The bank's loan portfolio, its content and significance. Introduction
1. Concept of loan portfolio 4
2. Loan portfolio management 8
3.Methods of credit portfolio management. 12
4. Methods for assessing a loan portfolio in global banking practice 15
5.Analysis of the loan portfolio of Russian banks 19
Conclusion 21
Literature 22
Introduction
All existing types of businesses make money with a certain amount of risk. In this regard, banks are no different from them, however, success is achieved only when the risks that banks take are thoughtful and within certain limits. In the context of the transition to a market economy in the banking sector, the importance of correct assessment of the risk that the bank assumes when carrying out various operations increases.A bank's lending activity is one of the fundamental criteria that distinguishes it from non-banking institutions. Lending operations are the most profitable item in the banking business. This source generates the bulk of net profit, which is transferred to reserve funds and used to pay dividends to the bank's shareholders. At the same time, non-repayment of loans, especially large ones, can lead the bank to bankruptcy, and due to its position in the economy, to a number of bankruptcies of related enterprises, banks and individuals. Therefore, credit risks are the main problem of a bank, and their management is a necessary part of the strategy and tactics of survival and development of any commercial bank.
In connection with the development of market relations, business activities in our country have to be carried out in conditions of increasing uncertainty of the situation and variability of the economic environment. This means that there is ambiguity and uncertainty in obtaining the expected final result, and consequently, the risk increases, that is, the danger of failure and unforeseen losses. That is why the topic of the thesis “Credit risks and ways to reduce them” is currently extremely relevant.
- The concept of a loan portfolio
The regulatory documents of the Bank of Russia, regulating certain aspects of loan portfolio management, define its structure, from which it follows that it includes not only the loan segment, but also various other requirements of the bank of a credit nature:
placed deposits, interbank loans, claims for receipt (return) of debt securities, shares and bills, discounted bills, factoring, claims for rights acquired in a transaction, for mortgages purchased on the secondary market, for transactions of sale (purchase) of assets with deferred payment ( deliveries), for paid letters of credit, for financial lease (leasing) transactions, for the return of funds if the purchased securities and other financial assets are unquoted or not traded on the organized market.
This expanded content of the totality of elements that form the loan portfolio is explained by the fact that such categories as deposit, interbank loan, factoring, guarantees, leasing, securities have similar essential characteristics associated with the return movement of value and the absence of a change of owner. The differences lie in the content of the object of relationship and the form of movement of value.
The essence of a bank's loan portfolio can be considered at the categorical and applied levels. In the first aspect, the loan portfolio is the relationship between the bank and its counterparties regarding the return movement of value, which takes the form of credit requirements. In the second aspect, the loan portfolio is a collection of bank assets in the form of loans, discounted bills, interbank loans, deposits and other credit-related claims, classified into quality groups based on certain criteria.
The concept of loan portfolio quality and criteria for its assessment. Quality- this is: a property or accessory, everything that constitutes the essence of a person or thing; a set of essential signs, properties, features that distinguish an object or phenomenon from others and give it certainty; this or that property, a sign that determines the dignity of something.
Consequently, the quality of a phenomenon should show its difference from other phenomena and determine its dignity.
The qualitative difference between the loan portfolio and other portfolios of a commercial bank lies in such essential properties of the loan and credit categories as the return movement of value between the participants in the relationship, as well as the monetary nature of the object of the relationship.
The set of types of operations and money market instruments used, forming a loan portfolio, has features determined by the nature and purpose of the bank’s activities in the financial market. It is known that loan transactions and other credit transactions are characterized by high risk. At the same time, they must meet the goal of the bank’s activities - obtaining maximum profit with an acceptable level of liquidity. This leads to such properties of the loan portfolio as credit risk, profitability and liquidity. They also meet the criteria for assessing the advantages and disadvantages of a specific bank loan portfolio, i.e. criteria for assessing its quality. The quality of a loan portfolio can be understood as a property of its structure that has the ability to provide the maximum level of profitability at an acceptable level of credit risk and balance sheet liquidity.
Let's consider the content of individual criteria for assessing the quality of the loan portfolio.
Degree of credit risk. Credit risk associated with a loan portfolio is the risk of losses that arise as a result of default by a lender or counterparty, which is cumulative in nature. Assessing the degree of risk of a loan portfolio has the following features. Firstly, the total risk depends:
- on the degree of credit risk of individual segments of the portfolio, the assessment methods of which have both common features and features associated with the specifics of the segment;
- diversification of the structure of the loan portfolio and its individual segments.
Secondly, to assess the degree of credit risk a system of indicators must be applied that takes into account many aspects that must be taken into account.
Profitability level of the loan portfolio. Elements of the loan portfolio can be divided into two groups: those who bring and those who do not income assets. The last group includes interest-free loans, loans with frozen interest and long overdue interest payments. In foreign practice, in case of long-term overdue debt, interest is waived, since the main thing is to repay the principal debt. In Russian practice, mandatory interest accrual is regulated. The level of profitability of the loan portfolio is determined not only by the level of interest rates on loans provided, but also by the timely payment of interest and the amount of principal.
Profitability the loan portfolio has a lower and an upper limit. Lower the limit is determined by the cost of carrying out credit operations (personnel costs, maintaining loan accounts, etc.) plus the interest payable on the resources invested in this portfolio. The upper limit is the level of sufficient margin. The calculation of this indicator follows from the main purpose of the margin - covering the costs of maintaining the bank.
Liquidity level loan portfolio. Since the level of liquidity of a bank is determined by the quality of its assets and, above all, the quality of the loan portfolio, it is very important that the loans provided by the bank are repaid within the terms established by the agreements or the bank has the opportunity to sell loans or part of them, due to their quality and profitability. The higher the share of loans classified into the best groups, the higher the bank's liquidity.
The following arguments can be given in favor of using the proposed criteria for assessing the quality of the loan portfolio (degree of credit risk, level of profitability and liquidity). The low risk of elements of a loan portfolio does not mean its high quality: loans of the first quality category, which are provided to first-class borrowers at low interest rates, cannot generate high income. The high liquidity inherent in short-term credit assets also brings low interest income.
2. Loan portfolio management
The formation and management of a loan portfolio is one of the fundamental aspects of the bank’s activities. An optimal, high-quality loan portfolio affects the bank’s liquidity and its reliability. The reliability of the bank is important for many - for shareholders, enterprises, the population who are depositors and use the bank's services. The loss of deposits affects numerous savings of depositors and the capital of many economic entities. Financial imbalance among banks reduces overall confidence in the state’s credit system, and this is also felt in other sectors of the economy.To form an optimal loan portfolio, it is important for a bank to develop an appropriate credit policy - to correctly select market segments and determine the structure of activities.
Much attention should be paid to the quality of the loan portfolio. A poor-quality loan portfolio, unjustified loan violations, and the issuance of loans to unreliable borrowers can cause financial imbalance in banks. A bank that issues defaulting loans wastes credit resources that could be used to stimulate the accumulation of real capital and contribute to the economic development of the bank.
In managing a loan portfolio, changing the system for managing the maturities of assets and liabilities and, consequently, the difference in interest rates and, ultimately, profitability is of great importance. Each resource source has its own unique characteristics, variability, and reserve requirements. The approach to their management is the method of conversion of financial resources, which considers each source of funds individually.
Management of a bank's loan portfolio is an important element of its credit policy.
The bank's strategy and tactics in the field of obtaining and providing loans constitute the essence of its credit policy. Each bank forms its own credit policy, taking into account political, economic, organizational and other factors. When formulating its credit policy, the bank proceeds from the fact that lending operations generate the bulk of its profits. Having analyzed the document, which presents the main elements of the banks’ credit policy developed by the US Federal Deposit Insurance Corporation, we note that the most important elements of the bank’s credit policy are related to the formation and management of the loan portfolio, in particular:
- goals on the basis of which the bank’s loan portfolio is determined;
- description of the policy and practice of setting interest rates, loan fees and terms of their repayment;
- a description of the standards by which the quality of all loans is determined;
- instructions regarding the maximum credit limit;
- description of the region, industry, sphere or sector of the economy served by the bank, in which the bulk of credit investments should be made;
- characteristics of the diagnosis of problem loans, their analysis and ways out of emerging difficulties.
Among the factors influencing the formation of a bank’s loan portfolio are the specifics of the banking services market. Each bank must take into account the need for borrowed funds from the main clients of the selected sector of the economy. In the process of developing credit policy, banks determine priorities when forming a loan portfolio, considering its diversification from the standpoint of determining the optimal credit policy. It can be divided into types: policy on lending to legal entities and policy on lending to individuals, etc.
Banks that are not part of the large group specialize in providing loans to small trading and commercial and industrial companies.
Also, the documents disclosing the content of the credit policy of banks characterize those types of loans, the provision of which is prohibited or extremely undesirable (borrowers whose solvency and reliability are in doubt, who have not provided a complete list of documents, etc.).
A clear and detailed description of the credit policy is important for any bank. It reveals the content of all lending procedures and the responsibilities of bank employees associated with these procedures. Compliance with the provisions of the credit policy allows the bank to form a loan portfolio that helps achieve the goals set in banking activities. These goals are to ensure the profitability of the bank, control over risk management, and compliance with the requirements of banking laws.
In any bank, overall responsibility for loans rests with the board of directors. He develops the bank's credit policy, which is formulated in a special document with a variety of names. For example, in the USA this document is called a memorandum of credit policy. The most important element of a bank's credit policy is loan portfolio management. Credit policy should cover the composition of the loan portfolio and control over it as a whole, and also establish standards for making specific credit decisions. In addition to the general credit policy, the bank board should develop an independent internal credit audit program and asset quality assessment, as well as methods for monitoring the adequacy of loan loss provisions.
- Methods of credit portfolio management.
