1) Commercial banks need to adopt an event-driven management approach to better coordinate underwriting and credit risk management teams. This will help streamline processes and protect credit standards.
2) Currently, underwriting processes are fractured and complex, leading to inefficient use of time and resources. Deal approval processes in particular are disorganized and prone to lobbying.
3) An event-driven framework would define key "credit events" such as evaluating portfolio fit, deal structure, and approval/review. This would introduce standards and clarity around roles and responsibilities to expedite decision making.
The UK regulator places primacy on outcomes that are client-centric as the determining factor to whether sufficient research and due diligence has been done.
The document discusses automating the corporate credit approval process. It describes how the current process is inefficient, involving multiple disparate systems and high operational costs. An automated solution is proposed to streamline the process, improve visibility and control, expedite loan applications, and ensure compliance. The key benefits of the solution include faster credit availability, reduced risks and costs, and an enhanced customer experience.
Credit risk management in banks is a complex process that involves identifying, measuring, monitoring, and controlling risks associated with a bank's lending activities. The document discusses several key aspects of credit risk management:
1) It outlines various methods used by banks to assess credit risk when lending such as cash flow analysis, balance sheet analysis, and assessing repayment capacity.
2) It discusses the importance of proper credit appraisal, monitoring existing loans, and having standards for security, documentation, and loan renewals.
3) It notes that credit risk arises from both internal factors like faulty underwriting and external factors like changes in government policy or industry conditions. Managing this risk requires tools like exposure limits, risk ratings, and regular
This document discusses challenges in credit scoring and data mining for credit risk assessment. It provides background on credit scoring, including a brief history showing its evolution from judgment-based to data-driven models. Key challenges discussed are that business objectives like risk, profit, and response often conflict, and multiple models may be needed. Data mining approaches for credit scoring are also reviewed, such as logistic regression and decision trees. The chapter aims to illustrate compromises between data mining theory and practical challenges in credit risk applications.
The document discusses strategies for commercial real estate owners to successfully work out loans during an economic downturn. It recommends that owners conduct a self-analysis, develop a management plan, and proactively communicate with their banker to negotiate modified terms. Knowing the business realities and taking swift action are essential to preserve business value and influence the banker to be flexible through forbearance or restructuring. Personal expenses also must be carefully monitored during negotiations.
Bob Pearson • Transamerica Financial Advisors Inc.
- Experts need experts: 10 questions to ask third-party money managers by Kellye Whitney
- Do record margins pose market threat?
- “Rule of 240” compounding by Ron Rowland
- Hot-button topics drive seminar attendance (Matthew Gaude, FSC Securities)
Setting Up a Successful Insurance VentureCognizant
Precise business and operating model definitions can help insurers spin off ventures that stay ahead of customer needs and market requirements. Here are some lessons we’ve acquired by helping our clients establish winning ventures.
The UK regulator places primacy on outcomes that are client-centric as the determining factor to whether sufficient research and due diligence has been done.
The document discusses automating the corporate credit approval process. It describes how the current process is inefficient, involving multiple disparate systems and high operational costs. An automated solution is proposed to streamline the process, improve visibility and control, expedite loan applications, and ensure compliance. The key benefits of the solution include faster credit availability, reduced risks and costs, and an enhanced customer experience.
Credit risk management in banks is a complex process that involves identifying, measuring, monitoring, and controlling risks associated with a bank's lending activities. The document discusses several key aspects of credit risk management:
1) It outlines various methods used by banks to assess credit risk when lending such as cash flow analysis, balance sheet analysis, and assessing repayment capacity.
2) It discusses the importance of proper credit appraisal, monitoring existing loans, and having standards for security, documentation, and loan renewals.
3) It notes that credit risk arises from both internal factors like faulty underwriting and external factors like changes in government policy or industry conditions. Managing this risk requires tools like exposure limits, risk ratings, and regular
This document discusses challenges in credit scoring and data mining for credit risk assessment. It provides background on credit scoring, including a brief history showing its evolution from judgment-based to data-driven models. Key challenges discussed are that business objectives like risk, profit, and response often conflict, and multiple models may be needed. Data mining approaches for credit scoring are also reviewed, such as logistic regression and decision trees. The chapter aims to illustrate compromises between data mining theory and practical challenges in credit risk applications.
The document discusses strategies for commercial real estate owners to successfully work out loans during an economic downturn. It recommends that owners conduct a self-analysis, develop a management plan, and proactively communicate with their banker to negotiate modified terms. Knowing the business realities and taking swift action are essential to preserve business value and influence the banker to be flexible through forbearance or restructuring. Personal expenses also must be carefully monitored during negotiations.
Bob Pearson • Transamerica Financial Advisors Inc.
- Experts need experts: 10 questions to ask third-party money managers by Kellye Whitney
- Do record margins pose market threat?
- “Rule of 240” compounding by Ron Rowland
- Hot-button topics drive seminar attendance (Matthew Gaude, FSC Securities)
Setting Up a Successful Insurance VentureCognizant
Precise business and operating model definitions can help insurers spin off ventures that stay ahead of customer needs and market requirements. Here are some lessons we’ve acquired by helping our clients establish winning ventures.
Member Business Lending: Growth and Risk ManagementLibby Bierman
Sageworks and Ancin Cooley, founder and principal of Synergy Credit Union Consulting, presented a webinar (access recording http://web.sageworks.com/risk-in-mbl-cooley/) reviewing how credit unions can develop and grow member business lending programs for their commercial members. Review to find out the risks inherent in MBL as well as benefits to this concentration.
