One of them - the bankruptcy of the borrower

The main reasons for the bankruptcy of borrowers are poor management, lack of effective management information systems, failure to respond to changing market conditions and competition, concentration on unrealistic projects according to business size, the exaggeration of their own capabilities, that is a very rapid expansion in the absence of adequate resources, lack of equity capital and high leverage ratio. By "long-range warning signal," indicating the troubles of the borrower, include: reduction in turnover in the accounts, the request to defer payments on earlier loans prolonged (after the second extension, in practice, the loan must be immediately transferred to a level of concern), activity increased in account management, and others. For the bank that issued the loan to an individual borrower, warning signals of trouble are also: the constant use of the customer overdraft (a kind of instant credit) on the limit level, the systematic excess of lending limits, loan repayment difficulties: delays in payment of interest or principal payments; adverse trends in financial ratios (lack of liquid assets, higher leverage), "pressure" on earnings (big discounts for payments in cash and short term), failure to pay taxes, failure to provide timely and reliable financial information and more. [29] Now, when there's talk of reform of the tax legislation, raised a systemic risk - the risk of defaults among borrowers chain bank, which may reduce the bank's solvency. Category: Risks in Banking