- Credit risk management methods are divided into two groups:
methods for managing credit risk at the individual loan level;
methods for managing credit risk at the level of the bank's loan portfolio.
- analysis of the borrower's creditworthiness;
loan analysis and assessment;
loan structuring; documenting credit transactions;
control over the loan provided and the condition of the collateral.
- diversification;
limiting;
creation of reserves to compensate for losses on credit operations of commercial banks;
securitization.
Limitation, as a method of managing credit risk, is to establish the maximum allowable size of loans provided, which allows limiting the risk. By setting lending limits, banks manage to avoid critical losses due to the thoughtless concentration of any type of risk, as well as diversify their loan portfolio and ensure stable income.
Creating a reserve To compensate for possible losses on credit operations of commercial banks, a method of managing credit risk is to accumulate part of the funds, which are subsequently used to compensate for non-repaid loans. On the one hand, the reserve for credit risks serves to protect depositors, creditors and shareholders of the bank, and on the other hand, reserves increase the reliability and stability of the banking system as a whole.
This approach is based on the prudence principle, according to which banks' loan portfolios are assessed at the reporting date at net value, i.e. taking into account possible losses on credit transactions. To cover these losses, it is planned to create a special reserve for transferring part of the bank's funds to separate accounting accounts, from which, in the event of non-repayment of the loan, the corresponding amount is written off.
Securitization- this is the sale of bank assets through their transformation into securities, which are subsequently placed on the market. Securitization generally applies to bank loans, allowing banks to transfer credit risk to other market participants - investors who buy securities. In addition, through securitization, a bank can transfer the risk of changes in interest rates and the risk of early repayment of a loan.
The securitization process allows the bank's on-balance sheet assets to be moved off-balance sheet, i.e. is one of the types of off-balance sheet activities of the bank.
4. Methods for assessing a loan portfolio in global banking practice
1. Assessing the quality of loans that make up the loan portfolio.
2. Determining the portfolio structure based on loan quality and assessing this structure based on studying its dynamics.
3. Determining the sufficient amount of reserves to cover loan losses based on the structure of the loan portfolio.
In global banking practice, various systems for assessing the quality of loans are used.
Let's consider the number system.
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Principal and interest are not repaid
In addition to the number system for assessing the loan portfolio, there is also a point system:
Purpose and amount of debt.
1. The purpose is reasonable and the amount is fully justified - 20
2. The purpose is doubtful, the amount is acceptable - 15
3. The purpose is unconvincing, the amount is problematic-8
Financial situation of the borrower.
1. Very strong current and previous financial situation. Strong and stable inflow of funds. (1st grade) - 40
2. Good financial situation. Strong influx of funds. (2nd grade).- 30
3. The borrower has recently lost a lot, the inflow of funds is weak (uncreditworthy). - 4
Pledge
1. No collateral required or extensive cash collateral provided - 30
2. Significant liquid collateral - 25
3. Sufficient collateral of acceptable liquidity - 15
4. Sufficient collateral, but limited liquidity - 12
5. Insufficient collateral of low quality - 8
6. No acceptable collateral - 2
Loan repayment term and scheme.
1. Short-term self-liquidating loan, a good secondary source of repayment - 30
2. Medium-term loan with debt repayment in installments over the loan term, strong influx of funds - 25
3. Medium-term loan, one-time repayment at the end of the term, average inflow of funds - 20 4. Long-term loan, repayable in installments, uncertainty in the influx of funds sufficient to repay the debt - 12
5. Long-term loan, no secondary sources of repayment - 5
Credit information for the borrower.
1. Excellent past relationship with the borrower-25
2. Good credit reviews from reliable sources - 20
3. Limited reviews, but no negative information - 15
4. No reviews - 95.
5. Unfavorable reviews - 0
2. There are mediocre or no relationships - 4
3. The bank suffers losses on its relationship with the borrower - 2
Loan price.
1. Higher than usual for a loan of this quality - 8
2. In accordance with the quality of the loan - 5
3. Below normal for this credit quality - 0
Loan quality rating based on scores:
1. Best 163-140
2. High quality 139-118
3. Satisfactory 117-85
4. Limit 84-65
5. Worse than the limit of 64 and below.
The scoring system allows you to determine the structure of the loan portfolio for the reporting period and compare it with previous periods and, based on this, identify a positive or negative trend.
Positive trend- growth in the share of the best loans and high quality loans.
Negative trend- growth in the share of loans at the maximum level and worse than the maximum.
5.Analysis of the loan portfolio of Russian banks
When carrying out lending operations, the bank strives not only for their volume growth, but also to improve the quality of the loan portfolio. Thus, for effective management of the loan portfolio, it is necessary to analyze it according to various quantitative and qualitative characteristics both for the bank as a whole and for its structural divisions.Quantitative analysis involves studying the composition and structure of a bank’s loan portfolio over time (over a number of years, at the quarterly dates of the reporting year) according to a number of quantitative economic criteria, which include:
volume and structure of credit investments by type;
structure of loan investments by groups of borrowers;
loan terms;
timely repayment of loans provided;
industry affiliation;
types of currencies;
lending price (interest rate level).
Such an analysis allows us to identify preferred areas of credit investments, development trends, including those regarding loan repayment and profitability. Of great importance is the comparison of actual debt balances with predicted ones, with established lending limits, “credit ceilings,” etc. “Credit ceilings” are upper limits on the total amount of loans or their growth, established for banks (sometimes on an individual basis), or a limit on the amount or number of loans issued to one client.
The quantitative analysis is followed by an analysis of the quality of the loan portfolio. The scope of activity of the borrower and its type have different risks for certain economic conditions, therefore, types of loans, depending on the volume and purposes of lending, are assessed differently, which should be taken into account when studying the bank’s loan portfolio. For this purpose, various relative indicators are used, calculated by turnover for a certain period or by balance as of a certain date. These include, for example, the share of problem loans in the entire gross client loan portfolio; ratio of overdue debt to share capital, etc. Based on the qualitative characteristics of the loan portfolio, it is possible to assess compliance with lending principles and the degree of risk of credit operations, and the liquidity prospects of a given bank. Thus, in any bank the state of the loan portfolio must be under constant monitoring
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INconducting
However, the main historical function of banks is lending.
The domestic banking system is characterized by a stable increase in the amount of loans provided to the borrower with a simultaneous increase in the specific share of overdue loans.
At the same time, with an increase in the total value of the banks’ loan portfolio, the share of overdue loans increases. An interesting factor is that the concentration of lending operations occurs in a limited number of banks. According to Interfax, as banks deepen their specialization in lending, the quality of their loan portfolios gradually begins to improve. Thus, for banks with loans up to 40% of assets, the overdue amount is about 10%, and for banks with the share of loans in assets over 40%, the overdue amount does not exceed 5%.
These figures indicate that the formation of a high-quality loan portfolio is an achievable goal for the bank, and the management of the bank’s loan operations serves to achieve it.
Russia's transition to a market economy fundamentally changed the operating conditions of all economic entities, and doubly affected the nature of the functioning of banks. Thus, it turns out that banks themselves have changed as business entities, and they also have to adapt to changes in the activities of their clients.
The rapid development of the Russian banking system has determined the ability of bank managers and their employees to master methods and techniques of work, in contrast to Western countries, where the process of formation of the banking system takes place over several centuries.
In general, the problems of the Russian banking system are due to two reasons: firstly, there are unfavorable macroeconomic conditions, and secondly, there are internal reasons related to the peculiarities of the activities of commercial banks themselves.
The purpose of the course work is to clarify the essence of the loan portfolio of a commercial bank.
Among traditional types of banking activities, the provision of loans is the main operation that ensures their profitability and stability of existence. By issuing loans to individuals and legal entities, the bank forms its loan portfolio. Thus, the bank’s loan portfolio is the totality of debt balances on active credit operations as of a certain date. The client loan portfolio is its integral part and represents the balance of debt on credit transactions of the bank with individuals and legal entities as of a certain date. There are various classifications of the loan portfolio, among which one can find the division of the portfolio into gross (the total volume of loans issued by the bank at a certain point in time) and net (the gross portfolio minus the amount of reserves to cover possible losses on credit operations).
1. The essence and concept of a commercial bank’s loan portfolio
Credit activity is one of the most important features constituting the very concept of a bank. The level of organization of the lending process is perhaps the best indicator of the overall work of a bank and the quality of its management.
In scientific and educational literature, as well as in regulatory documents, the nature of the loan is sometimes interpreted ambiguously. In this regard, it is necessary to first clarify the key points associated with this concept.
The concepts of “loan” and “credit”. In the Civil Code of the Russian Federation, these similar concepts differ meaningfully in a number of ways. From their comparison it follows that a loan (a special case of a loan relationship) has the following inherent properties:
It should deal with the transfer by one party (the lender) to the other party (the borrower) not of any things, but only of money, and only for temporary use (not into the ownership of the borrower). Moreover, the specified money may not be the property of the creditor himself;
It cannot, unless otherwise provided in the contract, be interest-free. In this case, the contractual execution (in writing) of issuing or receiving a loan is considered as a mandatory, although not specific to the credit transaction, parameter. For a loan agreement, written form is not always required;
In it, only a credit institution (usually a bank) acts as a lender. In this sense, a loan is a bank loan in monetary form. This refers to the active lending option, when the bank does not receive, but gives a loan;
The bank's obligation to issue a loan in accordance with the concluded agreement is unconditional;
The loan is also repaid in cash.
