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CREDIT RISK MANAGEMENT – AN APPROACH FOR ANALISYS, ASSESMENT AND MONITORING IN BANKING SECTOR
Abstract
Functioning of the modern economy and society is unthinkable without a well-functioning banking system. The modern commercial banks are key component of the financial system because of their role and position in the credit intermediation in our country. They are financial mediators who operate not only with their own funds, but above all with public capital. Banks buy and sell money by accepting on different accounts the free funds of their clients and grant them to those customers having need of. Banks earn from their ability to estimate and control the risks associated with money flows and to handle the transactions in an efficient and effective way. Credit risk occurs each time a bank grants credit, takes commitment or makes other investments. Full responsibility for the accepted risk lies with the bank management, and the achievement of higher returns on loans is usually associated with taking of greater risks. The main objective of the paper is to present a methodology for analysis, assessment and monitoring of credit risk through the implementation of a system of indicators. The attained results enable the bank management to control and examine the credit risk for each branch or region, but, at the same time, to utilize summarized data that allows an overview of the credit institution's entire business. This is extremely important given that each bank has a highly developed branch network throughout the country. Possibility is justified for practical use of data accumulated from the accounting, in order to dissect and assess the credit risk of commercial bankВ’s subunits (e.g. agency, bank branch, and region). Monitoring of the actual values achieved by the separate branch is proposed weighed against the bank levels. The objective is to determine bank subunitsВ’ rating on the basis of the identified key performance indicators. The utilization of this aggregate indicator intends to create conditions for the implementation of appropriate procedures and controls for ongoing monitoring of the credit risk accepted by the bank.
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