developed

1. Check for completion of the credit standard documentation which is comprised of:

▪ Facility Letter; ▪ Credit Agreement; ▪ Promissory Note; ▪ Personal/Corporate Guarantees, as applicable.

2. Prepare the Facility / Commitment Letter and all other required Credit & Collateral documentation as per Al Rajhi Bank's standard format. The facility letter will have to be reviewed and initialed by the Supervisor, the Relation Manager and either the Approval or Risk Head.

3. Deliver the facility letter along with other credit & collateral documentation to the customer and obtain acceptance/signature.

4. Once the customer signs the required credit & collateral documentation, I review the same for completion and accuracy and forwarded the same to the Corporate Services Division for signature verification.

5. Inform the client, verbally, that the facilities are now in place and available for his use and will use the occasion to solicit business and encourage the client to utilize the facilities provided.

7. Opportunity to utilize the gained Skills

I think that this training has given me the opportunity to learn about the credit facility and the issues related with the credit risk. This will be helpful in my future career if I am going to work in a bank or credit company because the same principles which I learned are applicable from SAMA and SIMAH.

I have also benefited from the credit problems faced by lenders to consumers, faced by lenders to business, faced by business, and faced by individuals. This will help me in my future career as I become aware about the different problems faced in the Credit Department.

I have also learned the methods to mitigate credit risk which are summarized as following:

• Risk-based pricing • Covenants • Credit insurance and credit derivatives • Tightening • Diversification • Deposit insurance

8. Training Strengths

• Using the training knowledge to practice in managing my career and personal development.

• Can provide my supervisors with support to working.

• Allow my program objectives, principles and content to be spread in a way that maximizes my experience.

• Promote the sustainability of my studying and increase my subject (credit risk) reach.

• Being able to apply what I have studied aCAMCemically in the real life work experience.

9. Training Weaknesses

• They don't by attention to the student (Trainees), and they don't give them more time to get more experience.

• They don't give student opportunity to work in deferent departments inside the bank.

• Some files in the bank require certain access which is not available for me.

10. The Challenges faced during the Training

As Al Rajhi Bank is continuously expanding its banking product range into more options like personal finance solutions and credit programs; it has become imperative to look at the credit risk involved with such transactions in case the client could not fulfil his obligations to settle the credit facility. So, the problem in this report is how to minimize the credit risk with all the available financing options.

The methodology always involves some form of data collection - either Secondary Research (sometimes called desk, document or investigative research) or Primary Research i.e. direct from the consumer - fieldwork. It almost always includes the analysis of this raw data to help management see clearly the main factors and trends in a specific market, usually with a major focus on the client's own products, services, brands, or company, and often on their competitive positioning.

Unlike aCAMCemic research, commercial market research attempts less to construct general theories but is highly focused on providing reliable and valid data on consumer behavior in a specific product class or area within a specific target market, to answer urgent management questions. One key aspect of commercial market research is speed, while maintaining validity and reliability of results.

The methodology of this report involves collection of data through:

1. My field experience in Al Rajhi Bank as training for my coop report.
2. Brochures and pamphlets of Al Rajhi Bank.
3. Annual report 2009 for Al Rajhi Bank.
4. Literature review with references at the end of the report.
11. Link between Training Activities and the ACAMCemic Course

Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Another term for credit risk is default risk.

Investor losses include lost principal and interest, decreased cash flow, and increased collection costs, which arise in a number of circumstances:

• A consumer does not make a payment due on a mortgage loan, credit card, line of credit, or other loan • A business does not make a payment due on a mortgage, credit card, line of credit, or other loan • A business or consumer does not pay a trade invoice when due • A business does not pay an employee's earned wages when due • A business or government bond issuer does not make a payment on a coupon or principal payment when due • An insolvent insurance company does not pay a policy obligation • An insolvent bank won't return funds to a depositor • A government grants bankruptcy protection to an insolvent consumer or business

Assessing credit risk:

Significant resources and sophisticated programs are used to analyze and manage risk. Some companies run a credit risk department whose job is to assess the financial health of their customers, and extend credit (or not) accordingly. They may use in house programs to advise on avoiding, reducing and transferring risk. They also use third party provided intelligence. Companies like Standard & Poor's, Moody's, Fitch Ratings, and Dun and Bradstreet provide such information for a fee.