In addition, the need to worry about the future repayment of a loan issued by a bank forces it to usually require from a potential borrower:
1) justification for the reasonableness and economic efficiency of the operation (transaction) for which the loan is requested, which in general means openness and certainty regarding the intended purpose of the loan;
2) providing the lender with the opportunity to control, within certain limits, the intended use of the loan, the effectiveness of such use and, in general, the efficiency of the business of the borrower - a legal entity;
3) providing the lender with known material or other security for the loan issued by him as evidence of the reliability of the relationship between the parties, even in the event of an unsuccessful operation (transaction) by the borrower for which the loan was taken, or in general unfavorable development of the business and financial condition of the borrower.
Finally, the bank must initially credit the loan issued to the borrower to a loan account opened specifically for this purpose.
Summarizing the above points, we can conclude that the loan involves the transfer to the borrower (legal entity or individual) by the bank, on the basis of a special written agreement, of exclusively funds (the bank’s own funds and/or borrowed funds) for a period specified in such an agreement on the terms of repayment and payment in monetary form, control, and also, as a rule, intended use and security.
It should also be borne in mind that the loan takes place not from the moment the parties sign the loan agreement, but from the moment the corresponding amount is actually provided to the borrower.
The concepts of “credit” and “loan”. In banking legislation, the term “loan” is not used (in Chapter 38 of the Civil Code this is understood as the gratuitous use of an item received from another person, i.e. something that does not apply to lending). At the same time, it is widely used in Bank of Russia documents and literature. But in neither case is the purpose of its use substantiated, nor the special content that may distinguish a loan from a credit. In fact, these terms are used as synonyms; more precisely, a loan is understood as an active loan.
Bank loans are divided into active and passive. In the first case, the bank gives a loan, i.e. acts as a creditor, in the second he takes a loan, i.e. is a borrower. A bank can enter into credit relationships (take or give loans) with other banks (credit organizations), including the central bank, performing an active or passive function, depending on the situation. In this case, interbank lending takes place. As for all other enterprises, organizations, institutions and individuals (non-financial sector of the economy), the bank’s credit relations with them are of a different nature - here the bank is almost always the party giving the loan.
According to Russian civil law, there are two fundamentally different types of loans.
1) Agreement on the provision of property for temporary free use. The parties to the agreement can be both individuals and legal entities, and its subject is only individually defined things, in contrast to a loan agreement, the subject of which is money or things defined by generic characteristics. A loan agreement, being in many ways similar to a property lease agreement, has the following differences: a) gratuitousness; b) can be not only consensual, but also real; c) the property that constitutes the subject of the contract can be claimed from the owner only by legal entities.
Loans from inventory assets are secured by collateral of these assets, and sometimes by guarantees from higher-level organizations.
2) Bank loan - funds provided by banks in the process of lending against urgent obligations of organizations and citizens or against obligations due at presentation.
2. Credit policybank and mechanisms for its implementation
Before starting to issue loans, the bank must formulate its credit policy (along with and in accordance with its policies in relation to all other areas of activity - deposit, interest, tariff, technical, personnel, in relation to clients, competitors, etc. ), as well as provide ways and means of translating it into real practice.
The formulation of a bank's policy(ies) is one of the stages of planning its activities. To define and approve your credit policy means to formulate and consolidate in the necessary internal documents the position of the bank’s management on at least the following issues:
a) priorities of the bank in the credit market, meaning the preferred ones for this bank:
Objects of lending (industries, types of production or other business);
The nature of relations with borrowers;
Types and sizes (minimum, maximum) of loans;
Loan servicing schemes;
Forms of ensuring loan repayment, etc.;
b) lending purposes:
Expected level of profitability of loans;
Other (not directly related to making a profit) goals.
For the bank to make informed decisions on the specified range of issues, a clear and balanced statement of the general goals of the bank’s activities for the coming period (i.e., good planning in general), an adequate analysis of the credit market (i.e., good work of the marketing service), clarity of prospects for the development of the bank’s resource base, a correct assessment of the quality of the loan portfolio, taking into account the dynamics of the level of personnel qualifications and other factors.
In accordance with Regulation No. 254 “On the procedure for the formation by credit institutions of reserves for possible losses on loans...” the authorized body (bodies) of the bank adopts the bank’s internal documents on the classification of loans (loans) and the formation of appropriate reserves, which must comply with the requirements of this Regulation and other regulatory legal acts on issues of credit policy and/or methods of its implementation. In these internal documents, the bank reflects, in particular:
1) a credit risk assessment system that allows classifying loans into quality categories, including containing more detailed procedures for assessing the quality of loans and creating a reserve than provided for in the Regulations;
2) the procedure for assessing loans, including the criteria for their assessment, the procedure for documenting and confirming such an assessment;
3) procedures for making and executing decisions on the formation of a reserve;
4) procedures for making and executing decisions on writing off loans from the balance sheet that are unrealistic for collection;
5) a description of the methods, rules and procedures used in assessing the financial position of the borrower, a list of sources of information used on this issue, the range of information necessary to assess the financial position of the borrower, as well as the powers of bank employees participating in this assessment;
6) the procedure for compiling and further maintaining the borrower’s file;
7) the procedure and frequency of determining the value of the collateral;
8) the procedure and frequency of assessing the liquidity of the collateral, as well as the procedure for determining the amount of the reserve, taking into account the collateral for the loan;
9) the procedure for assessing credit risk for a portfolio of homogeneous loans;
10) the procedure and frequency of formation (regulation) of the reserve.
At the same time, the bank must publicly disclose information about its credit policy as part of the reporting submitted in accordance with the requirements of Bank of Russia regulations.
The role of credit policy should be understood as the totality of its functions, i.e. expectations associated with its development and application. Therefore, we can assume that the function of a bank’s credit policy in general is to optimize the credit process, bearing in mind that the goals and priorities for the development (improvement) of lending, determined by the bank, constitute its credit policy.
The provisions of credit policy must be supported by practical measures, which together constitute mechanisms for implementing credit policy. Measures designed to implement the intended credit policy in the expected circumstances (necessary and/or possible actions to be taken) must also be reviewed and approved by the bank's management, and the corresponding decisions are formalized in the form of internal documents.
A special block of mechanisms for implementing credit policy constitutes a mandatory set of instructions and methodological materials for each bank, regulating all aspects of organizing its work in the credit market.
All provisions of the credit policy are aimed at achieving the highest possible quality of the bank’s lending activities.
The quality of a bank’s lending activities (the quality of the bank’s organization of its lending activities) can be judged by a number of criteria (signs), including:
Profitability of credit operations (in dynamics);
Availability of a clearly formulated credit policy for each specific period, adequate to the capabilities of the bank itself and the interests of its clients, as well as clearly defined mechanisms (including organizational, information and analytical support) and procedures for the implementation of such a policy (regulations for all stages of a credit operation);
Compliance with legislation and regulations of the Bank of Russia related to the credit process;
Condition of the loan portfolio;
Availability of a working credit risk management mechanism.
Loan portfolio is a set of bank claims for loans, which are classified according to criteria associated with various factors of credit risk or methods of protection against it.
The concept of a bank's loan portfolio is interpreted ambiguously in the economic literature. Some authors interpret the loan portfolio very broadly, including all financial assets and even liabilities of the bank, others associate the concept under consideration only with the bank’s lending operations, while others emphasize that the loan portfolio is not a simple set of elements, but a classified set.
The regulatory documents of the Bank of Russia regulating certain aspects of loan portfolio management define its structure, from which it follows that it includes not only the loan segment, but also various other requirements of the bank of a credit nature: placed deposits, interbank loans, requirements for receipt (repayment) ) debt securities, shares and bills, discounted bills, factoring, claims on rights acquired under a transaction, on mortgages purchased on the secondary market, on transactions for the sale (purchase) of assets with deferred payment (delivery), on paid letters of credit, on financial lease transactions (leasing), for the return of funds if the purchased securities and other financial assets are unquoted or not traded on the organized market.
This expanded content of the totality of elements that form the loan portfolio is explained by the fact that such categories as deposit, interbank loan, factoring, guarantees, leasing, securities have similar essential characteristics associated with the return movement of value and the absence of a change of owner. The differences lie in the content of the object of relationship and the form of movement of value.
Analysis of the bank's loan portfolio is carried out regularly and forms the basis of its management, which aims to reduce the total credit risk through diversification of loan investments and identifying the riskiest segments of the credit market. The main stages of the analysis: selection of criteria for assessing the quality of loans, determination of the method of this assessment (number or point system of assessment, classification of loans by risk groups, determination of the percentage of risk for each group, calculation of the absolute value of risk in the context of each group and in general for the loan portfolio, determination the amount of reserve sources to cover possible loan losses, assessment of the quality of the loan portfolio based on a system of financial ratios, as well as through its segmentation (structural analysis).
When forming a “loan portfolio”, it is necessary to take into account the following risks: credit, liquidity and interest.
Credit risk factors are the main criteria for its classification. Depending on the scope of the factors, internal and external credit risks are distinguished; on the degree of connection of factors with the activities of the bank - credit risk, dependent or independent of the activities of the bank. Credit risks dependent on the bank’s activities, taking into account its scale, are divided into fundamental (related to decision-making by managers involved in managing active and passive operations); commercial (related to the activities of the Central Federal District); individual and aggregate (loan portfolio risk, risk of a set of credit transactions).
Fundamental credit risks include risks associated with collateral margin standards, decisions to issue loans to borrowers who do not meet the bank’s standards, as well as those resulting from the bank’s interest rate and currency risk, etc.
Commercial risks are associated with the credit policy in relation to small businesses, large and medium-sized clients - legal entities and individuals, and with certain areas of the bank's lending activities.
Individual credit risks include the risk of a credit product, service, operation (transaction), as well as the risk of the borrower or other counterparty.
The risk factors of a credit product (service) are, firstly, its compliance with the needs of the borrower (especially in terms of term and amount); secondly, business risk factors arising from the content of the event being financed; thirdly, the reliability of repayment sources; fourthly, the sufficiency and quality of support. In addition, credit risk factors may arise from operational risk, since in the process of creating a product and its variety - services - technological and accounting errors in documents, as well as abuses, may be made.
