Table of types of credit risks. Credit risk management methods
Credit risk assessment- determination of the maximum possible loss that can be obtained by the bank with a given probability within a certain period of time. The reason for the loss may be a decrease in the value of the loan portfolio due to partial or complete insolvency of borrowers at the time of loan repayment.
It is customary to consider separately the following types of credit risks:
The risk of non-payment on time of the amount of debt and interest on it by a single borrower. This risk is associated with issued loans, bills of exchange, bonds, etc .;
The risk of a decrease in the value of a part of the lender's assets or the risk that the actual profitability of this part of assets will be significantly lower than the expected level. In this case, the source of credit risk is the loan portfolio as a whole, and not individual loans.
The choice of the best way to assess credit risk largely depends on the lending segment.
To assess the credit risks associated with individual borrowers, as a rule, two methods are used, and most often in combination. These are subjective assessments of experts and scoring models based on the methods of mathematical statistics.
Each of these approaches has advantages and disadvantages. For example, any statistical method takes into account past results. However, they do not always give an answer to how this or that rejected borrower would behave if he received a loan. Moreover, the economic situation is constantly changing. Therefore, the assessment of past data does not always give an absolutely accurate forecast.
Typically, a computer program is created to assess credit risk that combines a number of approaches. Moreover, most financial institutions have their own programs, and the methods embedded in them are a commercial secret.
Assessing the credit risk of a portfolio as a whole is even more challenging. There are two approaches here.
At first, qualitative assessment, which is based on the description of information about borrowers. This takes into account the indicators of financial stability, business activity, liquidity and profitability, as well as the liquidity of the collateral. Secondly, a quantitative assessment, in which qualitative parameters are assessed in numerical terms in order to determine the limit of losses on a transaction. This creates a tool that can be used to manage risk in business planning.
For credit institutions, there are recommendations of the Basel Risk Assessment Committee. Banks are encouraged to rely on external ratings assigned by independent agencies and create their own internal credit ratings.
At the same time, its own rating should take into account unforeseen and expected losses. The indicators of the probability of default, the value of the asset at risk, the proportion of possible losses, and the total amount of credit losses are calculated separately.
There are several methods to mitigate credit risks. For example, portfolio diversification, setting transaction limits, loss reserves, and loan insurance.
An integral part of the modern business world is such a type of fundraising as lending. Lending is one of the main forms of borrowing that enterprises actively use. To a lesser extent, companies practice borrowing funds from each other, although such activities are not prohibited by law. Also in business practice there are operations called commercial lending. In them, products or goods are delivered to the buyer with an agreed deferred payment. All of these are loans, and they have a special credit risk, which will be discussed in this article.
Essence of credit risk
The word "credit" has Latin roots and comes from the word credit (trust, faith). The person issuing money and trusting the recipients in the matter of returning money loans was called a creditor during the Roman Empire. As time went on, moneylenders became widespread lenders. For their business to flourish, something more substantial and reliable than simple faith became necessary. Thus, at first a simple analysis was born, which gradually began to be supplemented by more sophisticated methods of assessment and management.
The modern world is filled with historical successors of the usurious craft - commercial banks... These structures have a powerful management system, high-level automation tools, a rigid external control system (Central Bank of the Russian Federation) and, of course, developed risk management. Credit risk management in the last decade has been of particular methodological interest due to the intensification of the following events.
- The downward trend in profitability is becoming more and more active. credit institutions.
- The number of loan losses is growing, an increasing number of them are getting publicity in Russia and in the world.
- Growth in the total volume of borrowings by companies, incl. in the form of bank loans.
- Development of the market for so-called "junk" bonds with high profitability and a low rating.
By credit risk, we mean the probability of the debtor's violation of the conditions loan agreement(supply agreement), which consists in the threat of partial or complete loss of the creditor's funds and the expected remuneration for the use of funds. The risk arises when the lender makes a decision to issue a loan or ship products on credit. Credit risk manifests itself in areas of activity in which the success of lending depends on the intentions and performance of counterparties, issuers and borrowers.
Credit risk management consists in determining the reasons for the unwillingness or inability of borrowers to fulfill their obligations, choosing methods to minimize risks and implementing decisions made to reduce them. Taking into account the above, credit risk can be considered from the perspective of a credit institution, from the perspective of an enterprise as a borrower and from the perspective of a company acting as a lender or a supplier crediting the buyer.
This article focuses on the first position. This is justified by the fact that the banking environment today has the most developed risk culture. In addition, credit risks and ways to mitigate them are identical for all three named positions. And we rely on the experience of banks as a methodological springboard, applicable with some simplification everywhere, including the commercial sphere.
Credit risk classification
Credit risks and methods of their reduction in their essence and sequence of management do not differ significantly from other types of risk and methods of working with them. Such work includes the following stages:
- identification and identification;
- qualitative and quantitative assessment;
- creating a risk response plan;
- limiting risk;
- current control and monitoring of execution.
There are a large number of approaches to dividing credit risks into types. Among them, the general classification of credit risks, based on the attribute of the source of formation, stands out. In this regard, two main risk groups are distinguished.
- Group of external risks. Macroeconomic factors give rise to the likelihood of adverse consequences for the lender, which is associated with temporary difficulties, insolvency or default of the borrower. This group includes country, political, macroeconomic proper and other types of so-called systematic risks.
- A group of internal risks, also referred to as non-systematic. Internal risks are inherent not only to credit institutions, but also to borrowers. They are different in nature. In this sense, the actions of the bank in a certain way support the company in its work with credit risks, but in no way substitute for it.
Division of credit risks according to the main classification criteria
Above is a classification scheme for dividing credit risks into types. The risk structure on the part of a credit institution can hardly be called homogeneous. The very concept of credit risk from the bank's position consists of alternative risk opportunities, based on the types and forms banking services... In this regard, it is advisable to consider the main types of credit risk, the characteristics of which are given below in tabular form.
Characteristics of the main types of bank credit risk
For the first type, the risk lies in the likelihood of losing the entire loan amount, and the risk increases due to the length of the credit procedure. The same order of possible damage is assessed for the calculated risk. Losses on pre-settlement risk may arise in connection with the replacement of a failed transaction and replacement of the counterparty in the amount of the costs of finding a partner and concluding a new agreement. In principle, it should be noted that almost all transactions carried out by a credit institution can be considered in the context of credit risk. And all its types are involved in one way or another.