Most lenders employ their own models (credit scorecards) to rank potential and existing customers according to risk, and then apply appropriate strategies. With products such as unsecured personal loans or mortgages, lenders charge a higher price for higher risk customers and vice versa. With revolving products such as credit cards and overdrafts, risk is controlled through the setting of credit limits. Some products also require security, most commonly in the form of property.

Credit scoring models also form part of the framework used by banks or lending institutions grant credit to clients. For corporate and commercial borrowers, these models generally have qualitative and quantitative sections outlining various aspects of the risk including, but not limited to, operating experience, management expertise, asset quality, and leverage and liquidity ratios, respectively. Once this information has been fully reviewed by credit officers and credit committees, the lender provides the funds subject to the terms and conditions presented within the contract.

Credit risk has been shown to be particularly large and particularly damaging for very large investment projects, so-called megaprojects. This is because such projects are especially prone to end up in what has been called the "debt trap," i.e., a situation where – due to cost overruns, schedule delays, etc. – the costs of servicing debt becomes larger than the revenues available to pay interest on and bring down the debt.

Sovereign risk:

Sovereign risk is the risk of a government becoming unwilling or unable to meet its loan obligations, or reneging on loans it guarantees. The existence of sovereign risk means that creditors should take a two-stage decision process when deciding to lend to a firm based in a foreign country. Firstly one should consider the sovereign risk quality of the country and then consider the firm's credit quality.

Five macroeconomic variables that affect the probability of sovereign debt rescheduling are: • Debt service ratio • Import ratio • Investment ratio • Variance of export revenue • Domestic money supply growth

The probability of rescheduling is an increasing function of debt service ratio, import ratio, variance of export revenue and domestic money supply growth. Frenkel, Karmann and Scholtens also argue that the likelihood of rescheduling is a decreasing function of investment ratio due to future economic productivity gains. Saunders argues that rescheduling can become more likely if the investment ratio rises as the foreign country could become less dependent on its external creditors and so be less concerned about receiving credit from these countries/investors.

Counterparty risk:

Counterparty risk, otherwise known as default risk, is the risk that an organization does not pay out on a bond, credit derivative, credit insurance contract, or other trade or transaction when it is supposed to. Even organizations who think that they have hedged their bets by buying credit insurance of some sort still face the risk that the insurer will be unable to pay, either due to temporary liquidity issues or longer term systemic issues. Large insurers are counterparties to many transactions, and thus this is the kind of risk that prompts financial regulators to act, e.g., the bailout of insurer AIG.
On the methodological side, counterparty risk can be affected by wrong way risk, namely the risk that different risk factors be correlated in the most harmful direction. Including correlation between the portfolio risk factors and the counterparty default into the methodology is not trivial.

Mitigating credit risk:

Lenders mitigate credit risk using several methods:

• Risk-based pricing: Lenders generally charge a higher interest rate to borrowers who are more likely to default, a practice called risk-based pricing. Lenders consider factors relating to the loan such as loan purpose, credit rating, and loan-to-value ratio and estimates the effect on yield (credit spread).

• Covenants: Lenders may write stipulations on the borrower, called covenants, into loan agreements: o Periodically report its financial condition o Refrain from paying dividends, repurchasing shares, borrowing further, or other specific, voluntary actions that negatively affect the company's financial position o Repay the loan in full, at the lender's request, in certain events such as changes in the borrower's debt-to-equity ratio or interest coverage ratio

• Credit insurance and credit derivatives: Lenders and bond holders may hedge their credit risk by purchasing credit insurance or credit derivatives. These contracts the transfer risk from the lender to the seller (insurer) in exchange for payment. The most common credit derivative is the credit default swap.

• Tightening: Lenders can reduce credit risk by reducing the amount of credit extended, either in total or to certain borrowers. For example, a distributor selling its products to a troubled retailer may attempt to lessen credit risk by reducing payment terms from net 30 to net 15.

• Diversification: Lenders to a small number of borrowers face a high degree of unsystematic credit risk, called concentration risk. Lenders reduce this risk by diversifying the borrower pool.