Factors of a borrower's credit risk are its reputation, including the level of management, operational efficiency, industry affiliation, professionalism of bank employees in assessing the borrower's creditworthiness, capital adequacy, degree of balance sheet liquidity, etc. The borrower's risks may be provoked by the credit institution itself due to the wrong choice of the type of loan and lending conditions.
The study of scientific works and publications of foreign and Russian authors regarding the definition of risk associated with bank liquidity allows us to identify discrepancies already at the conceptual level. Some economists highlight liquidity risk, while others highlight the risk of unbalanced liquidity.
Thus, summarizing the effective and factor components of liquidity risk, we can formulate its essence as follows: liquidity risk is the risk of incurring losses (losing part of capital) due to the inability or impossibility of the bank to attract additional financial resources in a timely manner and without losses for itself or to sell existing assets to fulfill obligations assumed to creditors and depositors.
Thus, in the monograph “Banking: Strategic Leadership”, edited by V. Platonov and M. Higgins, it is noted that the risk of insufficient liquidity is expressed in the inability to fulfill its obligations in a timely manner and this will require the sale of certain assets of the bank on unfavorable terms; the risk of excessive liquidity - loss of income due to an excess of highly liquid assets and, as a consequence, unjustified financing of low-yielding assets using paid resources for the bank.
The factor side of the risk of excess liquidity is also determined by internal and external factors. Their nature is the same for both types of this risk.
Thus, the uniform nature of internal factors is expressed in the fact that excess liquidity, like insufficient liquidity, is a reflection of the bank’s inability to promptly eliminate the discrepancy that has arisen between assets and liabilities of the corresponding periods. The reasons for this situation may be: in case of excessive liquidity, caution or inability to manage the situation, to find areas for development of bank operations; in case of a lack of liquidity - aggressive policy, inability to assess the real situation.
The uniform nature of external factors determines the bank’s inability to assess and take into account the external environment in which it operates.
The reasons causing the risk of unbalanced liquidity generally lie in the unsatisfactory management of the bank, which is unable to properly structure cash flows and ensure their quality.
Thus, the risk of unbalanced liquidity should be understood as the risk of loss of income due to the inability or inability of the bank to adjust its liquid position in a timely manner, i.e. bring into compliance and without loss for yourself the volume of obligations and the sources of their coverage.
Interest rate risk refers to those types of risk that the bank cannot avoid in its activities. Moreover, the responsibility for measuring, analyzing and managing it lies entirely with the management of the credit institution. Supervisory authorities are limited mainly to assessing the effectiveness of the risk management system created in a commercial bank.
The economic literature presents different points of view regarding the concept of interest rate risk. Some authors interpret it as the risk of loss as a result of changes in interest rates. Other authors give a similar definition, considering interest rate risk as the probability of losses in the event of changes in interest rates on financial resources. Still others offer a broader definition, believing, in particular, that interest rate risk is the risk of losses due to unfavorable changes in interest rates in the money market, which finds external expression in a fall in the interest margin, reducing it to zero or a negative value, indicating at the same time for a possible negative impact on the market value of capital.
The Fundamental Principles of Banking Supervision (as set out in the Basel Committee) define interest rate risk as the risk that a bank's financial position may be potentially exposed to an adverse change in interest rates.
3 . Interest rate risk factors. The essence of interest rate risk allows us to identify factors influencing its levelno
Interest rate risk factors can be divided into internal and external. In the Russian economy, unlike developed countries, the level of risk is mainly increased by external factors.
These include:
Instability of market conditions in terms of interest rate risk;
Legal regulation of interest rate risk;
Political conditions;
Economic situation in the country;
Competition in the banking services market;
Relationships with partners and clients;
International events.
Internal interest rate risk factors include:
Lack of a clear bank strategy in the field of interest rate risk management;
Miscalculations in the management of banking operations, leading to the creation of risky positions (the emergence of an imbalance in the structure and maturities of assets and liabilities, incorrect forecasts of changes in the yield curve, etc.);
Lack of a developed interest rate risk hedging program;
Disadvantages of planning and forecasting of bank development;
Personnel errors during operations.
The main problem in practice is the timely monitoring of interest rate risk factors, and this process must be continuous. In accordance with the identified reasons for the occurrence of increased interest rate risk, it is necessary to adjust the risk management system of the bank.
The essence of a bank's loan portfolio can be considered at the categorical and applied levels. In the first aspect, the loan portfolio is the relationship between the bank and its counterparties regarding the return movement of value, which takes the form of credit requirements. In the second aspect, the loan portfolio is a collection of bank assets in the form of loans, discounted bills, interbank loans, deposits and other credit-related claims, classified into quality groups based on certain criteria.
The qualitative difference between the loan portfolio and other portfolios of a commercial bank lies in such essential properties of the loan and credit categories as the return movement of value between the participants in the relationship, as well as the monetary nature of the object of the relationship.
Conclusion
bank loan portfolio
Credit operations are the basis of the banking business, since they are the main source of income for the bank. But these operations are associated with the risk of loan non-repayment (credit risk), to which banks are more or less exposed in the process of lending to clients. That is why credit risk, as one of the types of banking risks, is the main object of attention of banks.
Effective management of a loan portfolio begins with the careful development of a lending policy by a credit institution, which is implemented in a document approved and periodically reviewed by the board of directors or board of the credit institution. It should formulate goals and objectives when providing funds in terms of ensuring high quality of assets and profitability of this line of activity. A loan portfolio is a characteristic of the structure and quality of loans issued, classified according to certain criteria. One of these criteria used in foreign and domestic practice is the degree of credit risk. Therefore, the criterion determines the quality of the loan portfolio. Analysis and assessment of the quality of the loan portfolio allow bank managers to manage its lending operations.
Loan portfolio management has several stages: selection of criteria for assessing the quality of an individual loan; identification of the main groups of loans indicating the risk percentages associated with them; assessment of each loan issued by the bank based on selected criteria, i.e. assigning it to the appropriate group; determination of the structure of the loan portfolio in the context of classified loans; assessment of the quality of the loan portfolio as a whole; analysis of factors influencing changes in the structure of the loan portfolio over time; determining the amount of the reserve fund adequate to the total risk of the bank’s loan portfolio; development of measures to improve the quality of the loan portfolio. The fundamental point in managing a bank’s loan portfolio is the selection of criteria for assessing the quality of an individual loan.
Increasing the profitability of credit operations and reducing the risk associated with them are two opposing goals. As in all areas of financial activity, where the highest returns for investors come from operations with increased risk, increased interest on loans is a payment for risk in banking. Thus, when forming a loan portfolio, the bank must adhere to the principle common to all investors - to combine highly profitable and quite risky investments with less profitable but less risky areas of lending.
It was revealed that the quality of the bank's loan portfolio can be managed by carrying out a set of measures aimed at tightening requirements for the borrower and increasing the diversification of the bank's loan portfolio.
The study showed that the quality of the loan portfolio of a commercial bank must be assessed not only by analyzing the structure of loan debt, but also using the standards and coefficients developed by the bank as part of the development of credit policy.
The Bank of Russia's insufficient elaboration of the problem of credit risk management significantly complicates the management of the quality of loan portfolios of commercial banks in Russia.
The main goal of Sberbank of Russia is to strengthen its leading position in the main segments of the Russian financial market, primarily in the markets for banking services to the public and corporate clients. Sberbank considers the main tools for achieving this goal to be the development and implementation of a clear customer policy that takes into account the needs of various customer groups, the introduction of a business model focused primarily on customers, in order to improve conditions and improve the quality of customer service, and expand the range of products and services. In particular, it is planned to increase the information transparency of the Bank.
As it becomes clear from this work, the problem of managing the quality of a commercial bank’s loan portfolio is large and multifaceted, and existing quality management methods are diverse and for more successful functioning of the banking system it is necessary to introduce a unified regulatory framework for all banks.
Bibliography
1.Azhdansky Code of the Russian Federation.
2. Tavasiev A.M. Banking: managing a credit organization: a textbook. -M.: “Dashkov and K”, 2007. -668s.
3. Development concept of Sberbank of Russia until 2012. The project was approved by the Strategic Planning Committee of the Supervisory Board of the Savings Bank of Russia (minutes of meeting No. 1 of July 24, 2007).
4. Lavrushin O. I. Banking: Textbook - M.: KNORUS, 2006. -768 p.
5. Lavrushin O.I., Banking risks, M., KNORUS, 2007, 231 p.
6. Regulations of the Central Bank of Russia No. 254-P dated March 26, 2004 “On the procedure for the formation by credit institutions of reserves for possible losses on loans, on loan and equivalent debt.”
7. Official website of the Central Bank of Russia, www.cbr.ru.
8. Official website of Sberbank of Russia, www.sbrf.ru.
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Among the traditional activities of commercial banks, the main operation is the provision of loans, since the direct relationship between the result of lending, profitability and stability of the bank’s existence is obvious.
The presentation of funds by the bank against the written commitment of the client is the cornerstone of the banking business. These operations bring the bulk of the banks' profits. Thus, of the total gross operating income of American commercial banks in 1989, $368.4 billion, $250.9 billion (68.1%) accounted for interest payments on loans and leasing issued, and only 51, $2 billion (13.9%) - for income from the securities portfolio.
The importance of credit operations is determined by many circumstances, including the following:
the predominance of credit in the active operations of commercial banks of the Republic of Belarus at the present stage - up to 50-70%;
interest received on credit operations is the main source of income for a commercial bank;
these operations are the most risky and therefore most responsible for the bank’s reputation and its stability, since the composition of credit resources is dominated by borrowed rather than the bank’s own funds;
ability to ensure repayment of the loan by the borrower;
an indicator of the professional competence of the bank’s personnel and its management;
the size, composition and structure of credit operations are the basis for calculating the bank’s main assessment indicators - liquidity and solvency.
