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Effective Credit Risk Management Strategies

Credit risk arises from individuals who are unwilling or unable to meet their obligations, causing economic losses for banks. Senior management should develop credit policies including a formal credit evaluation process, credit approval hierarchy, risk identification and monitoring, and staff roles and responsibilities. Credit administration is a back office function that supports and controls the extension and maintenance of credit. A credit administration unit performs duties like ensuring complete documentation, proper credit approval before disbursement, continuous credit monitoring, and communicating repayment schedules and exceptions.

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Ali Jan Mirza
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9 views7 pages

Effective Credit Risk Management Strategies

Credit risk arises from individuals who are unwilling or unable to meet their obligations, causing economic losses for banks. Senior management should develop credit policies including a formal credit evaluation process, credit approval hierarchy, risk identification and monitoring, and staff roles and responsibilities. Credit administration is a back office function that supports and controls the extension and maintenance of credit. A credit administration unit performs duties like ensuring complete documentation, proper credit approval before disbursement, continuous credit monitoring, and communicating repayment schedules and exceptions.

Uploaded by

Ali Jan Mirza
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Managing Credit Risk

Credit risk arises from the potential that an individual is either unwilling to perform on an obligation or its ability to perform such obligation is impaired resulting in economic loss to the bank.

Boards and Senior Management Oversights:


The senior management of the bank should develop the credit policies. Detailed and formal credit evaluation process. Credit approval authority at different hierarchy levels including authority for approving exceptions.

Boards and Senior Management Oversights:


Risk identification, measurement, monitoring and control. Risk acceptance criteria Roles and responsibilities of the staff involved in the management of the credit.

Credit Administration:
Credit administration is basically a back office function that support and control the extension and maintenance of the credit. A credit administration unit performs the different duties.

Credit Administration:
A credit administration unit performs the following duties: Documentation: It is the responsibility of the credit administration unit to ensure the completeness of the documentation in accordance with approved terms and conditions

Credit Administration contd:


Credit Disbursement: The credit administration function should ensure that the loan application has proper approval before entering facility limits into computer systems. Credit monitoring: After the loan is approved and draw down allowed, the loan should be continuously watched over.

Credit Administration contd:


Loan Repayment: The individual should be communicated ahead of time as and when the principal/markup installment becomes due. Any exceptions such as non-payment or late payment should be tagged and communicated to the management.

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