Credit Risk Management Of Banks Research Articles

The Relation between Bank Credit-Risk Management Procedures and Originate-to-Distribute Mortgage Quality During the Financial Crisis

We examine the relation between bank risk-assessment procedures and sales of mortgages before and after the first quarter of 2007. Research (Purnanandam [2010]) suggests that banks employing an originate-to-distribute (OTD) strategy devoted little effort to screening thereby diminishing their ability to sell loans during the crisis. We use 10-K disclosures of credit-risk assessment procedures to measure the extent of a bank’s internal screening and risk-management procedures. We find banks with higher scores (i.e., stronger risk management) were better able to sell mortgages during the financial crisis and had fewer non-performing mortgage loans than banks with lower scores. In addition, we find higher scores attenuate the positive association between a bank’s use of more mechanical screening techniques and its involvement in the OTD market documented by Purnanandam [2010]. Thus, enhanced credit-risk management procedures seem to mitigate incentives to substitute mechanical screening models for the collection of costly information when banks more zealously employ an OTD strategy. Taken together, these results imply that mortgage purchasers were aware of cross-sectional differences and suggest that mechanisms exist for banks to credibly distinguish the quality of their loans despite incentives problems associated with the OTD business model.

Migration Analysis of Credit Risk in Tunisian Banking Sector

In this paper, credit migration matrices are built to measuretransition probabilitiesat Tunisian credit institutions, allowing a comparison of credit risk quality shiftsfor public banks, private banks and leasing companies. We proposeto apply estimating Markov transition matrices using proportions data in order to be adapted to the scarcity of individual dataonloan quality transitions. We employ annual classification of assets issued in theregistration documents and annual financial reports during 2003-2014 period.It’s found from the analysis that the risk grade 2 has the greater tendancy to be downgraded than to be upgraded in public banks and in leasing companies.For the other risk grade 3, the upgradation in the category is higher than the downgradation in all cases. The resultsindicate that the public banks are the riskiest credit institution in Tunisia and there is a lack of rigor in loan classification inpublic and private banks. The findings are useful and critical for supervisory purposes and foroptimizing bank credit risk management.

Applying ontologies to data integration systems for bank credit risk management

Special ISSUE VSST 2016 This paper proposes an ontological integration model for credit risk management. It is based on three ontologies; one is global describing credit risk management process and two other locals, the first, describes the credit granting process, and the second presents the concepts necessary for the monitoring of credit system. This paper also presents the technique used for matching between global ontology and local ontologies.

The Relationship between Risk Management and Profitability of Commercial Banks in Albania

Profitability is an indicator of the capacity of commercial banks to cope with their risk and/or capital growth, showing their competitiveness and measuring the quality of management. Credit risk is one of the significant risks of commercial banks by the nature of their activities. By effectively managing the exposure of commercial banks to credit risk, they not only support the viability and profitability of their business but also contribute to the system, stability and efficient allocation of capital to the economy. The purpose of the study was to determine whether there is a relationship between credit risk management and profitability in commercial banks in Albania. In this paper, there are four variables: ROA and ROE are the dependent variables, whereas non-performing loans (NPLs) and capital adequacy (CAR) are the independent variables. The main source of data collection are the annual reports for a 7-year period (2008-2015) by the Albanian Association of Banks. For quantitative data analysis, multiple regression model was used (SPSS).

Credit Risk Analysis and Countermeasure Research of China’s Commercial Banks

This paper analyzed the current situation of credit risk management of commercial banks in China, and analyzed the six risks that China’s commercial banks may face. Then, this paper pointed out four problems in the credit risk management of China’s commercial banks. Finally, according to the specific problems of China’s commercial banks, this paper put forward some concrete countermeasures to perfect the credit risk management of Chinese commercial banks. The article explores the issues in the field of finance.

Policies and Suggestions on Credit Risk Management of Rural Commercial Banks in Post–Crisis Era

Rural commercial bank mainly obtains its own profit by carrying out credit business, so credit risk has become the main risk that rural commercial banks that our country should undertake. Although the era of the global economic subprime crisis has gone, the rural commercial banks must strengthen their awareness of credit risk management because of the adjustment of the national macroeconomic policies and the emergence of new credit risks in their business processes. The author analyzes the main problems in the credit risk management of the rural commercial banks in the post-crisis era, and puts forward the relevant suggestions.

Study on the Risk Transmission Mechanism of Rural Banks in China

This paper studies the rural banks’ credit risk factors and risk transmission path, sets up a nonlinear differential dynamical system model for the transmission and analyzes its equilibrium by phase-plane method, then discusses how credit risk dynamically configures to reach equilibrium among the nodes in the transmission process. The paper’s main conclusions are as follows: the sources of rural banks’ credit risk are transmitted inside the banks by virtue of the carriers of capital flow and information flow, and the recipients in the banks’ internal credit risk transmission may become new risk sources and lead to regional financial risks; the credit risk dynamic configuration may reach equilibrium among the nodes in the transmission subsystem. Finally, this paper gives suggestions on credit risk management of rural banks in China.

