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Credit Risk Rating
Credit Risk Rating
A sound system of Credit risk rating is yet another important tool of the efficient risk management process. Credit risk rating system, if scrupulously followed, applied can help the bank
1) Avoid credits which are risk prone.
2) Minimise risk when rated and noted.
3) Help distinguishing between acceptable and un - acceptable risks.
4) Help aid in determining a loan review schedules.
As per dictates of credit risk rating, the periodicity of review can be determined.
5) Help standardize and set the principles for review of credit and the monitoring required. This minimizes the rigor and monotony of subjecting every loan review to the uniform periodicity and concentration.
6) Help proper pricing of credits depending upon credit at risk, monitoring/servicing cost
Credit risk rating is also a tool for the management of the loan portfolio as well. It can help determining the banks exposure in terms of risk.
The Credit Risk Rating Process should cover the Business conditions-That is ascertaining and understanding borrowers business, would help detecting the sources of business risk. Business condtions will address the overall business risk that surrounds the borrowers future operations. An analysis of business conditions should reflect the overall risk inherent in the industry in which the borrower operates and his competitive position with in the industry.
Industry Risks - should reflect-Industry competitiveness.
| Overseas trade risk | |
| Product substitutes. | |
| Ban, regulatory measures | |
| that affect the business. | |
| Product positioning. | |
| Economics sensitivity. | |
| Competitive status covering | |
| Competitive advantage. | |
| Scope of operation. | |
| Market conditions. | |
| Turn over growth. | |
| Market strength/leaders | |
| Management review should cover | |
| Structure |