It should be noted that credit, as an economic category, is associated with other cost categories. Therefore, lending principles are usually divided into two groups:
general economic principles - inherent in all categories, including credit;
principles reflecting the essence and functions of credit.
The first group includes:
profitability - characterizes the achievement of the greatest efficiency in the use of credit with the smallest credit investments. This policy is important for both lenders and borrowers. For the bank, efficiency leads to the possibility of accelerating the circulation of credit resources. For the borrower, economical use of the loan means a reduction in loan fees and an increase in income;
differentiation - consists in providing a loan on different terms depending on the nature of the borrower, the direction of the loan, credit risk, loan term, timeliness of repayment and some other circumstances;
complexity - presupposes a credit policy that is carried out taking into account the patterns of economic development in a certain period.
The second group includes the following principles:
urgency - means that the loan agreement must establish a loan period, and this period must be observed by the borrower;
material security of the loan - according to this principle, loans should only be serviced by the movement of actually existing value;
fee - means that each borrower must pay the bank a fee for temporarily borrowing funds;
repayment - means that the loan must be repaid within the period specified in the agreement;
targeted nature of the loan - loans are issued only for certain purposes, namely, to satisfy the temporary need of the borrower for additional funds. This is the difference between lending and financing.
The bank's loan portfolio includes interbank loans and loans provided to individuals and legal entities, or a loan portfolio to clients. At the same time, due to their specificity, all interbank transactions in general, and interbank loans in particular, are identified by banks in accounting and analysis as a special group and are considered separately from transactions with clients.
The author believes that the emergence of the term “bank loan portfolio” was due to the need for quantitative and, above all, qualitative characteristics of issued loans and the bank’s lending activities as a whole.
There are different points of view on the definition of the term “loan portfolio”. Let us present several definitions and generally accepted interpretations of the concept presented in economic banking literature.
The loan portfolio is the result of the bank’s activities in providing loans, which includes the totality of all loans issued by the bank for a certain period of time.
The bank's loan portfolio consists of balance sheet balances for short-term, long-term and overdue loans. These are the volumetric characteristics of the bank’s loan portfolio. Qualitative characteristics are used to assess the bank’s provision of loan repayment and reduction of credit risks, i.e. non-repayment of the principal amount of the loan and interest on it.
Formally, a bank’s loan portfolio is the entire set of loans issued by it at any given moment. However, if this is not just a list of loans, but a set that is structured according to a certain criterion (criteria) that is essential for loans, then the “loan portfolio” becomes a characteristic of the quality of loans issued and the entire lending activity of the bank.
A loan portfolio is a set of balances on loan accounts as of a certain date, which are grouped according to various criteria, including by type of loan, by type of collateral, by level of profitability, by the composition of borrowers, etc.
Despite the existing variety of definitions, the general thesis of the above definitions is that the loan portfolio is the result of the bank’s lending activities. Therefore, the most complete and correct definition of the loan portfolio will be in two aspects:
quantitative characteristics of the bank’s lending activities, i.e. information on lending volumes, composition and structure of investments;
qualitative characteristics of the bank’s lending activities, i.e. classification of credit investments according to certain criteria.
In the process of evolution of the term for the separation of quantitative and qualitative characteristics, concepts such as gross loan portfolio, net loan portfolio, loan portfolio weighted by risk percentage and others arose.
The gross loan portfolio provides a quantitative description to clients and is calculated by summing up urgent, extended, overdue and doubtful debts on loan accounts as of a certain date.
The loan portfolio is qualitatively characterized by such concepts as the net loan portfolio and the loan portfolio weighted by the percentage of risk.
The net loan portfolio is calculated by subtracting the amount of the created reserve for losses on doubtful debts from the gross loan portfolio. It represents the amount of loan investments that can be returned to the bank on the analyzed date. Loan investments, as is known, are classified according to the degree of risk depending on the client’s assignment to a certain risk group (from 0 to 150%), therefore a loan portfolio is calculated, weighted by the risk percentage. By multiplying the balance of debt in the context of forms of collateral by the established percentage of risk, a weighted loan portfolio is determined, from which the amount of the reserve for losses on doubtful debts is excluded; the desired value represents the amount of own and attracted resources that may not be returned to the bank.
It should be noted that a qualitative assessment involves the classification of bank loan investments according to certain criteria. These criteria include: the degree of creditworthiness of clients, the purpose, size and type of loans, the timing and procedure for repaying loans, the volume and quality of loan repayment collateral, types of collateral for the fulfillment of obligations under a loan agreement, compliance with loan repayment terms, etc. This is necessary for credit management portfolio, its quality.
In this work, the author adheres to the point of view on the definition of the loan portfolio, according to which the loan portfolio is considered as a set of credit debt reflected in the second class of the chart of accounts in banks of the Republic of Belarus, as well as interbank loans and deposits. In relation to the loan portfolio of a particular bank, on the basis of the actual data of which the analysis was carried out, this approach is reflected in the fact that the loan portfolio also includes factoring operations, leasing, bill accounting, fulfillment of obligations under issued bank guarantees and sureties.
It is possible to analyze the composition and structure of the loan portfolio according to various criteria. The author has summarized some classification criteria (see Appendix 1).
If we analyze the sectoral structure of the loan portfolio, we can note those sectors in which placing funds is most profitable from the point of view of the ratio of profitability and risk, and also note how diversified the loan portfolio is. The diversification indicator will show how dependent and sensitive the bank is to changes in the situation in a particular industry. From the point of view of management quality, the loan portfolio can be:
optimal - a loan portfolio that is most consistent in composition and structure with the bank’s optimal credit and marketing policy and its strategic development plan;
a balanced loan portfolio is a portfolio of bank loans that, in its structure and financial characteristics, lies at the point of the most effective solution to the risk-return dilemma, that is, at the point of achieving a balance between two opposing categories.
Taking into account the above reasoning and classifications, the loan portfolio of a commercial bank can be displayed in the form of a table reflecting the main conditions of the concluded loan agreements (see Appendix 2).
In accordance with the table for classification of bank assets developed by the National Bank, the main indicators relating to the characteristics of the loan portfolio are the following: type of activity of the bank client, form of ownership, short-term and long-term loans, extended debt on the principal debt, overdue debt on the principal debt, doubtful debt, amount debts in risk groups I, II, III and IV.
It should be noted that the main goal of any analysis is the scientific substantiation of management decisions made, which are aimed at increasing the efficiency of operations and optimizing organizational processes. In a general approach, there are two main ways to improve operational efficiency: reducing waste and increasing profitability. In this case, the first method seems more promising due to the following reasons:
transaction costs are practically reduced to a minimum, reserves for reducing the cost of banking services have already been used;
fierce competition in the banking market and, as a consequence, a fall in the level of interest rates on loans;
uniformity of services provided by banks;
standardization and strict regulation of the technology of operations.
A thorough analysis of the factors that most influence the growth of bank losses on various loans allowed Western bankers to draw certain conclusions. According to the World Bank (Table 1.1), factors internal to the bank are the cause of 67% of bank loan losses, and external factors account for, respectively, 33% of losses.
Table 1.1 Factors causing bank losses when lending, %
Note. Source:
Consequently, the data presented show that in 67% of cases, bank losses during lending were due to the influence of internal factors, which is a consequence of the shortcomings of the methods used or their incorrect use. Therefore, the analysis should identify a potential source of bank losses in order to prevent them and, accordingly, reduce the risk of credit operations.
A qualitative assessment of the risk of a loan portfolio becomes especially relevant in connection with the diversification of banks’ operations. In the process of analyzing the loan portfolio, banks rank loans, i.e. use a method for systematically and objectively classifying the loan portfolio in accordance with quality and risk characteristics.
In addition to analyzing the loan portfolio for a certain date, a study of the loan portfolio in dynamics is carried out, i.e. A linear analysis is carried out according to the main indicators (gross, net loan portfolio, risk-weighted loan portfolio, degree of credit risk, amount of the created reserve to cover possible losses, etc.) for a number of years. Also, to specify and study the influence of seasonal fluctuations in the real sector, data for quarterly dates of the period under study, etc. are used.
This approach allows us to present the analysis of the loan portfolio as a system that includes the following elements:
assessment of the quality of loans that make up the loan portfolio;
determining the portfolio structure based on loan quality and assessing this structure based on studying its dynamics;
determining the sufficient amount of reserves to cover loan losses based on the structure of the loan portfolio.
Since analysis and management of the loan portfolio complement each other, they must be considered as two parts of one whole in their close relationship. The analysis serves as a justification for management decisions made, under the influence of which the bank’s loan portfolio is formed.
It is important to note that analysis and management are continuous processes. Therefore, the result of their interaction - the loan portfolio formed on a certain date, in turn, becomes the subject of analysis of the next time period. The relationship between two processes of different time periods is schematically presented in Fig. 1.1
Fig.1.1 Interrelation of analysis and management processes of different periods of time
Note. Source: [own development based on economic and mathematical modeling models].
To achieve your goals, the process of forming a loan portfolio must be managed. Management represents active participation and influence on the process, which implies the need to implement all management functions: planning, organization and control.
Let's look at all these functions. At the planning stage long-term and short-term goals of the loan portfolio and standards for its formation are determined. In this case, you can select certain values of the following indicators as goals to achieve:
weighted average risk of the loan portfolio;
structure of the loan portfolio by risk groups;
degree of diversification of the loan portfolio;
degree of protection against credit risk;
the amount of reserve sufficient to cover possible losses;
the amount of profitability of the loan portfolio as a whole, etc.
