Credit Risk may arise at the level of a loan or of a portfolio.
The following factors may cause the arising of credits risks at the level of individual loans:
- Lack of funds of the borrower for the repayment of the loan and for making payments under the credit facility
- Security liquidity risk
- Failure of sureties to comply with their obligations
- Personal features applicable upon a borrower.
The following factors may cause the arising of credits risks at the level of a loans portfolio:
- High concentration in respect of any specific field of economy
- Portfolio’s currency concentration
- Failure of the loan portfolio to correspond to the requirements of the bank
- Personnel’s qualifications.
Management of credit risks includes the following stages:
- Evaluation of a credit risk;
- Monitoring of a credit risk;
- Regulation of a credit risk.
The following methods may be conducive to achieving the goals and purposes of the management of credit risks:
- Thresholds system (limits);
- Authorities and decision making system;
- Information system;
- Monitoring system;
- Control system.