Best Practices in Credit Risk Management

The first step in effective credit risk management is to gain a complete understanding of a bank’s overall credit risk by viewing risk at the individual, customer and portfolio levels.

While banks strive for an integrated understanding of their risk profiles, much information is often scattered among business units. Without a thorough risk assessment, banks have no way of knowing if capital reserves accurately reflect risks or if loan loss reserves adequately cover potential short-term credit losses. Vulnerable banks are targets for close scrutiny by regulators and investors, as well as debilitating losses.

The key to reducing loan losses – and ensuring that capital reserves appropriately reflect the risk profile – is to implement an integrated, quantitative credit risk solution. This solution should get banks up and running quickly with simple portfolio measures. It should also accommodate a path to more sophisticated credit risk management measures as needs evolve. The solution should include:

·       Better model management that spans the entire modeling life cycle.

·       Real-time scoring and limits monitoring.

·       Robust stress-testing capabilities.

·       Data visualization capabilities and business intelligence tools that get important information into the hands of those who need it, when they need it.