Achieving these goals is possible only if the optimal indicators of individual loans are achieved, such as the amount of risk of an individual loan, the profitability of an individual loan, etc. This requires consistent achievement of the goals of individual stages of lending: implementation of rules and procedures when assessing the creditworthiness of the borrower; compliance with the rules for drawing up loan agreements; carrying out timely control over the payment of interest and repayment of the principal debt by borrowers at all stages of the credit process.
Performing the functions of an organization implies determining the organizational structures and persons responsible for managing the loan portfolio, their duties and powers, responsibilities, etc. Typically, this stage includes:
selection of criteria for assessing the quality of loans that make up the loan portfolio;
development of a specific method for assessing the quality of loans (credit analysis procedures) based on criteria and training of bank personnel;
organizing work on classifying loans depending on the quality of collateral;
organization of work on classification of loans by risk groups .
development of ways to accumulate statistical information by bank to determine the percentage of risk for each group of classified loans, the share of overdue debt and the percentage of its write-off at the expense of the bank’s reserves in the context of individual groups of loans, etc.;
development of methods for determining the absolute value of credit risk in the context of groups of loans in the loan portfolio and the total risk for the bank;
introduction of methods for determining the amount of the reserve created to cover possible loan losses;
development of methods and procedures for assessing the quality of the loan portfolio based on financial ratios and segmentation of the loan portfolio.
Let us now imagine the following management function - control. This function is implemented in three main directions:
reducing credit risk for each specific loan (checking the intended use, checking the material security of the loan, the continuous process of monitoring the client’s financial condition, his creditworthiness and the status of payments);
reduction of loan losses at the level of the bank’s loan portfolio as a whole;
correct organization of credit operations.
An important point in managing a loan portfolio is the bank's strategy and tactics in the field of obtaining and providing loans, which constitute the essence of its credit policy. The following definition can be given: credit policy is a policy related to the movement of credit. Each bank forms its own credit policy, taking into account political, economic, organizational and other factors. The key element of credit policy is the tools it uses to meet the needs of clients for borrowed funds, expressed in the types of loans issued by the bank.
The credit policy formulates a general goal and determines the ways to achieve it:
priority areas of credit investments by industry, legal status;
types of loans and credit accounts acceptable to the bank;
loans that the bank prefers to abstain from;
preferred circle of borrowers;
undesirable borrowers for the bank in various categories;
policy in the field of providing loans to individuals;
a set of measures to control the quality of the loan portfolio.
After analyzing foreign economic literature, it should be noted that an effective bank credit policy should include:
the goal on the basis of which the loan portfolio is formed (indicating the characteristics of a good loan portfolio: types of loans, their repayment terms, size and quality of loans);
responsibilities for transferring rights and providing information within the framework of credit management;
the practice of applying for, checking, evaluating and making decisions on customer loan applications;
the necessary documentation attached to each loan application, as well as documentation that must be kept in the loan file;
rights of bank employees with a detailed indication of who is responsible for storing and checking credit files;
basic rules for accepting, evaluating and selling credit collateral;
description of the policy and practice of setting interest rates and commissions on loans, loan repayment terms;
a description of the quality standards that apply to all loans;
indication of the maximum size of loan investments (the maximum share of loans in assets);
description of the region served by the bank, where the bulk of credit investments should be made;
description of the practice of identifying, analyzing and resolving situations related to problem loans;
As a rule, the strategy and tactics of credit policy are developed at the central office (head bank) by the credit department (management), credit committee, and approved by the relevant bank management body.
The credit policy of a commercial bank has an internal structure, which includes:
the bank's strategy for developing the main directions of the credit process;
bank tactics for organizing lending;
control over the implementation of credit policy.
The main provisions of credit policy are communicated to the lower levels, which, as a rule, are the main implementers and on which the quality of the loan portfolio ultimately depends. The success of credit policy is determined by the practical actions of bank personnel who interpret and implement credit policy settings at all stages of the credit process.
Thus, the formation of a loan portfolio is a reflection of the strategy adopted by the bank's senior management. This is a process that is managed both at the macro and micro levels.
Management at the macro level (strategic) is aimed at creating an optimal loan portfolio as a whole, i.e. determining priorities, formation standards, portfolio sizes, and achieving optimal values of indicators characterizing the loan portfolio as a whole. These indicators include: portfolio profitability, investment structure and total portfolio risk.
Management at the micro level (current or operational) is aimed at optimizing individual stages of the formation and functioning of the loan portfolio in compliance with all procedures, instructions, methods, rules and other restrictions reflecting the strategy and tactics of the bank’s lending activities.
So, the credit policy of a commercial bank, being a fundamental element of the loan portfolio management process, determines the bank’s long-term targets in this area of activity, taking into account the general direction of the bank’s functioning, as well as the tools and procedures for the direct work of employees in the management process.
It should be noted that the credit policy pursued by commercial banks of the Republic of Belarus in 2003-2004 was determined by both external and internal factors that entailed changes in the structure of banks’ credit investments. External factors have the greatest influence on the formation of the credit market in the Republic of Belarus.
These factors include the following:
the tight monetary policy pursued by the National Bank of the Republic of Belarus;
refinancing policy of commercial banks;
inflationary processes in the economy;
currency regulation, in particular: devaluation of the national currency, the presence of mandatory sale of foreign currency earnings;
level of money emission;
availability of external sources of financing (servicing external credit lines guaranteed by banks and the Government).
The main internal factors include:
structure of the resource base of commercial banks;
quality of the loan portfolio;
availability and structure of the client base.
The author considers it necessary to note the negative phenomena in the credit process. Research shows that the lack of thorough analysis of loan applications, which many banks consider burdensome, is very significant. But the rapidly changing economic environment, competition, and the gradual spread of syndicated loans impose time restrictions on the analysis of the creditworthiness of the borrower, which conflict with the requirements of reasonable prudence.
Lack of preliminary testing of new credit technologies and products can lead to serious problems. This refers to the bank’s introduction of new credit technologies that neglect proven practice principles, procedures and methods for assessing the quality of loans:
Lack of parallel assessment of loans - re-assessment of loans in large banks should be carried out by a department that is not directly involved in providing loans and can provide a loan assessment based on financial statements, business unit work materials, etc. The purpose of re-evaluation is to ensure that loans are provided in accordance with the bank's policies and to provide an independent assessment of their quality.
The inability of the bank's controls to detect false information about the borrower - banks do not inspect the collateral on site, do not confirm its assessment, and do not analyze the financial statements.
Despite the fact that banks correctly set non-price loan terms, the bank’s lack of a clear methodology for calculating the interest rate can lead to an increase in the share of loans with an underestimated level of risk. Also, insufficient attention is often paid to the effects of the business cycle, which includes four stages - crisis, depression, recovery and recovery. Sectors of the economy such as trade and services experience rather sharp cyclical fluctuations. The activities of the borrower may be very sensitive to changes in such individual factors as commodity prices, competition, etc.
Insufficient development of internal bank documents regulating credit policy, decision-making procedures for issuing a loan, distribution of responsibilities between departments and employees of the bank also negatively affects the state of the loan portfolio. In conclusion, we draw the following conclusion. The success of credit activities is determined by the presence of a balanced credit policy, procedures for organizational and technological measures, and adequate credit control systems.
Nesterov A.K. Bank lending // Encyclopedia of the Nesterovs
The bank lending system forms a range of various services for bank clients, primarily credit programs that form the basis of credit relations, implemented in various types and forms.
Bank lending concept
Bank lending is a set of financial and credit relations in which the lender and the borrower participate, implemented in the form of credit and settlement operations on the basis of payment, urgency and repayment.
In the modern economic system, the development of the bank lending system occurs in conditions of intensification of the process of providing loans.
Modern commercial banks, as part of the lending process, use a set of organizational and economic techniques to provide loans and ensure their subsequent repayment.
Main elements of bank lending:
- Credit itself, as a special economic category;
- Subjects of lending: lender and borrower;
- Objects of lending: material assets, current and capital costs, coverage of obligations;
- Loan interest: payment of the cost of the loaned capital;
- Lending security is the real conditions for repayment of the loan.
Bank loan
Bank credit is the main form of modern credit.
Credit (lat. creditum - loan from lat. credere - to trust) or credit relations in the scientific and economic sense are such transactions or trade turnover in which one party cedes ownership to the other of any values, on the terms of repayment (that is, the loan must be repaid in the future), payment (that is, a fee will be charged for using the loan - interest) and urgency (that is, the repayment period is set one way or another).
A loan is an economic transaction in which the owner of funds or property provides them to the borrower on the terms of urgency, repayment and payment.
Credit as an economic category represents a certain type of social relations associated with the movement of value on the basis of repayment. Credit can be in commodity and monetary forms. In commodity form, it involves the transfer for temporary use of value in the form of a specific thing defined by generic characteristics. In the modern economic system, the monetary form of credit predominates. This means that the loan is provided and repaid in cash. The participation of money in credit relations does not deprive them of their specific features and does not transform credit into the economic category “money”. In a credit transaction there is no equivalent commodity-money exchange, but there is a transfer of value for temporary use with the condition of return after a certain time and payment of interest for the use of this value.
The repayment of the loaned value, which cannot be canceled by the will of one of the subjects of the credit transaction, is an integral feature of credit as an economic category. The essence of bank lending in all the diversity of credit relations is determined by the objective reasons for the existence of credit in a particular social formation.
Credit as a special form of value relations arises when the value released from one economic entity cannot enter a new reproduction cycle for some time and be used in business transactions. Thanks to the loan, this value is transferred to another entity experiencing a temporary need for additional funds, and thus continues to function within the framework of the reproduction process.
According to the author of this article, a loan is a relationship between a lender and a borrower, in which the lender transfers money or things to the borrower, and the borrower undertakes to return the same amount of money or an equal number of things of the same kind and quality within a certain period of time.
