Use Case for Assessing Risk on Loan Administration
Why assess the risk? Credit administration and the quality of the loan portfolio is among the most important aspects of the bank’s business strategy. To a great extent, it is the quality of a bank’s loan portfolio that determines the profitability of the bank and the ultimate return on investment to the shareholders. Conclusions regarding the bank’s condition and the quality of its management are weighted heavily by the degree of risk in lending practices. The loan portfolio and its administration recognizes that loans comprise a major portion of the bank’s assets and that it is this asset category which ordinarily presents the greatest credit risk and potential loss exposure to the bank. Moreover, pressure for increased profitability, liquidity considerations, and a vastly more complex marketplace have produced an ever-changing risk profile to the bank.
Who should assess the risks? Credit Administrator, Chief Credit Officer, Chief Lending Officer, Directors’ Loan Committee
How to assess the risk: Rate the KRIs to determine if a threat would successfully exploit a vulnerability and to justify expenditures to implement countermeasures to protect the bank’s assets or reputation. Use the “Focus Risk Assessment” tool for in-depth analysis of risks and mitigation techniques.