Distribution of probable credit risks between banking operations
The borrower is a problem object of credit risk, therefore, the greatest attention is paid to minimizing the threats associated with the issuance and repayment of loans. The task of the credit operator is to identify the factors that lead the borrower to a situation of inability or unwillingness to repay the loan. As a rule, such a situation arises in the context of major losses of the borrowing company.
Identification of credit risks
The specificity of banking services for lending to customers is the need for a deep diagnosis of the internal conditions of the borrower's activities. They are the sources of the risk of non-repayment of the loan. In this regard, specialists diagnose the following types of company risks.
- Risks of non-fulfillment of obligations by external counterparties (buyers and suppliers).
- Threats of financial losses due to unforeseen price fluctuations in the market (falling product prices, a sharp rise in prices for purchased materials and components).
- Collateral risks. The likelihood of a lack of liquidity of the company's assets or insufficient market value.
- The threat of unexpected growth in production costs and significant additional costs to maintain it at the proper level.
- Settlement and design risks associated with collateral. The borrower's opposition to an objective assessment of the collateral and its implementation for the purpose of debt repayment.
- Exchange rate risks associated with foreign exchange lending.
Credit risk during the period of identification of the main factors influencing the implementation of adverse events requires careful analysis. This analysis is a rather complex supporting process in the activities of a credit institution. The main emphasis in it is on the applicant's ability and intention to repay the loan. The borrower's credit history, financial condition, business prospects and the environment are studied. The analysis is carried out in eight basic steps.
- Verification of the applicant's substantiation of the real credit need.
- Dynamic analysis of available reporting to regulatory authorities for several periods. The tendencies of the company's activity are assessed. The clarity of its marketing, production and financial prospects is achieved.
- Query and analysis of the pre-formed financial report for the enterprise until the new deadline for fiscal reporting, and sometimes until the end of the reporting period. This is done in order not to miss new trends and to ensure the accuracy of the provided accounting information.
- Study of the budget (plan) of cash flow for the period of borrowing to identify bottlenecks that can interfere with the fulfillment of contractual obligations to the bank.
- Predictive modeling and assessment of financial stability indicators in scenarios of extreme changes in the external and internal environment (the composition of indicators is presented at the end of the section).
- Market analysis of the company's position in the environment, identification of key threats from the main competitors.
- Assessment of the competence of the company's management, the level of management development, management efficiency.
- Issuance of an opinion on all sections of the analysis and documentation of the justification for issuing a loan, taking into account the identified risks.
Composition of indicators of the financial and economic condition of the enterprise
Credit risk assessment methods
Credit risk management at the next stage involves its assessment in two ways: qualitative and quantitative. A description of the level of probability of threats from an expert position and the assignment of a certain credit rating constitute a qualitative assessment of the likely threats to lending. During this stage of assessment activities, the following tasks are solved:
- make a decision on the admissibility of lending to the borrower;
- determine the extent to which the proposed collateral is applicable to the loan conditions;
- ensure the transition to the definition of quantitative parameters of risk.
Qualitative credit risk assessment methods are based on a number of assumptions that are proposed to be taken into account in each case.
- It is recommended to combine the assessment of the financial condition of the company and the collateral offered by it for the purposes of ranking and the formation of a credit rating. The presence of highly liquid property as part of the pledge mass in a certain way compensates for the unfavorable financial condition of the business entity.
- Credit risk assessment should not be formal in nature and be accompanied by an excessive number of indicators. Status and performance indicators need to be further considered in the light of actual realities.
- Prioritize cash flows in relation to the turnover indicators. In addition, preference is given to the size of the balances of own funds, conditionally constant liabilities in the balance sheet, rather than the presence of profit. The presence of good reserves for liabilities and a stable cash flow to a greater extent guarantees the independent coverage of its risks by the enterprise, without burdening the bank with interruptions in payments.
Assessment of credit risk in a qualitative way can be carried out on the basis of a scale system for assessing four indicators, for which an approximate version of the range of conditions for the subsequent derivation of the risk level is presented.
Scale of risk levels for the main indicators of a qualitative assessment
Credit risk for each of the four indicators indicated in the table is assessed equally. Based on the identified values of the degrees of risk, an arithmetic mean value is calculated, which can be used as the basis for a qualitative risk assessment.
A quantitative assessment should be understood as the procedure for assigning a value corresponding to a criterion to the result of a qualitative assessment. This action is performed in order to find out the limit of losses on the loan in question and to include a threat management procedure. Quantitative assessment allows you to specify the limits of the indicator as much as possible. The quantitative indicator is established in the process of increasing the level of risk by the size of the loan. The result is taken into account when reserving funds for estimated losses within the limits of the amounts established by the risk policy. Below is a summary chart of management practices, in which quantitative methods are separated into a separate group.
Scheme of credit risk management methods
Planning and limiting risk
After the risk has been identified, identified, and has passed the stages of qualitative and quantitative assessment, the bank starts planning measures to minimize credit risks. Consider the main planning methods, grouped by typical lending threats. The first group of methods is to minimize the actual credit risk. To form sufficient reserves for costs associated with default by borrowers of obligations, the credit institution forms a sufficient amount equity capital... This issue is regulated and monitored by the Central Bank of the Russian Federation. In addition, the bank uses special risk protection tools. These include:
- pledge;
- surety;
- various types of guarantees;
- letter of credit;
- transfer of debt to another person;
- assignment of a debt claim;
- transfer of a share of a loan to another person, etc.
Minimization of the so-called "operational risk" in the framework of the credit relations of the parties belongs to the next group of methods. This does not mean the operational and production process in commercial companies, but the operations performed by the credit institution in connection with the issuance and securing of the return. bank loan... An example of operational risk is the legal risk associated with the legal backing of a transaction. This work is accompanied by special methods of effective elimination of personnel errors, ensuring the cleanliness and legal protection of lending transactions and the fulfillment of collateral obligations.
The next is to minimize the liquidity risk. For the banking business, this is an extremely important issue. Due to the present risks of instant liquidity, reserve funds are required. Provisions are created in the form of non-decreasing account balances to be able to respond to emergency liabilities in conditions of calculated credit risk.
Limiting the operations of a credit institution is an important way to minimize credit risk. This method is understood as limiting the quantitative parameters of individual groups banking operations... Limiting assumes several variants of homogeneous limiting actions.
- Approval and adherence to structural limits. It is solved at the level of risk policy by determining the ratio of the shares of loans issued with different levels of credit risk.
- Individual limits are set for lending to specific borrowing companies.
- For each type of lending operations of a credit institution, its own limit is set.