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Characteristic |
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Repayment |
Repayment means that loan funds received by the borrower for temporary use are subject to mandatory and timely return to the lender, the owner of the funds. |
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Urgency |
Urgency means meeting the deadlines for repaying the loan in full and meeting payment deadlines. |
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Differentiation |
Differentiation of loans means that loans are provided only to those who can obtain a loan and repay it on time. |
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Security |
The loan must be secured by the borrower's property. |
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Payment |
Payment is the need to pay for the use of credit funds, i.e. interest on loan. |
Depending on the nature or property of the collateral, a loan can be either personal, collateral, or real. In the modern practice of bank lending, assignment (assignment) of claims and transfer of ownership rights are used as a form of ensuring loan repayment. “Assignment is an assignment by the borrower (assignor) of a claim to a third party (accounts receivable) to the bank as security for repayment of the loan. The assignment agreement provides for the transfer to the bank of the right to receive funds under the assigned claim.” If the amount received on the assigned claim exceeds the loan amount and accrued interest, the difference between them is returned to the assignor.
When guarantees and sureties are used as collateral for loan repayment, a third party assumes property liability for the borrower. Guarantees are provided in the form of a special document (letter of guarantee) or avalization of a bill of exchange. The entity guaranteeing the borrower's obligation can be financially stable enterprises, special institutions with funds, and banks.
“The relationship arising by virtue of a loan between two parties constitutes a debt obligation.” A debt obligation arises not only with a loan, but also with any other credit turnover, for example, when buying and selling goods on credit, when buying real estate with deferred payment, etc.
Credit circulation, after barter in kind and money circulation, characterizes the third stage in the circulation of values, indicating a higher development of the economy.
The following categories of loans presented on the market of the Russian Federation can be distinguished:
1. Loans to individuals
1.1. Consumer loans: cash for any needs; issued by bank transfer for payment for goods/services; loans on plastic cards (credit cards, debit cards with overdraft, revolver cards).
1.2. Loans for the purchase of cars with/without collateral of the purchased cars (car loan).
1.3. Education loans.
1.4. Mortgage loans:
1.4.1. Loans for the purchase of real estate secured by the purchased property;
1.4.2. Loans for the purchase of real estate secured by existing real estate;
1.4.3. Loans secured by real estate.
2. Loans to legal entities.
3. State credit.
The table shows the classification of bank loans according to various criteria.
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Classification criterion |
Type of bank loan |
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By type of borrowers |
Loans to state enterprises |
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Loans to corporations |
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Loans to small industrial structures |
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Loans to individual borrowers |
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Loans to banks |
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Other loans (authorities, international organizations, etc.) |
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By industry |
Loans to industrial enterprises |
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Loans to trade organizations |
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Loans to agricultural enterprises |
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Consumer loans |
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By validity period |
On demand (on call) |
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Short term loans |
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Medium-term loans |
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Long-term loans |
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According to the repayment schedule |
Lump sum loans |
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Loans repayable in equal payments |
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Loans repayable in periodic payments (monthly, quarterly, etc.) – with a grace period – no grace period |
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By purpose |
Loans for temporary needs (financing current working capital needs) |
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Loans for capital investments |
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By provision |
Unsecured (blank) loans |
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Secured Loans |
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Guaranteed loans |
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Loans with other collateral (insurance) |
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According to the nature of the circulation of funds |
Seasonal loans |
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Constantly revolving loans (revolving) |
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By delivery method |
Targeted loans |
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Overdraft loans |
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Current loans |
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By area of application |
Loans for production |
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Loans to the circulation sector |
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By loan size |
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Based on loan payment |
Market rate loans |
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Loans with higher interest rates |
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Loans with preferential interest rates |
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By method of repayment of the principal debt |
Repayable in a lump sum |
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Repayable in installments |
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According to the method of charging loan interest |
Interest is paid at maturity |
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Interest is paid in equal installments |
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Interest is paid in uneven installments |
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Based on intended purpose |
General loan |
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Targeted loan |
Credit relations are fixed in the loan agreement.
A loan agreement is a written agreement between a commercial bank and a borrower, under which the commercial bank undertakes to provide a loan for an agreed amount, a certain period and for a specified fee, and the borrower undertakes to use the loan in accordance with its purpose and to return the loan issued by the bank, as well as to fulfill all agreement conditions .
There are the following unconditional principles of bank lending:
- principle of urgency (the loan is given for a clearly defined period);
- repayment principle (the entire loan amount must be repaid in full within the agreed period);
- payment principle (for the right to use a loan, the borrower must pay an agreed amount of interest). The listed 3 principles in the Law “On Banks and Banking Activities” (Article 1) are called conditions;
- the principle of subordinating a credit transaction to legal norms and banking rules (in particular, a written credit agreement/agreement is required that does not contradict the law and regulations of the Central Bank of the Russian Federation);
- the principle of immutability of bank lending conditions (provisions of the loan agreement/agreement). If they change, then this must be done in accordance with the rules formulated in the loan agreement/agreement itself or in a special annex to it;
- the principle of mutual benefit of a credit transaction (its terms must adequately take into account the commercial interests and capabilities of both parties).
A special group of principles should include the common rules of bank lending, which are used if such is the will of the parties expressed in the loan agreement, and should not be applied unless included in such an agreement (not unconditional principles):
- the principle of targeted use of a loan, meaning agreement with the lender on the intended purpose and use of the loan;
- the principle of secured bank lending (the loan can be fully, partially secured or not secured at all).
The subjects of bank lending are the lender and the borrower. Lenders provide their capital in the form of a loan at the disposal of the borrower, and the borrower receives this loan for a certain period of time with subsequent repayment.
Lenders are financial and credit organizations that accumulate and mobilize monetary capital, temporarily released in the process of circulation of funds, and provide temporary use to those who need additional capital. Commercial banks are limited by the state in issuing loans. Restrictions are imposed by the required reserve norm and the averaging coefficient. A bank can issue a loan by crediting the loan recipient's account with an amount much greater than what is held as the bank's reserve at the central bank. Thus, with the permission of the state, commercial banks participate in the process of creating the money supply.
The bank provides funds to borrowers in the following order:
Within the framework of the bank lending system, borrowers can be enterprises of any type, regardless of their form of ownership, and individuals. Acting as lenders, banks select those potential borrowers who meet the criteria for issuing a loan. Borrowers can be classified according to several criteria.
1. Type of borrower
- large and medium enterprises;
- small businesses and individual entrepreneurs;
- individuals;
2. Level of solvency
- stable, i.e. the client’s regular income allows him to repay the loan without difficulty;
- unstable, i.e. the client has an unstable income or “gray” income, in such cases additional guarantee and an increase in the loan rate are required to compensate for the risk;
- insolvent, i.e., having taken a loan, the client will not be able to repay the loan and interest on it.
For individuals, additional criteria have been adopted that allow a more complete assessment and objective characterization of the borrower:
- “Age” is a simple attribute that can take a value in the range from 20 to 100.
- “Property” is a complex attribute. Types of property can be a house, apartment, car, etc. Since the borrower can own several types of property, this attribute can have several states or none.
- “Income” is a simple sign. The value of this characteristic is taken to be the ratio of the borrower’s monthly income to the requested loan, as a percentage. Thus, the “income” attribute can take values in the range from 0 to 100 percent of the requested loan.
- “Was under investigation” is a simple sign, “Yes”, “No”.
- “Has guarantors” is a simple sign, “Yes”, “No”.
- “Has a higher education” is a simple sign, “Yes”, “No”.
Based on these signs, the final decision on the loan is made.
Depending on the size of the enterprise, clients are divided into three groups - individual entrepreneurs and small enterprises, medium and large enterprises. Individual entrepreneurs and small businesses can respond faster to the needs of the market and client. Their structure is lighter, which gives them the opportunity to quickly change directions of their business activities and receive high profits. But they usually have small equity capital, which leads to bankruptcy in conditions of fierce competition and some unforeseen changes of a political and economic nature. Large enterprises, on the contrary, are more inert. They do not respond quickly to changes in the needs of the market and a particular consumer, they do not often change the direction of their business activities, but they have significant net worth and can survive some unfavorable economic situations. Medium-sized enterprises occupy an intermediate position.
Borrowing enterprises can also be classified according to industries (agricultural, industrial, utilities, trade, services) and loan purposes (industrial, for the formation of working capital, investment, seasonal, for eliminating temporary financial difficulties, intermediate, for transactions with securities, import and export).
Bank lending objects
Objects of lending, being an important element of the bank lending system, represent directly what a specific loan is issued for, thus acting as the subject of a credit transaction. The object of bank lending can have a material form, or reflect a material process directly or indirectly. If the loan object has a material form, for example, real estate, raw materials, a car, etc., i.e. acts as a tangible object, the lender provides the borrower with a loan for its purchase. If the lending object is a direct reflection of a specific material process, for example, when an enterprise does not have enough own funds and revenue to make current payments, then the lender provides the borrower with a loan to ensure continuous payment turnover. If the object of lending indirectly reflects a material process, for example, eliminating the consequences of natural disasters that do not allow the enterprise to resume the production process, then the loan provided by the lender is used by the borrower to ensure the very possibility of resuming payment turnover.
Loan interest
In bank lending, loan interest is a fee paid by the borrower to the lender for the right to use credit resources.
The amount of loan interest is indicated as a rate and measured as a percentage. Loan interest is calculated for the period of validity of the right to use the loan provided.
The borrower and the lender pursue the goal of extracting a certain benefit by entering into credit relations within the framework of bank lending, the difference is that for the borrower this is a benefit from using the loan, and for the lender it is income on the loaned value.
Security for bank lending
Collateral in bank lending creates real conditions for the borrower to repay the loan taken from the lender.
