Control mechanism and methods for analyzing credit risk

Therefore, credit risk is characterized economic relations arising between the contracting parties - the lender and borrower on the redistribution of financial assets. Between each pair of counterparties formed personal relationships that are not duplicated and can not be measured accurately, there is credit risk has certain features that must be considered in management: the definition of assessment, selection of methods of analysis. First, the assessment of credit risk involves more subjective than other financial risks, including price. Because the risk of exchange rate or interest rate estimate, all market participants, not just one bank. This allows the analysis of these risks into account the inputs from the market. Regarding the credit risk of such a possibility, because it has its own unique character associated with each particular borrower. In addition, the element of subjectivity and provides assessment of financial condition and moral character of the borrower, by the lender. The level of credit risk associated with the same lender, may differ from bank to bank. The second feature is a consequence of the previous one and consists in the fact that for the analysis of credit risk can not be applied to methods of statistics or probability theory, widely used in evaluating credit risk. As we know, these methods are aimed at identifying statistical regularities, which are defined as repeatability, consistency and order in bulk processes. However, the credit risk due to the prevalence of individual components is described by the concept of bad statistical aggregate. Therefore, in assessing the credit risk preference must provide the individual work with the borrower, as evidenced by the experience of foreign bankers, when determining the credit risk is widely used such methods as individual interviews with the potential borrower, a visit to the company, the fundamental analysis of the overall state of the industry, which employs the borrower. Theoretically, therefore, to assess the credit risk of each individual is to be applied specifically designed for this technique, which would have made it possible to take into account all the peculiarities of a specific borrower. Topic: Risks in Banking | Tags: credit risk management