Of course, in practice, to implement this approach

In addition, certain characteristics of the borrower, for example, his moral character or reputation, which determine the intention to repay the loan can not be measured quantitatively. Therefore, in the analysis apply certain formal procedures and techniques to assess the basic parameters of the solvency of the borrower, abstracting from the secondary. Although it is sometimes secondary to the creditor's perspective the factors on which he fails to pay attention, cause increasing credit risk. Third, the credit risks to some extent accompanied by all active (not just credit) transactions of the bank. In addition, the actual lending operations are accompanied not only credit but also other risks: interest rate, inflation, foreign exchange, etc. Hence, the analysis should clearly distinguish between the credit risk associated with non-return of principal and interest from other types of risk, as they are subject to a variety of methods. [100] Thus, the problem of reducing the credit risk depends on the perfection of the methods used by the bank for its evaluation. These methods can be aligned only to a certain extent, because each bank has its own clientele, its market segment, industry-specific and specific features. Selected Bank of methods should be possible to take into account these features and implement a differentiated approach to assessing credit risk, because the indicators on which to assess the activity of some borrowers may be entirely unacceptable to others. At the minimum level of harmonization of methods of analysis of credit risk is necessary, because it helps banks develop their own system of support for management decisions with respect to loans and provides a specified level of quality of its loan portfolio. Topic: Risks in Banking | Tags: in practice