The security of the loan is expressed as collateral. Collateral is property or other valuables that are given by the borrower to secure a loan. If the borrower fails to repay the loan, the lender has every right to satisfy his claim from the value of the collateral.
Providing collateral as security for a loan generally reduces the risk for the lender, and therefore reduces the interest rate. Thus, collateral for bank lending acts as a condition for sustainable lending, and loans can be secured, guaranteed, unsecured or have other security, such as insurance.
In modern conditions, approaches to securing a loan are significantly different, since the borrower’s material security does not always mean repayment of the loan, and, conversely, intangible factors can contribute to the full repayment of the loan. Such factors include financial reputation, credit culture, credit history, trust on the part of the lender, etc. Thus, the possibility of issuing financially unsecured loans appears in the case when there is a high level of organization of bank lending on the lender’s side, and the borrower takes advantage of its high trust.
In this regard, assessing the borrower’s creditworthiness, which is one of the stages of the credit process, becomes of great importance. “The creditworthiness of a commercial bank client is the borrower’s ability to pay off his debt obligations (principal and interest) in full and on time.” The level of the client's creditworthiness determines the bank's risk level when issuing a loan to a specific borrower.
“A creditworthiness assessment is a bank’s assessment of the financial condition of a potential borrower from the point of view of the possibility and feasibility of providing him with a loan and determines the likelihood of its timely repayment in the future.” The main purpose of evaluating loan documents is to determine the borrower’s ability and willingness to repay the required loan on time and in full.
conclusions
Bank lending is today the main form of providing funds for a certain percentage charged for the use of funds; one of the main forms of lending is a consumer loan. Credit relations are secured by a loan agreement, which ensures both the rights of the lender and the borrower.
The elements of bank lending are the loan itself, which is the capital being lent, and the subjects of lending, i.e. lender and borrower, lending objects, loan interest and loan security. The objects of lending are any material assets or expenses. Loan interest is charged by the lender for granting the right to use the loaned capital. Collateral in bank lending implies the creation of conditions under which loan repayment is possible.
The relationship arising by virtue of a loan between two lending entities constitutes a debt obligation, the subject of which is the direct object of lending.
One of the fundamental foundations of the credit system is loan interest, which is essentially a payment for the right to use loan capital and represents a special type of surplus value.
Lending security is a set of organizational, material and financial capabilities for creating real conditions for the borrower to repay a loan taken from the lender, whose security is expressed as collateral. In this regard, assessing the borrower’s creditworthiness, which allows the bank to decide on the possibility of providing a loan, becomes of great importance.
Literature
- Banking. / ed. Ya.E. Chernysheva. – M.: Unity-Dana, 2013.
- Banking. / ed. G.G. Korobova. – M.: Economist, 2012.
- Sviridov O.Yu. Finance, money circulation, credit. – Rostov-on-Don: Phoenix, 2011.
- Kuchkovskaya V.O. Banking - M.: Progress, 2012.
- Klyuchnikov I.K., Molchanova O.A., Klyuchnikov O.I. Credit and banks. – M.: Finance and Statistics, 2013.
- Chelnakov V.A. Banks and banking operations. – M.: Infra-M, 2013.
- Samsonova R.G. Finance and credit - M.: Prospekt, 2012
- Bocharova I.V. Analysis and assessment of the borrower’s creditworthiness. – M.: Knorus, 2011.
- Endovitsky D.A., Bocharova I.V. Analysis and assessment of the borrower’s creditworthiness. – KnoRus, 2010.
Lending to individuals and legal entities is one of the main activities that almost any bank engages in. The interest that the bank receives from providing funds is a significant part of the organization’s earnings. To understand what a bank’s loan portfolio is, you need to carefully study the information about the phenomenon and become familiar with its nuances.
Concept
A bank's loan portfolio is the total amount of debt that clients have to a credit institution at a certain point in time. It includes the amounts for which the loan agreement was concluded to the borrower. The amount of interest and possible net profit are not taken into account.
In simple terms, an organization’s loan portfolio is the funds that the company must receive after returning the amounts issued to customers for temporary use under certain conditions. The loan portfolio can be sold. The action permits the borrowers' debt obligations to be transferred in full to another firm or to be carried out as a partial sale. Current legislation allows other manipulations to be performed if they do not contradict established standards.
Types and stages of formation
Today there are 2 current types of loan portfolios that allow banks to make a profit: neutral and risky. The first includes contracts with clients who regularly return money to the bank and carefully fulfill their obligations. This type is considered the most expensive. The risky loan portfolio includes contracts of those persons who may delay payment or fail to make it.
Formation of a loan portfolio is one of the main tasks of every credit institution. It allows you to make significant profits. For this reason, organizations try not to neglect this opportunity. There are several stages in the compilation procedure. The company is obliged to take into account the principles of formation of the loan portfolio. There are the following stages that a bank must go through if it decides to start providing funds to citizens:
- Analyze factors that may influence the amount of demand.
- Build credit potential.
- Ensure that the capacity and loans that the organization plans to issue are consistent.
- Analyze loans provided to citizens, taking into account various signs to carry out the action.
- Assess how well the loan portfolio was formed and take into account its effectiveness.
- Develop and implement a list of activities that will help improve the existing portfolio.
The implementation of all stages will allow the credit institution to acquire a reliable way to make a profit. In the process, the structure of the loan portfolio can be identified by loan terms.
Control
A company that wants to make a profit on a timely basis must exercise control over the funds issued and ensure their timely return. This event is the management of the loan portfolio of a commercial bank.
Principles of operation – to obtain the maximum amount of profit while minimizing risks. To achieve this, a program is being developed within the company to implement these 2 main principles. The result of the action is the formation of a system that represents a balance between benefits and risks. By adhering to it, the company will be able to receive the optimal profit margin, while practically eliminating the risk of losing money.
There is a list of tools that companies use to manage their loan portfolio. The list includes:
- delimitation of powers of department heads for different types of loans;
- conducting a personal risk assessment for each applicant;
- individual development of an offer for each client wishing to start cooperation.
The credit institution uses its own methods to minimize risks and generate profits. All of them form the policy of the organization. If the offices of the institution are located in different cities, the criteria for behavior with borrowers for them are determined by the head office. A committee is formed in the company, which is designed to determine:
- the amount of money that the bank can provide as loans;
- the interest rate for a certain period of time;
- the need for collateral and guarantors;
- other nuances that can affect safety and profitability.
The credit committee is required to determine the degree of risks that the bank can expose itself to in order to make a profit.
In addition, the authority is competent to make decisions on the terms of providing funds to the organization’s key clients. This distribution gives branch managers the opportunity to independently resolve operational issues that do not relate to the organization’s global credit line.
Carrying out analysis
To understand how to get maximum profits with minimal risks, company employees are forced to analyze the loan portfolio of a commercial bank. Today, different types of loans can be in demand, and sometimes it is difficult to identify patterns. In addition, the company itself may provide widely varying offers. Only a comprehensive study of activities will make it possible to understand in which direction it is necessary to move in the future to improve the organization’s performance. There are 2 types of analysis that every company uses to make an assessment: quantitative and qualitative
- . To carry out type 1, the organization carries out the following activities:
- counts how many agreements were concluded within each credit program over a certain period of time;
- defines a population;
- takes into account the total amount of capital provided;
- compares the obtained indicators with a similar period of time;
compares the results obtained with the plan.
Conducting a detailed analysis allows us to identify the areas that are most popular with clients and make them priorities. In addition, the assessment allows us to identify the most risky areas of lending, in which transactions should be avoided. The results of the event can have a significant impact on the administrative decisions that the company's management will make in the future. It will be much easier to determine the volume of lending for the next period. The credit flow is based on the results of the analysis. It represents the possible amount of all funds that the company can allocate to provide loans to citizens and organizations.
- Quantitative analysis is not the only assessment method that the bank uses to build a policy and determine the nuances of forming a loan portfolio. By performing a qualitative analysis, institution staff will be able to identify:
- share of problem loans in the total amount of loans;
- the amount of overdue debt in the total portfolio;
- determine dynamics over a certain period of time;
- identify areas of activity that are developing more slowly than others.
The action allows you to determine the quality of the loan portfolio. The banking market is in constant flux. He is characterized by rapid changes. For this reason, experts advise performing both types of analysis regularly. This will significantly increase possible profits and minimize losses.
Bankruptcy and loan portfolio
The bank may have its own creditors. Their roles are usually played by:
- investors who put money into the company at interest;
- suppliers;
- enterprises with which the company has entered into cooperation agreements.
If a company realizes that it is unable to pay its own debt obligations, it declares itself bankrupt. However, the company is not immediately recognized as such. A temporary administration is appointed at the company, which takes measures to improve the current situation. If the actions bring results, the bank pays off its debt obligations to creditors.
However, actions do not always produce results. If the Central Bank of the Russian Federation sees that the organization cannot get out of the current situation, it declares the company bankrupt. In this case, a number of measures are taken to settle accounts with creditors. One of them is the sale of the loan portfolio.
Most ordinary people have formed the opinion that if a company closes, there is no need to return the borrowed funds. However, failure to fulfill obligations is fraught with serious sanctions. A bank that is trying to stay afloat will not stand on ceremony with debtors. The company may independently try to collect funds from debtors or transfer the right to another company by selling the loan portfolio. However, the action is not always performed. If a decision to declare a company bankrupt is not made for a long period of time, it can keep the portfolio to itself.
You will still have to repay the loan. If the company closes, debt obligations will have to be repaid through a branch of another bank.
Sale of loan portfolio
Most people fear that the interest rate will increase significantly after selling the portfolio. However, the new company does not have the right to change the terms of already concluded contracts. The money will have to be returned to the bank according to the same scheme that was in effect before the sale of the portfolio.