Credit risk has an exceptional quality. It concentrates the systemic essence of any business risk associated with the reciprocal fulfillment of obligations by the second party. The modern methodology of risk management of a credit institution allows to solve almost all issues, bringing the level of risk to acceptable values. This article is of interest to investment managers interested in long-term lending for their projects. It is also useful for line managers who need bank loans attracted to replenish the lack of their own working capital.
The concept of credit risk and its types. Individual and aggregate credit risk.
Assessment of the borrower's creditworthiness v credit risk management system. Methods for assessing the financial condition of large and medium-sized enterprises. Business risk assessment. Features of assessing the creditworthiness of small businesses. Assessment of the creditworthiness of individuals. Assessment of the quality of the loan and the quality of the bank's loan portfolio.
Credit risk management methods. Methods for preventing, absorbing and distributing risk. The role of diversifying the loan portfolio in minimizing risk. Creation of provisions for possible loan losses.
Improving the credit risk management system.
The concept of credit risk and its types. Individual and aggregate ny credit risk.
Risk – it is the likelihood of net losses or shortfalls in income compared to the forecast scenario.
Credit risk – this is risk of non-return (non-payment) or late payment on a bank loan.
Also differ country credit risk (when providing foreign loans) and risk abuse (deliberately predictive no return). Credit risk is included in the system of risks in the financial sector.
There are various classifications of risks based on certain criteria. Credit risk is always present. Credit risks play a leading role in the system of risks of credit institutions. There are several classifications of credit risks. In fig. 3 shows the most complete classification of credit risks.
Rice. 3. Classification of credit risks
Rice. 4. Factors of credit risk
Credit risk is the risk that a lender is exposed to if a debtor or counterparty fails to meet its credit obligations. In other words, credit risk is losses incurred by the bank as a result of default, delay or partial fulfillment by the debtor on the loan of his obligations, which are spelled out in the agreement. It is generally accepted that the most risky transactions are, first of all, transactions related to direct and indirect lending - this is considered a direct risk, and transactions involving the purchase and sale of any assets without prepayment from the counterparty and without any guarantees from third parties - this is called settlement risk.
Bank "precautions"
In order to minimize its risk during the conclusion of transactions, the bank has specially developed procedures and policies, the main purpose of which is to prevent and minimize possible damage due to non-return of credit funds. These are measures such as:
regularly checking the financial situation of the borrower and the maximum efficiency of projects and activities for which a loan is issued, in terms of economic benefits;
a mandatory assessment of the level of liquidity and whether the offered collateral is sufficient (for this, an independent objective assessment and insurance is carried out);
regular checking of the borrowers' fulfillment of their credit obligations and the availability of an adequate level of collateral;
formation of a reserve fund in case of losses on loans or losses on other operations;
transfer of "hard-core" defaulters to the appropriate higher authorities;
issuance of guarantees on the basis of a special Regulation "On the procedure for providing bank guarantees of a bank" and some others.
How is credit risk assessed?
Credit risk assessment can be carried out in the form of an assessment of an individual transaction and in the form of an assessment of a portfolio of transactions.
For a single transaction, its baseline score, which excludes credit migrations, may have different levels of detail. So it can be assessed:
The amount at risk.
Default Probability.
Degree of damage in case of default.
Estimated and unforeseen losses.
Estimated and unforeseen damages are subject to the last assessment. Assumed risks are covered, as a rule, by reserves that were specially formed in advance. But unforeseen losses are reimbursed entirely at the expense of the creditor company's budgetary funds.
How to manage credit risks?
Let's take trading operations on a deferred payment basis as an example and see how you can minimize credit risk, or even eliminate it altogether. This can be done in two ways:
1.Factoring company. Such companies provide a surety for a particular debtor - 90% of the total delivery amount until the deadline for the deferred payment, and also pay an amount equal to the amount of the previously issued surety, if the borrower cannot pay the payment on time due to some circumstances.
2. Insurance. Credit risk can also be insured with one of the many insurance companies. In this case, the object is a property interest associated with the possibility of non-fulfillment or improper fulfillment of credit obligations by the borrower and subsequent losses. Insurance payments are made in cases when: the policyholder's counterparty has gone bankrupt; the counterparty has not fulfilled its obligations as a result of force majeure situations; the counterparty delays the payment of the loan for a long time.
Thus, the credit risk exists constantly, and its size depends on the loan amount. All measures taken by banks and credit institutions are aimed primarily at minimizing or eliminating the risk of losses. This is a check of the sufficient level of the client's solvency, and the identification of further development prospects and "money" of his project, and credit risk insurance, etc. To avoid the risk of losses, banks and other organizations associated with the issuance of loans select clients very carefully, checking this is not only his current solvency, but also his credit history. If it is not very good, then, most likely, the loan will be refused. Therefore, if you are already taking out a loan, you must be sure that you can pay it off.
Individual and portfolio credit risks in the banking credit risk management system
Risk management is a purposeful, systematic activity of a credit institution in relation to the possibility of such occurrence. Risk management always characterizes the quality of management, understanding and ability of the bank to resist the ineffective functioning of the loan.
Credit risk management is not an isolated set of separate measures, but a specific system. Credit risk management measures should be differentiated. In this regard, on the one hand, the risk management policy associated with its cause is highlighted, on the other hand, the risk management policy associated with its action. The first group of measures associated with the presence of risk causes is aimed at reducing the likelihood of risk, reducing the degree of uncertainty, and reducing damage in advance. Risk-related measures, on the contrary, are aimed at reducing possible losses, mitigating the negative impact of the resulting damage on the bank's work. This damage should be minimized to the extent possible without disruption to ensure the continued existence of the credit institution.
The credit risk management system in a commercial bank consists of two subsystems: a managed one, or an object of management, and a manager, or a subject of management. The main object of management in risk credit management is cash in the business of a commercial bank and the associated credit risk. The subject of management is the structural divisions or organizational units of the bank, which, based on the use of specific labor, information, material and financial resources, carry out the process of credit risk management. The subject of management is the top management, the management apparatus, the bank's personnel, represented in the form of the bank's Council, the board of the credit committee, credit departments and services, and credit managers.
The banking credit risk management system includes the following subsystems: information management; organization of credit activities; setting credit limits; determining the price of loans; analysis and assessment of individual credit risks; analysis and assessment of aggregate credit risk; credit authorization and management control; problem loans management. (rice?)
Analysis and assessment of individual credit risks, according to S.N. Kabushkin. , is one of the main elements of the control system. In the process of determining the risk associated with a specific borrower, the bank selects loan applications, collects data for risk analysis, analyzes the client's creditworthiness and prepares a package of documents for concluding a loan agreement.