The document discusses how lax lending standards during the 2007-2008 financial crisis contributed to its occurrence, and argues that a return to basic asset-based lending principles is needed. It outlines the basics of commercial lending such as understanding customers, risks, repayment ability, and using the five "C"s of credit analysis - character, capacity, capital, conditions, and collateral. Covenants and scrutinizing add-on acquisitions are also recommended to strengthen underwriting. Overall it advocates going "back to basics" in commercial lending to build a robust credit culture and prevent future crises.
Risk Rating Improvements for the ALLL in Banks and Credit UnionsLibby Bierman
Risk Ratings will play a pivotal role under CECL at banks and credit unions. In this presentation, find out how to improve risk rating systems, including PD/LGD or Probability of Default as well as internal matrices.
The failure of credit ratings agencies to accurately rate structured financial products like mortgage-backed securities and collateralized debt obligations contributed significantly to the 2008 financial crisis. While some reforms have been implemented, the ratings process remains opaque and problematic. This paper proposes establishing a single, public numerical scale for rating structured credits as a better way to standardize risk measures, increase transparency, and empower investors to evaluate risk more accurately. Such a benchmark scale, treated as a public good, should be developed and supported by a federal financial regulator.
Investment Banker - Issues and Considerations January PLI - 1-10-17Kevin Miller
This document discusses issues related to financial analyses underlying fairness opinions. It provides an overview of common analyses such as discounted cash flow, selected companies, and selected transactions. It notes that the purpose of a "football field" summary is to concisely outline key financial analyses for a fairness opinion in an easy to understand format. The document also discusses considerations in selecting methodologies, assumptions, and inputs for analyses and how different analyses have unique strengths and limitations given a company's specific facts and circumstances.
Almost all crisis go through three phases, while an organization deals with them by analyzing, responding, helping in the recovery, and moving beyond by helping the business thrive in new normal conditions. Every business’s long-term goal while or after dealing with a crisis is to maintain the continuity of its operations. Therefore, resilience is the key factor towards building a strategic way of monitoring the progress of an organizations’ crisis management framework. A command center is a central hub for a business in the path ahead to either return to pre-crisis work conditions or adopt a more innovative organizational structure.
The document discusses how regulatory changes since the Great Recession have impacted the credit risk assessment process in equipment financing. It interviews three credit managers who say that while fundamental underwriting processes haven't changed, there is now a greater focus on regulatory compliance, more robust risk frameworks, adjusting to client needs, and managing shared risk between credit and business lines. They also discuss managing competitive pressures by selectively adjusting pricing and terms, as well as ensuring younger credit managers can assess long-term risks despite not having lived through previous economic downturns themselves.
This presentation provides an overview of PrecisionLender and its commercial loan pricing and portfolio management solution. PrecisionLender helps relationship managers win deals, deepen client relationships, and build their personal brand by quickly crafting customized loan solutions. The presentation demonstrates PrecisionLender's capabilities, discusses its implementation process, and outlines how it provides quantitative and qualitative benefits across the deal lifecycle from new business development to ongoing portfolio management. PrecisionLender has been implemented in over 200 banks to empower relationship managers and drive profitable revenue growth.
While most advisors agree clients should not be left in the dark about compensation, some advisors are uncomfortable discussing fees. However, transparency around compensation is important for building trust with clients. Advisors use a variety of compensation models including fee-based (percentage of assets), fee-for-service (flat or hourly fees), and commission (paid through product sales). Regardless of the model, the most important thing is demonstrating the value clients receive justifies the cost. Formal agreements outlining services, compensation, and responsibilities help manage client expectations.
Did you know that 45,000 businesses in the United States fail each month? And that 44 percent of small businesses used credit cards as a source of financing in 2008, compared to 16 percent in 1993, according to the Small Business Administration? Learn how to take a proactive approach to managing your debt and creating cash flow with out borrowing money. Join the National Restaurant Association, Nation's Restaurant News and SettleSource, Inc. for this free one-hour event. Learn more at http://bit.ly/dqfzkI .
How banks make lending decisions...
How to manage the banking relationship...
Renewing your relationship...
Financial projections drive your banking
relationship...
Other lenders or sources of money...
Glossary of banking terms...
This paper was presented at the Future of SMEs Banking Conference organised by Business a.m on 27th November, 2019 in Lagos. For SMEs to be able to play the role of engine of growth, Banks and other financial services provider need to be creative in managing funding and credit risks.
This document discusses what banks look for when determining whether a small-to-medium enterprise (SME) is "bankable" for loans. It outlines the 5 C's of credit that banks evaluate: Character, Capacity, Capital, Collateral, and Conditions. SMEs need to demonstrate their willingness, capacity, risk management practices, and financial stability to satisfy these criteria. The document provides tips for SME owners to prepare documentation like financial statements and business plans for initial bank meetings to discuss cash flow-based or scorecard-based lending options.
Business strategy and sustainability of microfinance institutions in ghanaAlexander Decker
This document summarizes a study on business strategies and sustainability of microfinance institutions in Ghana. It discusses six factors examined in the study: effective screening mechanisms, enforcing group collateral, regular client meetings, minimizing default rates, intensifying peer monitoring, and financial product innovation.
