Maintenance and improvement of credit risk management practices by banks and lenders have become a top priority. Let us share with you some tips to improve lender's insights into credit risk and take appropriate measures to maximise the risk/return profile.
How efficient is your collection and monitoring of covenants?
1. Review and monitor covenants
Covenants are conditions agreed to by the borrower as part of a loan term in commercial loans. If they are effectively monitored, it can provide lenders with an early warning of loan deterioration.
2. Have a regular update of customers report and key financial data
Having current data allows the lender to build better client relationships by having a better understanding of the clients' current state of affairs. The more timely the profit and loss and balance sheet information, the more likely ratio analysis can signal a deterioration of a company's financial performance.
3. Close monitoring of commercial loan portfolio through visual dashboards
Use visualisation of information in charts and pictures to better communicate trend and other information relating to arrears, LVR bands, geographic or industry concentration and large exposures.
4. Consider tracking loans that go into arrears on a regular basis for heightened oversight
Consider measures such as cumulative days in arrears over a longer time horizon of for example 12 months. Customers that go into arrears, clear the balance on a regular basis, may be at higher risk of a longer term default.
5. Watch this Video to learn about getting a better credit risk management