The analysis of individual credit risk should focus on the following aspects: goodwill; position in the industry; quality of management at the enterprise; the quality of the loan security; the financial condition of the borrower.
Based on the conclusions on the listed aspects, the borrower is assigned a certain category. It serves as a comparative indicator used as a basis for determining the degree of risk.
Each individual loan is part of a single whole - the bank's loan portfolio, on the quality of management of which the value of the aggregate credit risk depends.
Analysis and assessment of the aggregate credit risk is carried out on the basis of data on the loan portfolio, the indicators of which are considered to be its diversification, quality and profitability. The diversification of the loan portfolio is usually determined by industry and geography, as well as by the size of loans. Diversification of the loan portfolio is one of the methods to minimize risks, improves its quality, but requires professional management.
The main characteristic of the quality of customer lending is the amount of overdue loan debt. To determine this indicator, the total amount of overdue debt is correlated with the balance sheet currency or with the amount of loans issued.
The profitability of the loan portfolio, determined by the ratio of interest received to the amount of loans issued, depends on how effectively the bank copes with the emerging risks.
Credit risk management is a sequence of actions organized in a certain way, divided into the following stages:
identification of credit risk factors;
assessment of the degree of credit risk;
choice of strategy (making a decision on accepting risk, refusing to issue a loan or applying methods to reduce risk);
choice of ways to reduce risk;
control of changes in the degree of credit risk.
The sequence of stages of the credit risk management process is shown in Figure 4.
The best way to minimize credit risk by a commercial bank at the stage of making a decision on granting a loan is to conduct a comprehensive analysis of the financial condition of a potential borrower, as well as a detailed study of factors that can lead to default on their loan obligations. The main purpose of the analysis of the creditworthiness of the borrower is to determine its current and potential capacity and willingness to repay the requested loan in accordance with the current terms of the loan agreement. When deciding to issue a loan to a specific borrower, the bank must in each case determine the degree of risk that it is ready to take on and the amount of the loan that can be provided in the given circumstances. The most effective way of such analysis is a comprehensive credit assessment.
Thus, to date, a detailed analysis of the creditworthiness of existing and potential borrowers is an essential condition for the effectiveness of credit policy.
The basic principle bank lending is that the loan funds must be returned within the time frame clearly specified in the loan agreement. Compliance this principle- this is the key to the successful and profitable functioning of a banking organization. In the case of a loan of funds, the bank always faces the question of whether they will be returned within the agreed period, and indeed whether they will be returned at all. From this we can conclude that the main task of a banking organization in the event of a loan is to transform uncertainty into risk and conduct its analysis.
Definition of credit risk and its types
Definition 1
Credit risk is the risk of non-fulfillment by the borrower of the terms of the loan agreement, in other words, it is a complete or partial failure to return the amount of debt and interest for the use of credit funds.
Credit risk is the probability of partial or complete loss of bank assets, which is provoked by the inability of the counterparty (borrower) to fulfill its credit obligations. Also, this term can be considered as non-receipt of income from invested capital due to the influence of various factors.
At the same time, credit risk is subdivided into individual and portfolio risk.
Definition 2
Individual credit risk is the likelihood of a negative change in the value of bank assets as a result of the inability of the borrower to fulfill its loan obligations to pay interest and the body of the loan due to the impact of various external and internal factors.
Portfolio credit risk is the entire amount of risks associated with specific agreements.
The main elements of risk management
The processes that relate to credit risk are considered in the risk management system, which is divided into several elements:
- Credit risk management. The content of management consists of analysis, planning, regulation and control. In the process of credit risk management, the subject is a commercial banking institution, and the object is the bank's loan portfolio.
- Credit risk regulation. In this case, the object of regulation is already the banking institution itself, while the subject is the controlling body represented by the Central Bank of the Russian Federation.
- Credit risk financing. In other words, this element includes actions that are aimed at writing off or covering the credit risk after it occurs. In this case, the credit risk is expressed in specific numbers, which reflect the actual bank losses.
Definition 3
Credit risk management is the main building block of the concept of risk management. Risk management is defined as a directed activity to overcome contradictions in a credit transaction, as well as an activity that is aimed at ensuring the full functioning of a loan and the implementation of its properties. Credit risk management is the activity of creating a system that will ensure the implementation of the interests of borrowers and lenders, and not fight against losses arising in the process credit operations.
Basic methods of credit risk management
The main methods of credit risk management are:
- differentiation of the borrower;
- diversification of credit investments;
- limiting risks;
- hedging risks;
- sharing risks.
Let's consider each method in more detail.
Differentiation is the basic principle of lending, which, together with the urgency of repayment, payment and security, creates the basis of the credit system. This concept means that the bank does not satisfy all the applications that have been received from counterparties. A banking institution may have a narrow circle of trusted and regular customers with whom it works. Or the bank may work with certain counterparties whose activities relate to a particular industry. The most correct way of management would be to analyze and assess the creditworthiness of borrowers.
The method of diversifying loan investments is applied to the loan portfolio as a whole based on the data obtained at the end of the analysis of each loan transaction. This method allows you to reduce the risks associated with the insolvency of certain counterparties individually, certain groups, or a special economic situation in certain regions of the country. The credit risk in this method can be reduced by compensating some risks with others.
Diversification opportunities depend on the size of the banking institution. Big bank has many clients and his portfolio is already diversified, he only has to correctly allocate resources, while achieving maximum income and minimum losses. Small banking institutions are limited in their capabilities and resources. This limitation manifests itself in lending to a counterparty in a particular industry or region. Therefore, for small banking institutions diversification may not work and credit risk needs to be addressed in other ways.
The method of limiting risks is used only when the bank is unable to assume certain risks.
Remark 1
The main indicator of the effectiveness of risk management is the ratio of profitability to the level of risk, but at the same time the maximum level of risk should be set, above which it is dangerous to work.
In this case, the bank analyzes the feasibility of each transaction and refuses only those in which the risk is higher than the established limit. Also, this method sets limits on the amount of lending to a particular counterparty, region or industry. Unlike diversification, in which investments are distributed among different sources, in this case it comes on refusal of crediting.
In international practice in recent times a new risk management method is used - hedging, which is carried out by carrying out off-balance sheet transactions using financial instruments(for example, a credit swap).
