Abstract
This risks related to the lending activity is one of the most important risks that a financial-banking institution should manage. The improper or ineffective management of this kind of risks can have significant financial effect for the respective institution. Therefore, the top management has a very important role to ensure the credit risk management framework that comply both with the shareholders’ expectation and also fulfil the regulatory requirement imposed by the supervisory authorities. This means need to establish proper systems, norms/procedures, and qualified staff that can assure the adequate management of the specific Credit risks. In this paper we intended to present an overview of the main elements related to the administration of credit risks that the management of financial-banking institutions should take into account. We took into account the common sources of the major credit related problems, the phases of the credit risk management, the general methods used by most of the banks in the monitoring of the credit portfolio and finally we included also strategical considerations that should be contemplated by the top management in order to properly manage the credit risk and to avoid as much as possible unexpected/unwanted situations.
Highlights
Speaking, the banking risk can be considered as a mix of events that can cause negative effects for the financial banking institution, and if they are not mitigated properly by the management, it might cause considerable losses for the company – either material or reputational ones.The most important risks that have to be managed by a financial banking institution can be grouped in three main categories: Financial risks, Operational risks, and Environmental risks
We took into account the common sources the major credit related problems, the phases of the credit risk management, the general methods used by most of the banks in the monitoring of the credit portfolio and we included strategical considerations that should be contemplated by the top management in order to properly manage the credit risk and to avoid as much as possible unexpected/unwanted situations
The collateral/guarantees can be used for non-performing loans - NPL, so that by selling and capitalising them to be recovered as much as possible from the receivables offered by the bank and not covered by the beneficiary of the facilities
Summary
The banking risk can be considered as a mix of events that can cause negative effects for the financial banking institution, and if they are not mitigated properly by the management, it might cause considerable losses for the company – either material or reputational ones. The credit risk is part of the category of financial risks and it is associated with the current lending operation of a financial-banking institution. It refers, on the one hand, to the risk associated with nonrepayment of the loan rates by the customer at the set timeframe, but on the other hand, it is associated. Mitigating the credit risk involves the highest operational effort of a bank, which includes both the pre-credit analysis and credit monitoring activities, that has the main goal to set-up systems and procedures that enables the institution to react quickly to major events involves bank customers and to minimize the size of losses of the entire credit portfolio. We took into account the common sources the major credit related problems, the phases of the credit risk management, the general methods used by most of the banks in the monitoring of the credit portfolio and we included strategical considerations that should be contemplated by the top management in order to properly manage the credit risk and to avoid as much as possible unexpected/unwanted situations
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