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Tag: credit risk analysis courses

How do financial institutions focus on strengthening the quality of loan portfolio while mitigating credit risk underwriting?

Posted on by Imarticus Learning

With the financial market changing and evolving with trends, the credit market has changed as well. The reason being more & more people are seeking credit from the lending market.

This increased graph of credit-sourcing has created an environment where competition among lenders has reached a fever pitch, with banks and other financial institutions fighting tooth and nail for market share.

But if you’re looking to get ahead of the pack, it pays to think outside the box. By developing a loan portfolio, you may have to include not just high-interest installment loans but also low-interest refinancing options.

In this blog post, we’ll take a deep dive into the world of portfolio analysis and credit risk.

What Is Credit Risk Underwriting? 

Credit risk underwriting is the process of building a credit profile for an individual to determine their creditworthiness. It can be considered as “due diligence” between lenders and potential borrowers.

Under this process, customer data such as employment history, income stability, and general suitability is reviewed to determine if individuals pose a default risk. However, it’s important to note that every lender has its criteria that individuals must meet to be accepted into an agreement.

Effective Ways financial institutions may use to strengthen the loan portfolio: 

A strong credit culture is an essential ingredient to the success of any bank. A loan portfolio with high-quality, low-risk loans provides stability for customers looking to invest in local businesses.

1. Cultivate a relationship with service providers: 

Learning about new lending opportunities and sharing them with your potential borrowers helps strengthen your relationship with accountants, attorneys, insurance agents, and other vendors.

Creating a good impact will help you on top of the mind of professionals, and whenever someone needs financial assistance, they can refer to you.

 2. Get regular updates from the line lenders: 

Managers are constantly on the lookout for updates from line lenders. They need to know what’s in their pipeline, how prospects are progressing, and other potential financing opportunities that might arise at any given time.

3. Update the prospects detail regularly: 

The prospect database should remain accurate and up-to-date. Contacting the right person will save your time, which means that their contact information becomes invaluable when it comes down to deciding who should receive your message most efficiently!

4. Review customer’s financial information: 

Expanding your reach by using customers’ financial data can help to identify their area of need. Following this, you may call the prospect with a solution that meets all those requirements or at least narrows them down for more focused marketing efforts.

Get More Insights into Loan Portfolio with Imarticus Learning: 

Imarticus Learning offers an in-depth understanding of credit risk and underwriting through their 145+ credit analyst course.

The credit risk analyst course mainly covers credit underwriting, credit administration, legal and regulatory requirement, and the impact of new-age technology.

 Our course USPs: 

What is the Primary Objective of Credit Risk in Banks?

Posted on by Imarticus Learning

Credit risk refers to the risk of failure of repayment of the principal and interest of the loan from the loan borrower to the lender. Whenever a borrower defaults on his/her payments of the loan there occurs an interruption in the cash flow to the lender. To compensate for the risk of the loss of payment, the lender uses the interest payment from the loan.

The credit risk analysis course helps the lenders evaluate the financial capability of the borrower to repay the loan so that the lender remains protected from the losses. Any borrower with high credit risk is charged a high rate of interest as compensation for the high risk of the payment default. There are 5C’s of credit that a lender must keep in mind while assessing the credit risk of the borrower. These factors include:

● Character
● Capital
● Capacity (to repay the credit)
● Collateral
● Conditions

A borrower is judged on these above-mentioned aspects to evaluate the probability of any payment default or subsequent financial loss. These 5C’s measure both quantitative and qualitative values. A lender may analyze various documents that include the borrower’s income proof, purchase history, credit reports, balance sheets, etc. for this purpose.

The primary objective of the analysis of credit risk is to reduce the default returns and maximize the returns. Loans are the chief money-making source of banks. However, when it lends credibility to a person or a business, there is always a risk associated with it for non-repayment or default in repayment. This can result in a bank suffering financial losses.

To mitigate this risk, the bank analyzes the probability of defaults and gives a score like a credit score rating. It can also use credit ratings calculated by other financial institutions like CRISIL, moody’s, etc. The higher the rating, the better it is for the borrower as it indicates a better capability of repayment and thus will result in lower interest rates. However, if the rating is low, it indicates greater chances of defaults leading to higher interest rates.

To safeguard themselves from the damage, every bank has a minimum required rating for the borrower to become eligible for a loan. In addition to this, banks also demand collateral from the borrower like property in case of a house loan, car in case of a car loan, etc. If the borrower fails to repay the loan, the bank has the right to sell the collateral and recover their money.

Credit Analysts use different kinds of financial techniques to measure credit risk. These techniques include ratio analysis, trend analysis, etc. These techniques help the banks measure the changing creditworthiness of the borrower and thus evaluate the potential of credit loss. Credit Analysts play an important role in banks by helping them analyze their loan borrowers and reduce the risk of defaults. They help save the money of the bank and in fact, increase it skillfully through identifying good loan borrowers.

A credit analyst career has a bright scope with a good pay scale. Anyone with a financial, accounting, or related degree or a credit risk course can become a credit analyst. There are various pathways in this role that one can take on with experience or further qualification advancements through a master’s degree or a certified credit risk course from a reputed institution.

A good credit risk professional should follow all the principles of credit risk management to be better perform the job and help banks make better decisions regarding the loan process.