The risk sharing method implies the joint participation of several credit institutions in one project. In this case, we are talking only about large investments, so one bank is not able to assume all obligations for the amount of the loan agreement. This method is used only in the case of a trust relationship between bank counterparties. Contractual relationships that involve the participation of three or more counterparties carry additional credit risks. Therefore, the risk sharing method is quite rare and it is carried out only under state guarantees.
Figure 1. Methods for managing credit risk. Author24 - online exchange of student papers
Stages of credit risk management
Today there are several stages of credit risk management:
- Identification of credit risk. This stage is the fundamental stage of risk analysis and management. It consists in identifying a list of risk situations, as well as possible causes of their occurrence. This also includes the definition of risk classification and criteria.
- Assessment of the creditworthiness of borrowers (qualitative analysis of credit risk). At this stage, you can identify and identify possible types of risks, describe their causes and factors that affect the level of this risk.
- Determination of the probability of default (probabilistic assessment of credit risk). This stage allows you to determine the likelihood with which the debtor may be insolvent.
- VaR analysis of the loan portfolio or quantitative analysis of credit risk. This stage allows you to determine the numerical determination of the risk of the object. It is based on mathematical statistics, probability theory, and also on the theory of operations research.
- Risk monitoring. This stage is the complex functioning of an independent system and control over credit risk. This stage is carried out due to the maintenance of information reports of officials and structural divisions, external and internal audit, as well as due to analytical observation of individual banking services.
Analyzing the effectiveness of various methods of credit risk management, it is necessary to note the possibility of their complex application. All of the above methods can lead to the desired result, provided that two conditions are met - highly qualified specialists and a competent organization of the management process.
Figure 2. Risk management of the bank's loan portfolio. Author24 - online exchange of student papers
Credit risk (counterparty risk) is the risk that a debtor will violate the terms of a contract or otherwise default. This risk arises in those areas of activity where success depends on the performance of the borrower, counterparty or issuer. Accordingly, credit risk management is based on identifying the reasons for the inability or unwillingness to fulfill obligations and determining methods to mitigate risks. The sequence of credit risk management is the same as for other types of risk:
1. Identification of credit risk ... Determination of the presence of credit risk in various operations. Creation of risk portfolios.
2. Qualitative and quantitative risk assessment ... Creation of methods for calculating the level of risk based on identifying the reasons for the impossibility or unwillingness to return borrowed funds and determining methods to reduce risks.
3. Planning risk as component bank strategies.
4... Risk limitation.
5... Creation of a system of procedures aimed at maintaining the planned level of risk .
So, the first stage is identification of credit risk .
The structure of credit risk is heterogeneous. There are 3 types of credit risk: counterparty lending or repayment risk, calculated risk, pre-calculated risk. The composition of these risks is shown in the table:
Characteristics of various types of credit risk
Risk type |
Risk profile |
Counterparty lending or repayment risk |
It consists in the possibility of the counterparty not returning to the bank the principal amount of the debt after the expiration of the loan, promissory note, surety |
Estimated risk |
arises in cases when the transfer of certain instruments (for example, cash or financial instruments) is carried out on a prepayment basis, or on a pre-delivery from our side. The risk is that there is no counterdelivery from the counterparty. |
Pre-calculated risk |
the risk that the counterparty will not fulfill its obligations under the transaction before settlement and the bank will have to replace this contract with a transaction with another counterparty at the existing (and possibly unfavorable) market price. |
These types of credit risk affect its quantification. The first two assume exposure to risk of 100% of assets, with the first type of risk increasing due to the long term of the operation. The pre-settlement risk corresponds to the cost of replacing the transaction in the market in the event of default on the part of the counterparty.
One operation can contain several objects and types of credit risk. Below is a table of objects of credit risk in various operations:
Operation type |
Objects of credit risk |
Types of credit risk |
Lending |
Borrower |
Lending risk |
Dealing |
Counterparty |
Estimated risk Pre-calculated risk |
Purchase of bills |
Issuer of a bill mediator |
Lending risk Estimated or calculated risks |
Issuance of surety |
Surety object |
Lending risk |
Guaranteed loans |
Guarantor |
Lending risk |
Interbank lending |
Counterparty-recipient of the IBC |
Lending risk |
Stock market operations |
Sellers valuable papers prepaid, pre-delivery buyers |
Estimated risk Pre-calculated risk |
Depositing funds for operations on the exchange and buying instruments on the exchange |
Stock exchange |
Estimated risk Pre-calculated risk |
etc. |
Thus, in dealing with dealing, there are both calculated and pre-calculated risks. A transaction with bills of exchange, in addition to the risk of lending, carries a settlement risk if the sale and purchase is made through an intermediary, etc.
The most difficult and interesting subject of credit risk is the borrower. Therefore, we will consider credit risk arising specifically in relation to the borrower. Our task is to decompose this risk into its components, i.e. the very factors that create the impossibility or unwillingness of the borrower to pay off the loan. As a rule, all problems with loans arise in the event of large financial losses of the borrower. The author's extensive experience in the field of lending makes it possible to identify the risks of such losses.
1. Creditor and Debtor Risks when the borrower suffers losses due to the fault of suppliers or buyers of his products;
2. Price risks when financial losses arise as a result of a decrease in the price of products, or an increase in the price of raw materials;
3. Production risks .Risks of failure in the production process itself may require significant additional costs, lead to non-fulfillment of contractual obligations;
4. Risks of illiquidity of collateral ... If, in case of non-repayment of the loan, it becomes necessary to sell the collateral, there is a risk that the collateral will turn out to be illiquid, or the sale will be delayed, or the sale price will be lower. In all these cases, losses for the bank are possible;
5. Lack of collateral risks to cover the amount of debt, interest, interest and legal costs;
6... Risks of incorrect collateral registration ... In this case, the borrower may prevent the sale of the collateral and the repayment of the loan with the proceeds, other collateral holders may come to light who will challenge our rights.
7. Increase in risk with an increase in the term of the loan .
8. Exchange rate risk .If the company operates in rubles, does not take a foreign currency loan, then with an increase in the exchange rate, financial problems are possible.
The list of factors in the composition of credit risk can be continued. All these types of risks require assessment, planning and control.
Second phase - qualitative and quantitative risk assessment . Credit risk assessment, in the current practice, is carried out in two main ways - qualitative and quantitative. Qualitative way is a verbal description of the level of risk and is usually produced by drafting credit rating... The purpose of a qualitative risk assessment is to make a decision on the possibility of lending, the acceptability of collateral and the transition to the definition of quality parameters. Based on the indicators for each borrower, it is possible to determine the weighted average risk indicator for the loan portfolio as a whole.
