Modeling of Bank Credit Risk Management Using the Cost Risk Model

Iryna Yanenkova,Svetlana Drobyazko,Yuliia Nehoda,Lyudmyla Berezovska,Andrii Zavhorodnii

doi:10.3390/jrfm14050211

Abstract

This article deals with the issue of managing bank credit risk using a cost risk model. Modeling of bank credit risk management was proposed based on neural-cell technologies, which expand the possibilities of modeling complex objects and processes and provide high reliability of credit risk determination. The purpose of the article is to improve and develop methodical support and practical recommendations for reducing the level of risk based on the value-at-risk (VaR) methodology and its subsequent combination with methods of fuzzy programming and symbiotic methodical support. The model makes it possible to create decision support subsystems for nonperforming loan management based on the neuro-fuzzy approach. For this paper, economic and mathematical tools (based on the VaR methodology) were used, which made it possible to analyze and forecast the dynamics of overdue payment; assess the quality of the credit portfolio of the bank; determine possible trends in bank development. A scientific and practical approach is taken to assess and forecast the degree of credit problematicity by qualitative criteria using a mathematical model based on a fuzzy technology, which can forecast the increased risk of loan default at an early stage in the process of monitoring the loan portfolio and model forecasting changes in the degree of credit problematicity on change of indicators. A methodology is proposed for the analysis and forecasting of indicators of troubled loan debt, which should be implemented as software and included in the decision support system during the process of monitoring the risk of the bank’s credit portfolio.

Highlights

Introduction published maps and institutional affilLending is one of the main types of banking operations, which plays a crucial role in meeting the ever-growing consumer needs of the real economy and contributes to the production and socio-economic development of the country
The authors deepened the methodological approach to classification of the borrower’s credit risk factors, according to which they are identified at the micro and macro levels with simultaneous distribution of the factors of general action and factors specific to a certain borrower. Such an approach provides for an increase in the speed of management decisions due to the formation of a two-level system for managing the bank’s credit risk; this makes it possible to differentiate management tools into: general and specific (Protter 1990)
The credit portfolio risk assessment process was based on VaR methodology

Summary

Introduction

Lending is one of the main types of banking operations, which plays a crucial role in meeting the ever-growing consumer needs of the real economy and contributes to the production and socio-economic development of the country. Its dynamic development and the variety of forms and types of bank credit show that banks have a substantial interest in lending, as a source of high profit, and there is a constant demand from business entities. The further development of bank lending depends, to a large extent, on the level and quality of risk management that banks are exposed to during this activity. Over the past few years, the role of bank lending in meeting the needs of business entities has been constantly growing, which increases its influence on the financial results iations

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