The study used both qualitative interviews and a quantitative survey of microfinance institutions. It found that most institutions employed screening mechanisms like background checks. Group collateral was the most common type of collateral used. Institutions also held regular weekly meetings with clients to monitor loans. The study revealed that all six factors examined were significant to the sustainability of microfinance institutions in Ghana.
The document discusses research into debt recovery practices in the UK. It finds that over 60% of UK adults have experienced debt recovery procedures. The reasons for debt are often not due to affordability issues alone, and include factors like forgetfulness and protest over inaccurate bills. Retailers are seen as using best practices like friendly staff and payment options, while energy companies, local authorities, and credit card companies often use poor practices like aggressive tactics. Getting debt recovery right can improve customer loyalty and promptness of future payments, while poor practices may cause customers to switch or delay payments in retaliation.
Credit rating agencies played a pivotal role in the subprime crisis by assigning too favorable ratings to subprime mortgage-backed securities. Their business model of being paid by issuers created conflicts of interest, as they had incentives to give high ratings to win business. Regulators have since implemented new rules requiring more transparency and restrictions on conflicts, but critics argue the changes do not go far enough to ensure accurate ratings or reduce reliance on the agencies. Investors and the agencies themselves also need to be cautious of potential biases from the current system.
Banks are increasingly devoting large resources to compliance which is hurting innovation and the customer experience. Compliance departments are growing while other areas are constrained, and the product approval process has become lengthy and cumbersome. Senior management is often afraid to push back on compliance for fear of regulatory issues. Banks need to rigorously question new compliance requirements and priorities to balance compliance needs with serving customers.
Commercial banks are reviewing their organizations to improve client experience, productivity, and regulatory compliance. One challenge is role confusion, where roles and responsibilities are loosely matched to frameworks for origination and underwriting. Relationship managers in particular spend too much time on tasks and not enough on business development. Clarifying roles is important but challenging due to longstanding practices and knowledge workers' preferences. Banks can address this by developing a target operating model, realigning roles between knowledge workers and service workers, streamlining management layers, and changing performance and career development programs to support new roles.
A slide deck from GBRW covering the key principles of problem loan management, based on GBRW's extensive experience with Non-Performing Loan (NPL) management, restructuring and work-out assignments.
Member Business Lending: Growth and Risk ManagementLibby Bierman
Sageworks and Ancin Cooley, founder and principal of Synergy Credit Union Consulting, presented a webinar (access recording http://web.sageworks.com/risk-in-mbl-cooley/) reviewing how credit unions can develop and grow member business lending programs for their commercial members. Review to find out the risks inherent in MBL as well as benefits to this concentration.
The document discusses how lax lending standards during the 2007-2008 financial crisis contributed to its occurrence, and argues that a return to basic asset-based lending principles is needed. It outlines the basics of commercial lending such as understanding customers, risks, repayment ability, and using the five "C"s of credit analysis - character, capacity, capital, conditions, and collateral. Covenants and scrutinizing add-on acquisitions are also recommended to strengthen underwriting. Overall it advocates going "back to basics" in commercial lending to build a robust credit culture and prevent future crises.
Risk Rating Improvements for the ALLL in Banks and Credit UnionsLibby Bierman
Risk Ratings will play a pivotal role under CECL at banks and credit unions. In this presentation, find out how to improve risk rating systems, including PD/LGD or Probability of Default as well as internal matrices.
The failure of credit ratings agencies to accurately rate structured financial products like mortgage-backed securities and collateralized debt obligations contributed significantly to the 2008 financial crisis. While some reforms have been implemented, the ratings process remains opaque and problematic. This paper proposes establishing a single, public numerical scale for rating structured credits as a better way to standardize risk measures, increase transparency, and empower investors to evaluate risk more accurately. Such a benchmark scale, treated as a public good, should be developed and supported by a federal financial regulator.
Investment Banker - Issues and Considerations January PLI - 1-10-17Kevin Miller
This document discusses issues related to financial analyses underlying fairness opinions. It provides an overview of common analyses such as discounted cash flow, selected companies, and selected transactions. It notes that the purpose of a "football field" summary is to concisely outline key financial analyses for a fairness opinion in an easy to understand format. The document also discusses considerations in selecting methodologies, assumptions, and inputs for analyses and how different analyses have unique strengths and limitations given a company's specific facts and circumstances.
Almost all crisis go through three phases, while an organization deals with them by analyzing, responding, helping in the recovery, and moving beyond by helping the business thrive in new normal conditions. Every business’s long-term goal while or after dealing with a crisis is to maintain the continuity of its operations. Therefore, resilience is the key factor towards building a strategic way of monitoring the progress of an organizations’ crisis management framework. A command center is a central hub for a business in the path ahead to either return to pre-crisis work conditions or adopt a more innovative organizational structure.
The document discusses how regulatory changes since the Great Recession have impacted the credit risk assessment process in equipment financing. It interviews three credit managers who say that while fundamental underwriting processes haven't changed, there is now a greater focus on regulatory compliance, more robust risk frameworks, adjusting to client needs, and managing shared risk between credit and business lines. They also discuss managing competitive pressures by selectively adjusting pricing and terms, as well as ensuring younger credit managers can assess long-term risks despite not having lived through previous economic downturns themselves.