1. A risk assessment scale is drawn up for borrowers (or individual loans or groups of collateral), for example, "minimal risk", "moderate risk", "marginal risk", "unacceptable risk" or groups numbered in ascending or decreasing order. Credit score metrics are assigned a quantitative score, such as points or percentages.
2. The essential indicators of the borrower's activity are highlighted, which determine the level of risk, their specific weights in the formation of the aggregate indicator.
3. For essential indicators from clause 2, the boundaries are determined that determine their quality.
4. An aggregate risk indicator (credit rating) is formed by combining assessments of individual indicators, according to their specific weights.
The methods of Russian banks for qualitative risk assessment are similar in some parameters. So, almost everyone considers indicators of self-sufficiency, liquidity and profitability. The difference lies in the number of indicators corresponding to one indicator, and the specific weight of indicators in the formation of the overall assessment. A number of banks pay great attention to the parameters of client business: the turnover of various types of assets. In some banks, a general credit rating is drawn up, in others the borrower is rated separately, and the collateral is separately rated. The number of indicators is quite large - from 10 or more.
It should be emphasized that each bank implements its own understanding of risk, based on knowledge of the characteristics of the clientele, the volume and price of credit resources. However, I can say with confidence that the methods of large banks, which are too extensive, formalized and rigid, are not suitable for medium-sized banks. Experience shows that the use of methods of large banks gives a low credit rating for most clients and a recommendation "not to issue a loan".
NS and conducting a qualitative assessment of credit risk, it is suggested that the following recommendations be taken into account.
First, when creating a rating, combine the assessment of collateral and financial condition. The fact is that there is a group of collaterals with easy and quick liquidity, for example, goods traded daily on exchanges and goods in mass demand. The presence of such collateral greatly reduces credit risks, even if the financial condition of the borrower is not very good. If the bank cannot have super borrowers, then it makes no sense to spend time on a very in-depth analysis of the financial condition in isolation from collateral.
Secondly, it is recommended to remove the multiplicity of indicators and the formalization of the calculation. The reality is complex and the theoretically correct indicator may not work in specific conditions, distorting the picture. For example, the most "popular" indicator is the so-called "coverage ratio", which is the ratio of short-term accounts receivable and accounts payable... Theoretically, it is clear that we owe more than we owe - then it will be good. But imagine this option - our debtors are insolvent and there are more of them than creditors, is that good? Or another option - instead of receivables, the asset contains cash or goods in stock (suppliers are ready to provide a commodity loan, but the borrower himself does not present it). Is it bad?
Profitability indicators are also not decisive for assessing credit risks, breakeven is enough. Liquidity indicators (the ratio of funds to one or another denominator) also seem to be minor and have a downside - the presence of large amounts of money means that they do not work.
Third, attempts to assess the correct organization of the borrower's business and its performance seem fruitless, unless we are dealing with a large number of the same type of borrowers, whom we have studied well. Long-term practice shows that bank employees are specialists only in money matters, but by no means production. You can try to estimate the turnover of stocks, goods, the profitability of funds or sales, to look for the perfect combination of own and borrowed funds, using industry standard coefficients, but bank employees will constantly fall into trouble. It is possible to attract professionals in each individual case, but when lending to medium-sized businesses, this is not effective.
Hence my call - if there is a banker organization that works with money, let's evaluate everyone through indicators that we understand, namely, through cash flows. We cannot say with certainty what turnover the borrower should have and what is the optimal ratio between debtors and creditors, but we can assume that if the borrower has stable financial flows with a large number of counterparties, both sellers and buyers, then his business has taken place. The presence of profit does not guarantee the stability of the business, this guarantee is the availability of its own funds (or other stable liabilities) in the amount that allows the enterprise to cope with possible problems on one's own.
It seems to us that the most significant factors characterizing the financial condition of the borrower are indicators of the stability of financial flows and the provision of own funds and conditionally constant liabilities. These indicators absorb a large number of risks. Thus, the stability of financial flows for a long time indicates: firstly, that the client's business has taken place,
secondly, that there is a sufficient number of debtors and creditors. Even if there were some disruptions in sales and purchases, they did not disrupt the flow of business. The high provision of its own circulating assets and conditionally constant liabilities indicates that when price or production risks arise, the enterprise has enough money to close the "holes" on its own, without making the bank a hostage.
It is proposed to introduce the following four equivalent indicators for calculating the level credit risk: stability of financial flows, provision of own funds and stable liabilities, liquidity of collateral and sufficiency of collateral. The qualitative boundaries of indicators can be as follows:
Stability of financial flows:
Low risk - business for more than 2 years, stable financial flows.
Moderate risk - business for less than two years, significant fluctuations in financial flows or business for less than a year, stable financial flows.
High degree of risk - business less than a year, unstable financial flows.
Unacceptable risk - business is less than 6 months, or financial flows are steadily decreasing.
Provision of own circulating assets and stable liabilities:
Low risk - own funds and stable liabilities cover at least 70% of the need for working capital.
Moderate degree of risk - own funds and stable liabilities cover at least 50% of the need for working capital.
High degree - own funds and stable liabilities cover at least 30% of the need for working capital.
Unacceptable risk - own funds and stable liabilities cover less than 30% of the need for working capital.
Liquidity of collateral :
Low risk - the collateral can be sold at organizational auctions, or it can be a subject of mass demand.
Moderate risk - there are at least two potential buyers for the collateral.
A high degree of risk - the collateral is difficult to implement.
Unacceptable risk - the liquidity of the collateral has not been determined.
Adequacy of collateral:
Low degree of risk - collateral is sufficient to cover the principal amount, interest on the loan for the entire period of the loan agreement, cover the costs associated with the implementation of security rights.
Moderate risk - sufficient collateral to cover the principal amount.
High degree of risk - collateral covers 50% of the principal amount.
Unacceptable risk - the amount of collateral is less than 50% of the principal amount
Each indicator is assigned a certain level of risk, estimated as a percentage, according to the table:
Coefficients corresponding to the levels of credit risk
Risk level |
Credit risk percentage |
Short |
1-5% |
Moderate |
5-10% |
High |
10 -50% |
Invalid |
50-100% |
Since these indicators are equivalent, the level of credit risk will be their arithmetic mean.
There are others significant, but less significant indicators affecting the level credit risk... These include:
- Loan term. The longer the period, the higher the risk of violation of the financial stability of the borrower, liquidity and sufficiency of collateral.
