Principles for the Management of Credit Risk
While financial institutions and manufacturing organizations have faced difficulties over the years for a multitude of reasons, the major cause of serious banking and manufacturing organisations problems continues to be directly related to lax credit standards for borrowers and counterparties, poor portfolio risk management, or a lack of attention to changes in economic or other circumstances that can lead to a deterioration in the credit standing of a counterparty.
Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms. Banks and manufacturing organizations need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions. Organisations should also consider the relationships between credit risk and other risks. The effective management of credit risk is a critical component of a comprehensive approach to risk management and essential to the long-term success of any organisation.
For banks, loans are the largest and most obvious source of credit risk, while for manufacturing organizations, supplying goods on credit is the obvious source of credit risk; however, other sources of credit risk exist throughout the activities of a bank, including in the banking book and in the trading book, and both on and off the balance sheet. Banks are increasingly facing credit risk (or counterparty risk) in various financial instruments other than loans, including acceptances, interbank transactions, trade financing, foreign exchange transactions, financial futures, swaps, bonds, equities, options, and in the extension of commitments and guarantees, and the settlement of transactions.
Since exposure to credit risk continues to be the leading source of problems in organisations world-wide, banks and manufacturing organisations should be able to draw useful lessons from past experiences. Organisations should now have a keen awareness of the need to identify, measure, monitor and control credit risk as well as to determine that they hold adequate capital against these risks and that they are adequately compensated for risks incurred. Although the principles contained in this paper are most clearly applicable to the business of lending, they should be applied to all activities where credit risk is present.
The sound practices set out in this document specifically address the following areas: (i) establishing an appropriate credit risk environment; (ii) operating under a sound credit-granting process; (iii) maintaining an appropriate credit administration, measurement and monitoring process; and (iv) ensuring adequate controls over credit risk. Although specific credit risk management practices may differ among organisations depending upon the nature and complexity of their credit activities, a comprehensive credit risk management program produced by Mayakorp Nigeria limited will address these four areas.
Our organisation, Mayakorp Nigeria limited will help proffer solution to your credit risk by providing a solution called ANADEFI.ANADEFI is a solution for counterparty risk management, financial analysis and internal rating
ANADEFI Banks is the leading solution for counterparty risk management, financial analysis and internal rating, specifically conceived for banks and financial institutions. Thanks to ANADEFI Banks, a business decision support tool, you can obtain a comprehensive view of all your customers financing requests and deal with them in a faster and more reliable way than before through the automation of your financial analysis processes.
• It is a flexible tool, easy to implement, even for complex projects. It gives you the possibility to obtain traceable and qualified information, track it very closely, store it in a unique repository, realize efficient and reliable financial analysis, and make your internal rating systems evolve easily. Is fully compliant with Basel II and III
• Combines external, internal, financial and non-financial data into a single repository for counterparty rating and gives a better understanding of risk origination
• Standardizes financial analysis and counterparty rating practices within a centralized solution which is robust, flexible and scalable (multi industry, multi financial statements, etc.)
• Easily maintains rating models and reduces the time to market of the rating model validation to its implementation
• Automates financial analysis, rating and decision making processes and improves the collaboration between risks stakeholders
• Supports the decision making processes
ANADEFI Corporate Credit is a decision support solution and a financial analysis and internal rating tool adapted to all companies, whatever their size and their industry. Receivable managers can deal with their counterparty risks by generating a complete view of any credit application, by automating, among others, analysis, scoring, ranking of risks and the decision making. The solution can:
• Consolidate, store and historicize all information on internal and external customers, suppliers and competitors
• Assess solvency risks through the analysis and scoring of all your counterparties
• Manage and monitor overruns of credit limits, guarantee renewal, outstanding debts, customers and suppliers annual reviews
• Automate or support the decision making for outstanding debts
• Evaluate and compare payment behaviours, industry sectors, portfolios, groups of companies.
Omolade Omotayo
Risk Sales Specialist
Mayakorp Nigeria Limited
No 59 Airport Road, Ikeja, Lagos, Nigeria.
Mobile: 07034571143 Tel: +234-7090718300|Web:www.mayakorp.com