This presentation provides an overview of PrecisionLender and its commercial loan pricing and portfolio management solution. PrecisionLender helps relationship managers win deals, deepen client relationships, and build their personal brand by quickly crafting customized loan solutions. The presentation demonstrates PrecisionLender's capabilities, discusses its implementation process, and outlines how it provides quantitative and qualitative benefits across the deal lifecycle from new business development to ongoing portfolio management. PrecisionLender has been implemented in over 200 banks to empower relationship managers and drive profitable revenue growth.
While most advisors agree clients should not be left in the dark about compensation, some advisors are uncomfortable discussing fees. However, transparency around compensation is important for building trust with clients. Advisors use a variety of compensation models including fee-based (percentage of assets), fee-for-service (flat or hourly fees), and commission (paid through product sales). Regardless of the model, the most important thing is demonstrating the value clients receive justifies the cost. Formal agreements outlining services, compensation, and responsibilities help manage client expectations.
Did you know that 45,000 businesses in the United States fail each month? And that 44 percent of small businesses used credit cards as a source of financing in 2008, compared to 16 percent in 1993, according to the Small Business Administration? Learn how to take a proactive approach to managing your debt and creating cash flow with out borrowing money. Join the National Restaurant Association, Nation's Restaurant News and SettleSource, Inc. for this free one-hour event. Learn more at http://bit.ly/dqfzkI .
How banks make lending decisions...
How to manage the banking relationship...
Renewing your relationship...
Financial projections drive your banking
relationship...
Other lenders or sources of money...
Glossary of banking terms...
This paper was presented at the Future of SMEs Banking Conference organised by Business a.m on 27th November, 2019 in Lagos. For SMEs to be able to play the role of engine of growth, Banks and other financial services provider need to be creative in managing funding and credit risks.
This document discusses what banks look for when determining whether a small-to-medium enterprise (SME) is "bankable" for loans. It outlines the 5 C's of credit that banks evaluate: Character, Capacity, Capital, Collateral, and Conditions. SMEs need to demonstrate their willingness, capacity, risk management practices, and financial stability to satisfy these criteria. The document provides tips for SME owners to prepare documentation like financial statements and business plans for initial bank meetings to discuss cash flow-based or scorecard-based lending options.
Business strategy and sustainability of microfinance institutions in ghanaAlexander Decker
This document summarizes a study on business strategies and sustainability of microfinance institutions in Ghana. It discusses six factors examined in the study: effective screening mechanisms, enforcing group collateral, regular client meetings, minimizing default rates, intensifying peer monitoring, and financial product innovation.
The study used both qualitative interviews and a quantitative survey of microfinance institutions. It found that most institutions employed screening mechanisms like background checks. Group collateral was the most common type of collateral used. Institutions also held regular weekly meetings with clients to monitor loans. The study revealed that all six factors examined were significant to the sustainability of microfinance institutions in Ghana.
The document discusses research into debt recovery practices in the UK. It finds that over 60% of UK adults have experienced debt recovery procedures. The reasons for debt are often not due to affordability issues alone, and include factors like forgetfulness and protest over inaccurate bills. Retailers are seen as using best practices like friendly staff and payment options, while energy companies, local authorities, and credit card companies often use poor practices like aggressive tactics. Getting debt recovery right can improve customer loyalty and promptness of future payments, while poor practices may cause customers to switch or delay payments in retaliation.
Credit rating agencies played a pivotal role in the subprime crisis by assigning too favorable ratings to subprime mortgage-backed securities. Their business model of being paid by issuers created conflicts of interest, as they had incentives to give high ratings to win business. Regulators have since implemented new rules requiring more transparency and restrictions on conflicts, but critics argue the changes do not go far enough to ensure accurate ratings or reduce reliance on the agencies. Investors and the agencies themselves also need to be cautious of potential biases from the current system.
Banks are increasingly devoting large resources to compliance which is hurting innovation and the customer experience. Compliance departments are growing while other areas are constrained, and the product approval process has become lengthy and cumbersome. Senior management is often afraid to push back on compliance for fear of regulatory issues. Banks need to rigorously question new compliance requirements and priorities to balance compliance needs with serving customers.
Commercial banks are reviewing their organizations to improve client experience, productivity, and regulatory compliance. One challenge is role confusion, where roles and responsibilities are loosely matched to frameworks for origination and underwriting. Relationship managers in particular spend too much time on tasks and not enough on business development. Clarifying roles is important but challenging due to longstanding practices and knowledge workers' preferences. Banks can address this by developing a target operating model, realigning roles between knowledge workers and service workers, streamlining management layers, and changing performance and career development programs to support new roles.
A slide deck from GBRW covering the key principles of problem loan management, based on GBRW's extensive experience with Non-Performing Loan (NPL) management, restructuring and work-out assignments.
Commercial lenders face complexity challenges due to varied customer needs, product management requirements, and regulations. Past efforts to streamline such as focusing on relationship manager processes, Lean programs, and new technology platforms have often failed to improve the overall workflow. To address this, many banks need to establish a target operating model through an end-to-end review of lending operations to define key processes, roles, and appropriate technology use. This provides a roadmap to improve processes, customer responsiveness, and organizational efficiency.
Countering the opportunity loss of trillions of cash lying unused with banksRNayak3
This document discusses how banks have large amounts of idle cash due to reduced lending during the economic downturn. It proposes that banks could reduce opportunity costs by re-evaluating lending processes and policies to identify more creditworthy borrowers. However, doing so poses challenges such as locating borrowers that meet bank requirements and criteria. The document outlines initiatives banks could take such as amending credit policies, boosting sales and relationship management functions, and restructuring processes and infrastructure with the help of outsourcing partners.
