Sunday 22 April 2018

Credit Risk Management Basics/Techniques-Part-1 - knowing borrower/ borrower evaluation


One of the core function of the Bank is lending and the function is called providing credit facilities to the client/borrower. This has involved risk of fulfillment of obligations by the counter party/borrower as per contact. Managing this sort of risk to the acceptable level, Credit Risk Management is essential. Presently, in Bangladesh every Bank has Credit Risk Management Division to mitigate credit risk. Processing the proposals of the borrower for the credit facilities for approval/decline is main function Credit Risk Management Division.

In the approval process one of the most important things to consider is borrower evaluation. Knowing the borrower itself is 1st steps of borrower evaluation. Credit Analyst should know followings of the borrower (proprietor/partners/directors):

Personal life - What types of people(S) the borrower. Whether he is pious or not? Generally pious people have self motivation of repayment of the loan from religious point. Association, Social engagement of borrower is also important. Family back ground of the borrower also important. These are important to judge borrower willingness to pay and honesty. 

Educational Qualification- Knowledge is power. Whether the borrower/sponsors have proper educational strength to sustain the continuously changing business world. Educational back ground to known.

Business Experience and knowledge- Bank should also think about the client/borrower/sponsors related business experience and knowledge. Sponsors in new types of business should be examine with extra care and to be discouraged.

Credit Analyst should not recommend credit facilities without perfectly knowing the proprietor/partners/directors of the respective borrower.

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