Risk in RMG Sectors

Risk in RMG Sectors

What is risk?

Risk is a position which stands unfavorable position of a fact.Any organization or individual can not establish without any risk. There is a proverb "No risk no gain".Risk is the probability that an actual return on an investment will be lower than the expected return. Bank risk is divided into the following categories: Basic risk, Capital risk, Country risk, Default risk, Delivery risk, Economic risk, Exchange rate risk, Interest rate risk, Liquidity risk, Operations risk, Payment system risk, Political risk, Refinancing risk, Reinvestment risk, Settlement risk, Sovereign risk, and Underwriting risk.
If we represent here the risk of Ready Made  garments i.e RMG Industry we find the following scenario:

If the bank invest the RMG sectors bank faces the following risks:

a) Garments investments are not covered by the sufficient collateral.

b) Order cancelled by the Buyer

c) Stock lot may occur due to late shipment, less quality,

d) Sometimes Importers sold  the raw materials to the local market not informing the bank.

e) Distress Cargo

f)  Due to market competition if the price decrease in buyer country

g) If the buyer has not capable to pay the bank dues i.e insolvents

h) Payment against  contract is uncertain as the contract is not supported by UCP-600

i) After import of raw materials if the exporter changes his business.

j) If bank open the BB LC against fake export LC.

k) Import- Export may hamper by the political unrest.

l) If fire hazard occurs

m) Worker unrest

n) If the buyer and supplier are same ( Arranged game play)

o) BBLC opened without considering lead time.

p) BBLC opened under DP export LC.

q) If exporter play games of accommodation of local LC.

r) Poor marketing i.e Garments owners are depended on buying house I/O Direct marketing.

s) Sometimes Bank opened Local BBLC without credit report of the supplier.

t) Lake of monitoring and supervision by the bank.

u) Other risk are:

Basic risk,

Capital risk,
Country risk,
Default risk,
Delivery risk,
Economic risk,
Exchange rate risk,
 Interest rate risk,
Liquidity risk,
Operations risk,
Payment system risk,
Political risk,
Refinancing risk,
Reinvestment risk,
Settlement risk,
Sovereign risk,
and Underwriting risk.