Countering the opportunity loss of trillions of cash lying unused with banksRNayak3
This document discusses how banks have large amounts of idle cash due to reduced lending during the economic downturn. It proposes that banks could reduce opportunity costs by re-evaluating lending processes and policies to identify more creditworthy borrowers. However, doing so poses challenges such as locating borrowers that meet bank requirements and criteria. The document outlines initiatives banks could take such as amending credit policies, boosting sales and relationship management functions, and restructuring processes and infrastructure with the help of outsourcing partners.
Bank Liquidity Management: Strategies to Optimize Excess LiquidityRNayak3
Discover innovative bank liquidity management strategies to leverage trillions in unused cash. Learn how to optimize cash flow and enhance financial efficiency.
Reengineering the credit profession has become a major focus in the 1990s, as credit departments are called to modernize their practices. However, reengineering efforts must be implemented carefully to avoid losing the essential balance and risk evaluation that credit professionals provide. While tools like credit decision models, auto-cash applications, and document imaging can increase efficiency, they are not a replacement for experienced credit managers. TQM and business schools have also led some companies to misuse reengineering by eliminating credit experts, despite their importance to healthy organizations. For the credit profession to thrive, efforts must focus on research, education, and credentials to develop the next generation of professionals.
Study on credit risk management of SBI CochiSreelakshmi_S
1. The document discusses credit risk management practices at SBI Kochi from 2013-2014. It provides background on credit risk and outlines key aspects of effective credit risk management like establishing appropriate risk environment, credit risk assessment, and portfolio management.
2. The theoretical background section defines terms like credit, risk, market risk, operational risk, and credit risk. It also discusses contributors to credit risk and key elements of credit risk management.
3. The document discusses credit rating and its use in credit decision making. It provides details on the rating tool used by SBI for assessing creditworthiness of borrowers, especially Small and Medium Enterprises.
This document provides an overview of the credit process at banks, outlining the key components and objectives. It discusses the importance of thoroughly analyzing the creditworthiness of borrowers by evaluating their industry, financial condition, management quality, and security. The credit initiation and analysis process is described as beginning with screening prospective customers, collecting data, analyzing risks, and structuring proposed credit facilities to minimize losses while maximizing profit. Key factors to consider include industry dynamics, the borrower's financial statements, management competence and reputation, and collateral liquidation value. A strong credit process focuses on understanding these credit foundations to determine repayment ability and risk.
An Analysis of Factors Influencing Customer Creditworthiness in the Banking S...Dr. Amarjeet Singh
This research is based on Bahraini bankers’ perception on the factors influencing customer creditworthiness in the banking sector of Kingdom of Bahrain. We consider that the research was done in the Kingdom of Bahrain which has a growing banking industry. To enhance the whole procedure of the creditworthiness, it is vital for an employer to understand the most important factors influencing customer creditworthiness. The purpose of the study was to investigate the factors influencing customers creditworthiness in the banking industry. The creditworthiness can be assessed through qualitative factors, quantitative factors and risk factors. The research was conducted through a survey, using the questionnaire as the research instrument. The respondents of the study are employees of banks across the Kingdom dealing with creditworthiness. The statistical tools used in the study are Multiple Regression Analyses and weighted mean. The researcher has found that there is significant relationship between all three factors and creditworthiness, and they don’t equally influence the creditworthiness. The research provides recommendations to banks in assessing the creditworthiness. The researcher recommended that employees must use the most effective methods such as credit scoring to conduct the analysis of creditworthiness in order to make effective decisions. Moreover, the researcher recommended that analysts should take into considerations the most effective factors in the analysis process and they must not neglect other.
The document discusses working capital management of receivables. It states that firms offer credit to customers to boost sales, tying up funds in receivables. The objectives of receivables management are to optimize returns on this investment. It involves determining credit policies like credit standards, terms and collection efforts to balance sales and costs of carrying debtors. Techniques discussed include credit analysis, controlling receivables, financing options like pledging and factoring receivables, and tools like reengineering receivables processes, technology, credit scoring and collection policies.
Term Paper on Evaluation of Credit Assessment & Risk Grading Management Of ...Janibul Haque
The document appears to be a term paper evaluating the credit assessment and risk grading management of Dutch Bangla Bank Ltd. It includes an introduction, statement of the problem, purpose of the study, objectives of the study, and literature review. The methodology section describes using questionnaires with bank employees and collecting both primary and secondary data. Limitations included confidentiality concerns and time constraints. Qualitative analysis found most officers cited Credit Rating Agency of Bangladesh as the credit rating agency used and that factory visits are usually conducted before loan approval.
Accounts receivable and inventory managementluburtusi
This document discusses key aspects of accounts receivable management, credit analysis, and inventory control. It addresses setting credit policies, analyzing credit applicants, managing the billing and collection process, and following up on overdue accounts. It also outlines the five C's model for credit analysis - character, capacity, capital, collateral, and conditions. Finally, it discusses techniques for inventory control like ABC analysis, economic order quantity models, reorder points, and just-in-time systems. Effective accounts receivable and inventory management requires cooperation across sales, finance, accounting, and other functions.
Benefits-of-Financial-Technology-for-Banks_RMA Jan 2017Max Zahner
This document summarizes how community banks can use technology to successfully compete in commercial and industrial lending. It discusses that C&I lending can provide higher returns than other types of lending but is difficult for banks to do well due to the complex underwriting and loan administration processes required. It then describes how adopting new technology can streamline these processes, reducing the time and costs to underwrite loans and conduct loan reviews. This allows community banks to profitably lend to smaller businesses and increase their return on equity through expanding their C&I lending business.
