A bank is the one place that has to give out loans and carry out investment proceedings all the time, but this is what puts a bank in the most vulnerable spot of bearing heavy losses. Among the debtors of a bank, there will inevitably be a handful or more defaulters, this probability of not being able to pay the borrowed amount by a debtor that incurs loss on the bank is known as credit risk.
The process by which this risk is estimated, understood and helped to mitigate at the same time is known as the process of credit risk management. This process is something that every single bank must have and for the purpose they should recruit some company or individual who has had a lot of experience in handling things as sensitive as this in the past.
Dessa Bokides is an individual who has twenty years and more experience in the world of finance, she has handled financial cases relating to not just credit risk but corporate strategy, internal audit, investor relations, accounting, treasury, tax and several others. Her expertise is what has given her very respectable posts time and again at the places that she has worked in, such as ProLogis where she was the Chief Financial Officer and Executive Vice President.
The idea of credit risk management gained impetus during the global financial crisis when numerous banks suffered huge damage because of these defaulters. There are many challenges that any credit risk management team or individual has to face while working for the process, but that should not hinder the effective performance of the managers.
While there are challenges there also exist ways and means that can help in bringing about an effective credit risk management. To start with this kind of a work, the management team needs to get a hang of the overall working of the bank- all its products and activities. The kind of credit risks that have been in the past can be got by viewing the risks involved at the three different levels – individual, customer and portfolio.
Often it is found that most of the information related to these customers are scattered among the business units. The only way a bank can understand whether a capital reserve accurately reflects the risks or not; or whether a loss in a loan reserves adequate cover potential short-term credit loss or not can only be done through thorough assessment of the risk.
Experts of the field like Dessa Bokides will definitely support the fact, it only by the implementation of an integrated, quantitative credit risk solution that the recurring losses can be reduced. This is a simple portfolio measure that any bank can take. Along with this there should be integrated a little more sophisticated credit risk management system, it should involve – monitoring of limits and scoring in the real time, strong stress-testing capabilities and capabilities of data visualization. There should be business tools too that will be instrumental in gathering important information and handing it over to those in the team who need it the most.