- Pledge registration. Actions such as registration, insurance, collateral immobilization reduce credit risks. Failure to do so increases credit risk.
- Exchange rate risk. The mismatch between the currency of the loan and the currency of economic activity causes exchange rate risk for the borrower, which may affect its creditworthiness. The correspondence of the currency of loans to the main currency of economic activity is achieved by issuing a loan in rubles to a borrower working in rubles or by issuing a foreign currency loan to an exporter. Partial correspondence of the loan currency to the main currency of economic activity arises when the currency is issued to the borrower, whose products are sold in the "ruble zone", but have a currency equivalent. For example, housing construction, cellular services. The list could be continued.
The influence of these indicators on the level of credit risk can be indicated by introducing corrective factors.
Thus, the qualitative indicator of the level of credit risk is determined by comparing it with the scale of the level of credit risk of the indicator, which is the arithmetic mean of the levels of credit risk for the main indicators, adjusted for the adjustment coefficients of secondary indicators.
Quantification - this is the assignment of a quantitative parameter to a qualitative one in order to determine the limit of losses for the operation and to include the risk management process in business planning. The quantitative method can be illustrated by the example of the instructions of the Central Bank of the Russian Federation N 62а "On the procedure for the formation and use of provisions for possible loan losses". This document links credit risk groups with the size of potential losses. This method has two advantages:
1. The risk is assessed quantitatively and it is possible to justify the amount of reserves to cover it.
2. Valuation in rubles - a comparable basis for all types of risk. The ability to summarize all types of risks allows you to determine the "limit of losses" - one of the elements of the bank's strategy.
It is extremely important to correctly determine the quantitative parameters, since they should have the most direct impact on the structure of working capital in the planning process. If the qualitative assessment gives rather wide boundaries of the indicator, then in the quantitative assessment the boundaries are specific. The quantitative indicator is determined by increasing the level of credit risk by the size of the loan. The received amount can form a reserve for possible losses on this type of operations.
There is one very important point that should be noted. Borrower reporting in in the form which she surrenders to tax office cannot be the basis for our calculations. The fact is that often, with a view to tax planning, enterprises insert intermediate links into their financial and economic activities. For example, raw materials finished products several times "sold" or "bought" by enterprises of one owner in order to overstate the cost or understate the income from sales. Own funds may be present in the balance sheet in the form of accounts payable. The actual terms of accounts payable and receivable do not correspond to the balance sheet. Thus, the primary task in assessing credit risks is to obtain from the borrower the so-called management reporting, where all items are in place and allow you to make the correct conclusions.
When going to the stage risk planning, the calculated allowance for the planned loan portfolio must be weighed against the amount that, according to the risk policy, is the loss limit for this operation.
Example. Let's say the limit on loan losses is set at 30% of income for the year, or
$ 150,000. Cc the specific portfolio is $ 2,500,000 and is distributed according to the level of risk as follows:
Credit amount |
risk level |
loss limit |
1 500 000 |
5 % |
75 000 $ |
1 000 000 |
10 % |
100 000 $ |
Total 2,500,000 |
175 000 $ |
The calculated loss limit ($ 175,000) exceeds the planned limit of $ 150,000. This means that the structure of the loan portfolio must be adjusted before the indicators are brought into line. Either the level of credit risk should be reduced by shortening the terms of loans, improving collateral, finding borrowers with better financial condition, or the profitability of loans should increase.
Quantitative and qualitative assessments of the risk level are consolidated at the stage limiting.
Credit risk management
(Continuation)
In the previous material, such components of credit risk management as identification of credit risk, its quantitative and qualitative assessment, as well as risk planning were considered. The next steps are limiting risk, those. establishment of certain limits and creation of a system of procedures aimed at maintaining the planned level of risk. Limiting credit risks includes several components:
- Setting structural limits, representing a certain percentage of loans with different levels of risk. Our task is to set this percentage in such a way as not to exceed the planned limit of losses.
- Limiting the credit risks of specific borrowers.
- Establishment of credit limits for various types of credit operations.
Let us illustrate with an example the procedure for establishing structural limits... Let's say we have:
- loss limit in the amount of $ 175,000;
- loan portfolio in the amount of $ 2,500,000;
- the following risk assessment scale:
Qualitative risk assessment |
Quantitative risk assessment |
Low risk |
|
Moderate level of risk |
10 % |
High risk |
20 % |
Possible options for structural limits are shown in the tables below:
Option 1
Risk level |
Credit amount |
Limit loss |
Share in the loan portfolio |
1 500 000 |
75 000 |
||
Loans with a moderate level of risk |
1 000 000 |
100 000 |
40 % |
Total |
2 500 000 |
175 000 |
100 % |
Option 2
Risk level |
Credit amount |
Limit loss |
Share in the loan portfolio |
Loans from low level risk |
2 200 000 |
110 000 |
88 % |
High risk loans |
300 000 |
60 000 |
12 % |
Total |
2 500 000 |
170 000 |
100 % |
Let's say we are planning low-risk loans (option 1) in the amount of $ 1,500,000, the risk level is $ 75,000, while the loss limit of $ 100,000 remains free, which corresponds to loans in the amount of $ 1,000,000 with a moderate level of risk. Thus, we receive structural limits: loans with a low level of risk - 60% of the loan portfolio, loans with a moderate level of risk - 40% of the loan portfolio. In the second option, loans with a high level of risk for $ 300,000 are planned, the free limit of losses, at the same time, is sufficient only to issue only loans with a low level of risk for the remaining amount. The structural limits for option 2 will be as follows: loans with a low level of risk - 88%, loans with a high level of risk - 12%.
Structural limits are inappropriate to set in percentage, and not in absolute amount, since the volume of the bank's assets changes, the overall loss limit is influenced by a possible change in the level of risk on previously issued loans.
The establishment of credit limits for various operations is the specification of structural limits. The goal is the same - not to go beyond the established limit of losses. The fact is that the concept of "credit" includes a whole range of operations that differ in the level of risk due to different terms, target direction of the loan, type of collateral. Within the limits on grouped by types of risk, it is advisable to distinguish shares, for example, investment loans, overdrafts , loans for replenishment of working capital. In addition, the considered limitation helps to solve the problem of treasury risks. After all, the term of the loan affects not only the riskiness of the loan, it can cause a risk of the bank's liquidity, if not tied to the term of the corresponding liability. There are still some risks that need to be limited. For example, the risk of monopolization. If we invest heavily in one industry, then a crisis in a specific industry and in a specific market can cause more damage than planned. Therefore, limiting is intended to solve the problem of diversification, both in relation to clients and in relation to collateral.