Collateral Management and Market Developments - WhitepaperNIIT Technologies
1) Collateral management has become increasingly important for financial institutions due to market developments like increased collateral circulation and new regulations requiring more collateral. It is no longer a back office function but a major challenge.
should build or buy systems that can integrate with existing
2) Key features of collateral management include bi-party agreements between two parties, tri-party agreements involving a third party custodian, collateral trading and re-hypothecation, and repurchase (repo) agreements.
infrastructure and provide a centralized view of collateral across
3) Best practices for financial institutions include regularly revaluing collateral, maintaining relationships with key clients, performing regular portfolio reconciliations, considering outsourcing collateral
This document summarizes a research study that assessed the effect of client appraisal on the efficiency of microfinance banks in Adamawa State, Nigeria. The study found that client appraisal, which involves evaluating customers based on factors like character, capacity, collateral, capital, and condition, has a positive effect on the efficiency and productivity of microfinance banks. Specifically, effective client appraisal allows microfinance banks to better understand customer creditworthiness, minimize loan defaults and losses, and improve overall financial performance. The study concluded that client appraisal is an important part of effective credit management that can help microfinance banks operate efficiently and profitably.
This document discusses various types of risks faced by banks, including credit risk, market risk, operational risk, liquidity risk, and reputation risk. It provides definitions of different risk types such as credit risk, concentration risk, and interest rate risk. The document also covers topics like the importance of credit risk management, factors to consider in credit risk analysis, and modern approaches to assessing and managing credit risk in the banking industry.
This document discusses analyzing the relationship between underwriting techniques used by two credit managers at a mortgage company. It will examine if loans underwritten by one credit manager contain more conditions than the other, and if loans with higher credit grades or lower loan-to-value ratios receive fewer conditions. The analysis will involve comparing quantitative variables like credit grade, loan-to-value ratio, and number of conditions against each other using charts. It aims to determine if risk-based underwriting is consistently applied, or if one credit manager applies conditions inconsistently with risk levels.
I do not have any previous experience of submitting any theory to any esteemed Institutions/organizations like yours. I have developed this frame work of theory of a role of a credit controller on my own. This was developed keeping in mind the problem faced by when Budget rent a car(MNC) has given me a chance to role myself in this category. At that time I could not find any such theoretical paper which will guide me properly. So after gaining experience over 4 years coupled with my previous experience of 16 years of service I have developed this theory. Still there are many pages to come but I want to taste myself whether this work of mine is acceptable to professionals. I have also published a blog the link of which is given below to bring this work before all.
1) http://roleofcreditcontroller.blogspot.com/2011/10/frame-work-of-role-of-credit-controller.html
Credit management involves qualifying customers for credit, monitoring payments, collecting outstanding invoices, and resolving disputes. It begins with assessing customer creditworthiness by evaluating financial condition and setting credit limits. Several factors are considered such as financial condition, credit score, and current obligations. Competent credit management also protects customers from excessive debt. After establishing limits, accurate invoices must be sent with reasonable payment periods to allow for review and resolution of any issues. Efficient credit management benefits all parties by providing assurance that invoices will be paid and allowing customers to build strong credit references.
1. 1March 2015
BY MICHAEL RICE, CHEVY MARCHOSKY AND DAVID ZWICKL
For better coordination between the origination and credit risk management teams,
banks need to adopt an event-driven management approach for underwriting.
A perennial issue in commercial lending is that the under-
writing process seems to defy attempts at systematization.
Inevitably, it seems, contingencies get the best of procedure
in a complex business that depends on fast-paced negotia-
tions between clients, relationship managers and internal
decision-makers. Can the chaos be tamed?
Urgency is rising to address the issue. Commercial banks
are essentially running in place right now, with loan growth
being undercut by shrinking margins. As of the fourth quarter
of 2014, commercial loan spreads had fallen by 100 basis
points from their post-recession peak. There is a pressing
need to streamline the customer experience to capture share
in an intense market. Taming internal complexity is essential
to progress.
Commercial banks also know they need to protect them-
selves by tightly managing credit standards and risk-adjusted
returns. The regulatory community is hammering on this issue
as well, insisting on a more cohesive and better-documented
process for credit origination and management. The Office
of the Comptroller of the Currency, for example, is circulat-
ing proposed guidelines for a risk governance framework
that requires banks to maintain “three lines of defense” that
directly apply to commercial lending, including front line
sales, credit risk management and internal audit.
Perhaps hitting closer to home for executive teams, pre-
cious time is being chewed up in endless micro-discussions
about deals. Managers are not managing a process. Rather,
contingencies are managing the managers. Sales productiv-
ity and customer responsiveness are compromised as atten-
tion is diverted to the details.
To cut through this mess, some banks are adopting
an event-driven management approach that introduces
standards and streamlining techniques for major aspects
of the underwriting decision-making process. These “credit
events” include formal and informal staff interactions in meet-
ings, reviews and conversations.
The goal is to clarify and expedite the major decision-
making categories in the commercial deal pipeline, includ-
ing portfolio fit, deal structure and deal approval. The
ongoing review process for outstanding loans and lines of
credit also needs to be cleaned up. Myriad contingencies
will continue because that is the nature of the business, but
an effective decision framework can make a big difference
in dealing with the crush (Figure 1: Balancing the Workload
for Credit Approval).