• Deposit insurance: Many governments establish deposit insurance to guarantee bank deposits of insolvent banks. Such protection discourages consumers from withdrawing money when a bank is becoming insolvent, to avoid a bank run), and encourages consumers to holding their savings in the banking system instead of in cash.

Problems Facing Financial Institutions:

1. While financial institutions have faced difficulties over the years for a multitude of reasons, the major cause of serious banking problems continues to be directly related to lax credit standards for borrowers and counterparties, poor portfolio risk management, or a lack of attention to changes in economic or other circumstances that can lead to a deterioration in the credit standing of a bank's counterparties.

2. Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms. The goal of credit risk management is to maximize a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. Banks need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions. Banks should also consider the relationships between credit risk and other risks. The effective management of credit risk is a critical component of a comprehensive approach to risk management and essential to the long-term success of any banking organization.

3. For most banks, loans are the largest and most obvious source of credit risk; however, other sources of credit risk exist throughout the activities of a bank, including in the banking book and in the trading book, and both on and off the balance sheet. Banks are increasingly facing credit risk (or counterparty risk) in various financial instruments other than loans, including acceptances, inter-bank transactions, trade financing, foreign exchange transactions, financial futures, swaps, bonds, equities, options, and in the extension of commitments and guarantees, and the settlement of transactions.

4. Since exposure to credit risk continues to be the leading source of problems in banks world-wide, banks and their supervisors should be able to draw useful lessons from past experiences. Banks should now have a keen awareness of the need to identify, measure, monitor and control credit risk as well as to determine that they hold adequate capital against these risks and that they are adequately compensated for risks incurred.

Tawarruq Mechanism:

Since Al Rajhi Bank's credit facilities are based on the Tawarruq concept, the Bank shall carry out a Twarruq transaction by selling certain commodities owned by the bank to the customer on a “Foudoly” basis for the remaining balance of the total amount due, by one installment, for one month starting as of the due date and to settle the card dues from the proceeds of selling the said commodities.

12. Recommendations

• They must by more attention to the student (Trainees), and try to gave them more time to get more experience.

• They must gave the student opportunity to work in deferent departments inside the bank.

• The student must be a were of the files in the bank so he could understand the hall picture of the bank works.

13. Conclusions

As I mentioned in the beginning of the report, that my training experience in Alrajhi bank as a part of my cooperative training program. My training was in the credit department in the bank which was a good and useful experience, because I have learned more about the work environment.

I also have learned to link to my studies and the real work experiences. I hope that I had achieve the training objectives that will help me more in my future job.
Finally I would like to thank every one that help me during my training period.

REFERENCES

1. Country Risk and Foreign Direct Investment. Duncan H. Meldrum (1999)

2. Cary L. Cooper, Derek F. Channon (1998). The Concise Blackwell Encyclopedia of Management. ISBN 978-0-631-20911-9.

3. Frenkel, Karmann and Scholtens (2004). Sovereign Risk and Financial Crises. Springer. ISBN 978-3-540-22248-4.

4. Cornett, Marcia Millon and Saunders, Anthony (2006). Financial Institutions Management: A Risk Management Approach, 5th Edition. McGraw Hill. ISBN 978-0-07-304667-9.

5. Investopedia. Counterparty risk. Retrieved 2008-10-06

6. Tom Henderson. Counterparty Risk and the Subprime Fiasco. 2008-01-02. Retrieved 2008-10-06

7. Brigo, Damiano and Andrea Pallavicini (2007). Counterparty Risk under Correlation between Default and Interest Rates.

8. http://www.answers.com/topic/credit-risk#ixzz19BVfrnlq

9. http://www.alrajhibank.com

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(4)
1. Make sure the required approval + prepair Dox.
2. Decide the level of approval.
3- Prepair Dox.

Contact with Relation Manager

(1)
Customer

(2)
Prepair credit + approval include:
1. Facilities.
2. blacklist checking.
3. Bank checking.
4. Informal check.
5. Commercial Registration.
6. Ids.

(3)
Customer rating + sign. for approval

Risk Manager

Send it to customer to sign

Credit Risk Dept.

(5)
Send it to RM to sing.

(6)
1- Receive Send Dox.
2- Check all the sign. and stamps in place.
3- input the link in the system.

Credit Risk

Corporate Dept.