Feasibility Study of Credit Risk Rating Systems in Banks

Credit risk rating is an important tool used by banks to quantify risk associated with lending. Accuracy of the rating mechanism is an important aspect as it affects the nature and quality of credit decisions made. A wrong rating may affect not only the sustainability and goodwill of the banks; it can even affect the overall economic harmony and balance, as banks are barometers of the economy. Recent global economic crisis of 2008, itself showcases a need for very strict and accurate credit policy. Under this back drop, present study aims to analyze the credit risk rating mechanism of banks. A comparative study of the different risk rating models adopted by public and private banks in Thiruvananthapuram district (Kerala, India) is made and study attempts to determine the lacuna in the present risk rating model, if any. The study aims to provide suggestions to improve the credit risk management of banks.

Concentration Risk: A Critical Component of Credit Risk Management in Banks (A Case Study on SBI & its Associate Banks)

‘Concentration Risk: A critical component of Credit Risk management in Banks’ was a Case Study, which was conducted for SBI and Associate Banks using secondary data. Twelve year data from 1996 to 2007 were collected from Reserve Bank of India report. Aim of our study was to analyse trends in Non-Performing Assets, Studying relationship of diversified portfolio of Credit Advances and Non-Performing Assets of SBI & its Associate Banks to explore the relationship between concentration risk profile and NPAs level. All eight banks under SBI group were selected for study. The occupation Index for the banks was obtained from RBI report. The relationship of diversified portfolio of advances namely Agriculture, Industry, Transport operators, Professional and other services, Personal loans, Trade, Finance and All others along with Non-performing Asset of SBI group were considered for the study. The study was extended to Rural, Urban, Semi-urban, Metropolitan and All India regions. To extract the relationship between NPA level of SBI & associate Banks and the concentration profile, coefficient of correlation was evaluated and test of significance was conducted by t- test. The results were verified through factor analysis and regression analysis between the parameters. It was found that the relationship between NPA of SBI & its associate banks had strong positive coefficient of correlation with individual NPA of banks.The concentration index of occupations Industry and Personal loan are significant in all the regions.The concentration index of occupations Trade and Agriculture are not significant in all the regions. The factor Analysis and the regression Analysis confirms the result obtained earlier.

Credit risk management in banks from the perspective of jurisprudence

The level, structure and nature of problem loans are a significant source of credit risk in the banking business, with the main reason for developing and increasing problem loans indicate the need for a comprehensive and strategic approach to solving them. In addition, the accumulation of problem loans in banks' balance sheets negatively affects the credit activity of banks and, consequently has a negative impact on economic activity, primarily due to reduced availability of possible sources of financing both for companies and for the population. One of the main reasons for the increased credit risk exposure of banks, especially before the outbreak of the subprime crisis, are less developed models for evaluation and measurement of credit risk, as well as a poor assessment of collateral. Therefore, this paper points out to the importance of careful management of credit risk as well as the need to develop appropriate methods and models for the early detection of problem loans and reducing exposure to credit risk. In the last part of the paper, the author provides an overview of the most important collaterals, with specific reference to domestic jurisprudence.

Credit Risk Management Framework for Rural Commercial Banks in China

Credit risk management (CRM) is to identify, measure, monitor, and control risk arising from the possibility of default in payments. Existing CRM tools available for large financial institutions do not meet the requirements of rural commercial banks (RCBs) because their main customers are SMEs and farming households whose financial data and credit rating records are not available. RCBs in China also expose specific risks connected to rural commercial banking business and in particular farming-related loans and services. Adopting a qualitative analysis approach to identify key factors contributing to failures of RCBs’ customers, we endeavour to develop a CRM framework for RCBs in China. The framework, which is based on the identification of business failures of RCBs’ customers and factors contributing to failures of SMEs and farming households, incorporates financial and non-financial variables. Using nonfinancial variables along with financial variables as predictors of company failure significantly improves credit analysis quality and accuracy. Also, this study recognises guanxi1 as risk potentials and includes guanxi risks in the framework. This study has made contributions to the extant literature on CRM of banks in general and RCBs in particular.

Credit Risk Management and Performance of Deposit Money Banks in Nigeria

Credit Risk Management and Performance of Deposit Money Banks in Nigeria

Comparison of Different Methods of Credit Risk Management of the Commercial Bank to Accelerate Lending Activities for SME Segment

The contribution is dealing with selected assessments of the most important risk in the banking sector in the Czech Republic. The aim of this article was to quantify capital requirement for individual methodologies of credit risk management on the designed portfolio with corporate loans with use of collateral using collaterals as techniques to reduce credit risk of commercial bank. Firstly, the aim of this article is to quantify the capital requirements using the Internal Rating Based Approach with collateral usage. Afterwards, achieved results have been compared with the methodology of the Standardized Approach and Internal Based Approach. The article is highlighted aspects of transition to developed methods of Internal Rating Systems with significant savings on equity, which allows banks accelerate lending activities and so increase provided services for small-medium sized companies.