FRACTURED PROCESSES
Each commercial banking team will have its own set of war
stories about fractured underwriting decision-making pro-
cesses, but here are two disguised examples that speak to
common challenges across the industry:
Deal proposal. In one instance, a seasoned commercial
banker independently advanced a client conversation to the
deal proposal stage, going so far as to work up a full loan
presentation. The banker put his skills to work in structuring
proposed deal terms of mutual benefit to the client and the
bank, assuming that the energy sector credit likely would
meet the institution’s portfolio criteria (at least based on
career experience).
The banker was crushed, however, when the deal was
shot down during the first conversation with a senior leader
in the credit organization. Though the proposal was solid, the
banker had proceeded unaware that the bank had already
reached its self-imposed portfolio limit on energy sector
Managing Credit Events for
Commercial Performance Improvement
Asseen
in
the
2. 2March 2015
concentration. The credit officer was disappointed to see the
fruitless investment of time, and meanwhile the banker was
blindsided by the portfolio constraint and embarrassed in
front of the prospective client.
Viewing the incident in terms of credit events, the prob-
lem began with poor management communication on port-
folio fit, which left the banker to over-rely on word-of-mouth
information and personal experience. Even after the failure
to proactively convey screening criteria, there still should
have been a process-related safety net in the form of rou-
tine early banker communication with the credit team. With
the benefit of an early conversation, the banker could have
tabled the deal and moved on to other things.
From the regulatory perspective, incidents such as this
highlight the need for front-line sales teams to “own the risks
associated with their activities” and act as a strong first line
of defense. Bankers are understandably focused on growing
portfolios to meet performance objectives but must become
more cognizant of managing the risk profile of the line of
business as well. The early involvement of credit risk man-
agement is crucial in heading off deals that fall outside the
credit parameters of the institution.
Credit approval. At another bank, an overloaded senior
executive decided to review her meeting calendar to under-
stand where her time was going. It quickly became apparent
that her office had become a lobbying destination for bankers
wanting to pre-sell their individual deals before presentation
to the credit committee. She asked around and heard similar
stories from other members of the management team.
The upshot was that the formal credit committee meet-
ing had largely become a rubber stamp exercise, with most
discussion occurring beforehand in office-to-office side meet-
ings. Bankers were tending to shop their loan presentations
with direct managers and every single member of the credit
committee as well — an enormous diversion of time, both for
management and for banking officers.
Figure 1: Balancing the Workload for Credit Approval
The credit committee is often over-burdened in the evaluation of commercial deals in progress and subject to
intense personal lobbying. A more balanced staff involvement is needed going forward (illustration).
Source: Novantas, Inc.
Managing Credit Events for Commercial Performance Improvement
42%
% OF DEAL VOLUME
CREDIT COMMITTEE LESS BURDENED
Breakout of Activity Relative to Total Management Time Devoted to Credit Approval
TODAY FUTURE
CHIEF CREDIT OFFICERS MORE FOCUSED ON EXPOSURE
SENIOR & LINE CREDIT OFFICERS FAR MORE INVOLVED
LOB OFFICERS SOMEWHAT LESS INVOLVED
% OF DEAL VOLUME
% OF DEAL VOLUME % OF DEAL VOLUME
% OF DOLLAR VOLUME % OF DOLLAR VOLUME
% OF DOLLAR VOLUME % OF DOLLAR VOLUME
11%
25%
8%
79%
9%
56%
14%
12%
35%
38%
29%
8%
4%
28%
2%
3. 3March 2015
Viewing the incident in terms of credit events, the core
issue was that the commercial bank’s credit approval process
was ill-defined. Absent a clear and consistent procedure,
relationship managers fell back on the obvious, which was
promoting their individual projects. Amid the disorder, efforts
to systematically balance risk and client responsiveness were
being compromised.
Again from the regulatory perspective, the situation
speaks to the second line of defense — independent risk man-
agement. Splintered talks and deal “pre-selling” can detract
from objective evaluation. In fact, regulators questioned
this institution, wondering why nearly all deals reviewed by
credit committee were ultimately approved.
Along with objectivity in risk evaluation, structured credit
events help to support transparency in decision-making, so
that both regulators and front-line bankers can see consistent,
understandable patterns in deal acceptance and rejection.
This helps to maintain rapport with the sales team through
the ups and downs of credit evaluation.
CREDIT EVENT FRAMEWORK
To properly organize the underwriting and credit manage-
ment process, it is necessary to carefully map out the major
types of events that drive it. This includes the people involved
in the decision-making chain; the right sequence of activities;
and the types of documentation required at various stages.
The logic may sound obvious. But the push from the origi-
nation side is so strong that deal preparations often reach an
advanced state before the credit risk management team is
brought into the loop. The answer is to reorient the workflow
along four dimensions — fit, structure, approval and review
— specifying the collaboration between the origination and
credit teams that will be needed at each stage (Figure 2:
Credit Event Framework).
Fit. An early review of portfolio fit allows the team to get
a collective jump start on promising deals while minimizing
wasted effort on proposals that are “outside the strike zone.”
The discovery starts with client financial statements, basic
company information, industry data and preliminary spread
estimates supplied by a credit analyst.
