Credit Risk Management Essay

26101 Words Jan 7th, 2014 105 Pages
Credit Risk Management Of AB Bank Limited
25. May, 2013 view with charts and images
Executive Summary
The ongoing development of contemporary management methods and the increased use of innovative financial products such as securitization and credit derivatives have brought about substantial changes in the business environment faced by credit institutions today. Especially in the field of lending, these changes and innovations are now forcing banks to adapt their in-house software systems and the relevant business processes to meet these new requirements.
Credit Risk Management is intended to assist practitioners in redesigning a bank’s systems and processes in the course of implementing the Basel II framework.
Throughout last five
…show more content…
Lending is the primary business of a bank and profit is a measure of its success. So the main objective of lending is to earn profit on loans for the ongoing viability of a bank.
According to Michael C. Dennis (2001), most of the banks use objective and subjective data interpretation to evaluate a borrower’s financial condition from their financial statements. Objective analysis involves traditional methods of number and data analysis. Such as, review of unusual accounting methods used by the client, unusual information in the notes in the financial statement. Review of CIB (Credit Information Bureau) Report of client including financial ratios, trend analysis and financial profitability analysis of his business has been done before disbursement of a loan. Financial profitability, leverage liquidity and efficiency analysis of the client and its business considered as key denominator of a prospective client. Subjective analysis involves the overall evaluation of how a borrower is doing financially and whether extending the borrower’s credit would pose any acceptable or unacceptable risk.
To extend credit facilities (or to continue the credit facilities) to an applicant, bank can make a decision only after an objective analysis and subjective evaluation. This analysis combined with information about applicant’s payment history, trends in the client’s industry, changes in the overall economy, and changes in demand for the client’s products and services are used to

Related Documents