CREDIT RISK MANAGEMENT IN COMMERCIAL BANKS

The article proposes a model of credit risk assessment on the basis of factor analysis of retail clients / borrowers in order to ensure predictive control of the level of risk posed by potential clients in commercial banks engaged in consumer lending. The aim of the study is to determine the level of risk represented by different groups (classes) of retail clients (borrowers) in order to reduce and prevent credit risk in the future as well as to improve the management of banking risks. The main results of the study are the creation of a model of borrowers’ internal credit ratings and the development of the methods of improving credit risk management in commercial banks.

The Impact of the Internal Audit in Reducing Credit Risk in Commercial Banks in Kosovo

Credit risk represents the vast majority of the risk in the context of estimating the capacity of the transfer of risk from commercial banks. Any commercial bank operating, in Kosovo, must have a system for managing credit risk. An important and essential process, such as the management of the credit risk, cannot be carried out without the aid of internal audit. From the survey results, it was concluded that the process of auditing the banks recommended the implementation of policies for managing credit risk of the respective commercial bank’s policy. This also include the policy of credit risk management of the Central Bank of the Republic of Kosovo, implementation of procedures, regulations and rules for credit exposure, loan portfolio diversification, training of staff of the credit risk involved in completing the loan files, etc.

Credit Risk Management in Agricultural Development Bank in Ghana: Evidence from Volta Region

Credit Risk Management in Agricultural Development Bank in Ghana: Evidence from Volta Region

Integrated risk management in the Indian banking sector and impact of credit risk management on the banks’ profitability

The emphasis, on risk management at banks, is growing globally and there is an urgent need for scheduled commercial banks in India, to integrate risk management processes with business and operating models. In addition, banks will also have to significantly enhance its stress testing capabilities and increase their knowledge on risk-management related, data requirements and analytics. The risk management processes at banks, need to be better integrated with their business and operating models. For this, risk management needs to be viewed as a key part of strategy and operations and go well beyond merely being a compliance exercise. Besides, there is a need to incorporate risk-based capital performance measures and stress testing more centrally into business decision-making processes. The purpose of this research is to investigate whether a relationship exists between credit risk management and profitability of scheduled commercial banks in India. In order to test our hypothesis, we used multivariate regression. Findings indicate that there is a positive relationship between credit risk management and profitability of scheduled commercial banks.

Shaping the credit risk management of banks

The increasing importance of credit risk management in the banking sector is the subject of research presented in this paper. Research goals include determining the importance and influence of risks on business success of banks in strategic terms, in the long run. In this sense, key results of empirical research on the territory of Serbia in 2015 on a sample of 34 financial institutions, (69 percent of the total number of banks in Serbia), have been provided. The results which were processed by theoretical, statistical and mathematical methods confirmed validity of the proposed hypothesis that risks have a great impact on revenues of companies. The significance of research results can be seen in the implementation of theory and practice, as well as the tools for assessing internal and external risks which might influence banking operations and sustainability.

The Role of Information in Bank's Credit Risk Management

The main purpose of the article is to present the role of information in bank management, in the aspect of credit risk accompanying the bank performance. To prepare relevant risk analyses, comprehensive, reliable and up-to-date information is needed. This should be obtained from numerous sources and by means of various techniques. Sources of information can be both internal and external. Any professional information should be up-to-date, accurate, complete, unambiguous, operational and continual – and these requirements apply equally to both internal and external information.

The Impact of Credit Risk Management in the Profitability of Albanian Commercial Banks During the Period 2005-2015

Albanian Financial institutions face difficulties for a multitude of reasons but the major cause of Albanian banking problems are related to the credit risk. For the Albanian banks, loans are the largest source of credit risk as they are not active is trading derivatives. Banks objective is to manage credit risk in order to prevent losses and to maximize its profitability. The main purpose of this research is to study if it exist a relationship between Credit risk management and profitability of commercial banks in Albania. The main indicators used in this study are Return on Equity, Return on Assets, Non-performing Loans Ratio and Capital Adequacy Ratio. The research collects data from the 16 banks operating in the Albanian banking system from 2005 to 2015. Statistical test are performed in order to test the relationship between the four indicators and the profitability of commercial banks in Albania. This study provides a contribution within the identification of credit risk factors that affect more the profitability of the Albania Banks and the finding of a scientific solution in order to manage the credit risk in a more efficient way. Key words: Profitability, Capital Adequacy, Return on Assets, Return on Equity, Credit risk management, Non-performing Loans Ratio.