In a discussion of portfolio fit, the relationship manager
will typically review the client’s qualitative and financial pro-
file, going from there to sketch out a preliminary deal struc-
ture with the direct manager. The focus is on making a yes/
no determination of whether to proceed in developing a term
sheet. Senior leaders are brought in as needed depending
on the client or deal magnitude.
Structure. With a go-ahead on the basis of fit, structure-
related questions begin with a fuller review of client needs and
preferences, plus a collective evaluation of how the working
proposal aligns with the bank’s credit criteria. The objective
in this phase is to craft a balanced term sheet that will meet
Figure 2: Credit Event Framework
A robust credit event framework for commercial lending specifies the collaboration between the origination
and credit teams that will be needed at each stage.
Source: Novantas, Inc.
Managing Credit Events for Commercial Performance Improvement
FIT STRUCTURE APPROVAL REVIEW
Preliminary joint
evaluation of deal
suitability relative to
portfolio standards
and objectives
Joint formal review
of client profile,
needs and potential
risk-adjusted
returns, leading to
creation of initial
term sheet
Business Unit
Signature
Approval
Credit
Committee
Review
Credit
Signature
Approval
Quarterly and
annual reviews of
outstanding loans
and lines of credit,
including updated
client information
and reassessment
of risk
4. 4March 2015
hurdle rates of return, protect the bank from downside risk and
win internal approval, ready for delivery to the client.
Approval. The preliminary approval meeting includes the
relationship manager, senior bankers and credit staff, and
it culminates in the release of the term sheet to the client.
Upon client approval, a formal internal loan presentation is
prepared. The formal approval meeting includes a deeper
evaluation of the company’s financial condition and under-
writing considerations. Once the credit terms are finalized,
the client is notified and legal documentation commences.
Review. The credit team continues its involvement with
outstanding loans and lines of credit via periodic reviews,
either quarterly or annually depending on the type of facility.
Updated client financial information typically is required for
these meetings, and risk factors are recalculated to ensure a
continuing fit within the original credit terms. The review pro-
cess also extends to renewals, although the level of required
effort typically is lower since the institution already has com-
plete customer information.
Again from a regulatory perspective, periodic reviews
can accomplish many of the best practices prescribed for the
third line of defense, even though they are not conducted by
an internal audit group. Once a uniform review structure is
in place, the internal audit group can monitor the process,
helping to quickly identify and mitigate risk. A robust review
process also encourages strong data governance, given
requirements to update customer financial data and risk pro-
files at regular intervals.
Across all of the credit event dimensions — fit, structure,
approval and review — each of the three regulatory lines of
defense must work in tandem to balance the return on the
portfolio with the credit risk appetite of the institution. Left
untended, weak governance practices will inevitably lead to
lapses in credit risk management, with potentially severe con-
sequences, both regulatory and financial.
HAPPY MEDIUM
While credit events need to be well-defined, this does not
imply an underwriting straightjacket, as both RMs and
the credit staff need flexibility in responding to the unique
requirements of each transaction.
Banks tend to veer to the extreme, either imposing a restric-
tive, one-size-fits-all process or having little apparent structure
at all. The key is to find a happy medium, tailoring process
and documentation standards for major deal types, sizes and
lines of business, supported by a general framework.
Well-structured credit events provide three main benefits:
Improved customer experience. Promising opportunities
can all too easily evaporate in the face of long cycle times,
miscommunication on key aspects of a negotiation, or unsat-
isfactory dealings with individual bankers. Structured events
provide a common foundation for the origination and credit
teams, permitting deal creativity and quick responsiveness
while protecting underwriting standards.
Risk/growth balance. Structured credit events facilitate
the proactive co-involvement of the origination and under-
writing teams. Often today, growth is emphasized at the
expense of the formal review process. In the future the two
factors must be much better balanced, with credit risk screen-
ing providing a more timely and effective line of defense.
Regulatory compliance. Commercial banks are expe-
riencing new levels of regulatory scrutiny and compliance
pressure, as reflected in the OCC’s three lines of defense
and in stress-testing prescribed by the Fed’s Comprehensive
Capital Analysis and Review (CCAR) and the Dodd-Frank
Act Stress Test (DFAST). Strong data management is critical in
compiling the more lengthy internal data series, generating
more the more detailed credit loss analytics, and drafting the
more thorough documentation that regulators are requiring.
Credit events provide an audit trail for each transaction
and assure data capture by specifying required inputs and
outputs at each stage in the process. They also provide a
new level of process transparency, valuable for executive
management, business line management, risk management,
compliance, audit and financial management.
QUEST FOR CLARITY
There is no single solution for implementing efficient and
effective credit events. Organizational styles differ, for
example, with some institutions placing a heavy emphasis
on credit committee approval, and others using signature
approval for the vast majority of loans. Each bank will need
to clarify the processes that will best support its preferred
approach, and then follow through with a determined effort
to instill the appropriate credit event standards into the origi-
nation and underwriting workflow.
One requirement is constant across banks, however,
which is that the framework for credit events needs to be well-
defined. This is essential in streamlining origination, under-
writing and portfolio management processes for improved
customer responsiveness in an intense market; protecting the
risk profile; and meeting regulatory expectations.
Michael Rice is a Managing Director, Chevy Marchosky is a
Principal and David Zwickl is a Manager in the Chicago office of
Novantas Inc. They can be reached at mrice@novantas.com,
cmarchosky@novantas.com and dzwickl@novantas.com.
Managing Credit Events for Commercial Performance Improvement