Limiting credit risks for a specific borrower includes limiting all instruments containing elements of credit risk: loans to the borrower proper, loans to related (officially or unofficially) companies, issued guarantees, forward contracts concluded with the bank. When determining credit limits, you can use the same indicators that were used to determine the level of credit risk:
- provision with own circulating assets and stable liabilities;
- stability of financial flows;
- liquidity of collateral;
- sufficiency of collateral.
The main indicator is the provision of own working capital and stable liabilities. The idea is that the credit risk is significantly reduced if the borrower has own funds in the amount of at least 50% of the need for working capital. In this case, the borrower has the opportunity to solve market problems, problems with buyers and suppliers, without transferring all responsibility to the bank. Thus, the first limitation appears - the maximum share of borrowed funds in the structure of the borrower's working capital. According to our observations, for non-seasonal industries this share should be 50%, for seasonal industries - 70%. Thus, we get the first limit of credit - the share of borrowed funds in the borrower's business. The second basic constraint is the sufficiency of collateral. For example, the loan amount should not exceed the amount of collateral plus interest, as well as the costs associated with the exercise of collateral. So, we were able to identify two indicators to determine the base amount of the loan. The loan amount should be no more than the standard ratio of own and borrowed funds and no more than the amount of collateral, adjusted for the amount of interest and implementation costs.
Other indicators can be taken into account when determining the lending limit through the mechanism of discounting the loan amount or the collateral amount (which will lead to the discounting of the loan amount). Thus, the discount scale can be set to the indicator "stability of financial flows", indicators "presence of exchange rate risk", "legal registration of collateral", "presence of exchange rate risk". The “collateral liquidity” indicator can participate in calculating the credit limit by creating a scale for discounting collaterals depending on their liquidity. Here is an approximate algorithm for calculating the credit limit.
Let's say the borrower asks for a limit of $ 1 million. for 1 year at 15% per annum. The dollar exchange rate is 30 rubles. The parameters of the borrower's activities are as follows:
1. Stable financial flows for two years.
2. The amount of working capital before lending is 60 million rubles, of which own and conditionally permanent liabilities - 30 million rubles.
3. The security is offered motor transport in the amount of 35 million rubles.
4. The borrower is a resident and therefore operates in the “ruble zone”.
5. The safety of the pledge is ensured by its placement on a separate site and the seizure of vehicle passports to the bank.
6. The client has a loan in another bank in the amount of $ 100,000
Bank parameters when determining the credit limit:
Parameters for determining the base value: the standard share of borrowed funds in the client's business is no more than 50%, the standard amount of costs for the sale of collateral is 5% of the loan amount. Discounts on the loan amount, depending on the loan term, legal registration of collateral and exchange rate risk, amount to 5% for each indicator, but no more than 10% in total.
Payment:
1. Maximum loan amount in terms of equity security: Borrowed funds in the structure should be no more than 50%, which means that the loan amount should be equal to the amount of own funds, i.e. 30 million rubles The borrower already has a loan equivalent to 3 million rubles, therefore, the free loan amount is 27 million rubles. or $ 900,000.
2. Maximum loan amount in terms of sufficiency of collateral: collateral is 35 million rubles, annual amount percent - 4.5 million rubles, the amount of implementation costs - 3 million rubles. After deducting the amount of costs and the amount of interest, we get 27.5 million rubles. The collateral is not enough, it is necessary to reduce the loan amount. With the proposed amount of security maximum amount loan can be 20 million rubles. or $ 667,000.
3. Determination of the amount of discounts. In our case, the indicators of the legal registration of the collateral (the collateral is not registered) and the exchange rate risk (the borrower works in rubles, and took the loan in foreign currency) will lead to the discounting of the loan. total amount the loan must be discounted by 10%.
4. Completion of the calculation: we select the minimum loan amount from the results of paragraphs 1-2 - $ 667,000 and discount by 10%. Our offer to the client is $ 600,300.
The final stage of the entire complex of works on credit risk management is the creation of a system of procedures aimed at maintaining the planned level of risk. This system includes the following activities:
1. Creation of a system of delegation of responsibility - the so-called "authority matrix".
2. Additional control at the stage of loan issuance.
3. Periodic monitoring of the level of risk for the portfolio as a whole.
The creation of an empowerment matrix is necessary in order to properly allocate forces without compromising the risk management process. Control should be carried out at all stages: the stage of setting the limit, the stage of making a transaction (resolving the transaction), the stage of transferring funds. An example of a matrix for limiting authority in lending is shown in the table below:
Example of a restriction matrix
Limit type |
Limit amount |
Authority to set a limit |
Authority to Conclude or Permit a Transaction |
Authority to control and authorize the transfer of funds |
Limit for a specific borrower |
Before 2 000 000 $ |
Assets and Liabilities Management Committee |
Head of Credit Department |
Authorized back office employee |
2 000 000 – 5 000 000 $ |
Governing body |
Vice President |
Authorized employee of the Internal Control Service Authorized back office employee, |
|
Over 5 000 000 $ |
Board of Directors |
Bank president |
Head of the Internal Control Service Back Office Manager, |
In the proposed version, the authorized persons change depending on the size of the limit. So, the decision to set a limit for an amount of up to $ 2,000,000 is made by the Assets and Liabilities Management Committee, the authority to conduct a transaction according to the established limit is delegated to the head of the credit department, control at the time of issuance is performed by an authorized employee of the Internal Control Service, posting is performed by an authorized employee back -office. Setting the limit from $ 2,000,000 to $ 5,000,000 is the prerogative of the Management Board, the Vice President has the authority to complete the transaction, control is vested in an authorized employee of the Internal Control Service, funds are transferred by the back office employee. Setting limits for the amount exceeding $ 5,000,000 is the competence of the Board of Directors, the President of the bank signs the documents, control over such large amounts is carried out by the head of the Internal Control Service and the funds are transferred by the head of the back office.
Participation in the transaction by the Internal Control Service implies additional control over the fulfillment of all essential conditions and its proper execution.
Periodic monitoring of the level of credit risk for the portfolio as a whole is necessary both when issuing new loans and without issuing new loans. The latter is relevant due to the fact that the level of risk can change with a change financial situation the borrower, under the influence of price factors, due to a change in the situation on the market of various goods, changes in the dynamics of exchange rates, etc. Such monitoring should be the responsibility of a bank division (preferably not a credit one), for example, the Internal Control Service or the Planning and Economic Department ...