The Impact of Credit Facility on Commercial Banks
Introduction
Most of the banking institutions are identified in their strategy because of the appropriate management and assessment of the risks which include the credit and non-performing loans. Through the assessment of the risks, the organization can create a weighted decision and well plan. This all can help the success draw out from the process. In the classification of various system that are involved in the assessing and managing the risk, the credit risk management is an emerging activity that lies within the organization.
Facilitating the Credits
The failures in lessening the poor performance of the banks can be tested through the procedures and the processes involved in their nature of work. From the simple transaction, different problems may arise. The failure of the customer to disclose any personal information during the application can be the greatest reason that might influence the overall performance of the banks. It is an specific factor that a customer should give the honest information during the loan application to avoid or prevent any further casualties on the side of the banks.
Credit Risk Management
The credit risk management is popular among the banks and other financial resources. The main purpose of the credit risk management is to lessen or diminish the effects of the non-performing loans came from the consumers. The procedures and processes of the banks and their affiliates create a great impact in the flow of the financial resources. However, various economic uncertainties, international markets, or financial constraints can cause the financial status to be unstable. Aside from the financial deficiencies, the other causes of the financial constraints are the lack of confidence among the financial market to provide external help for the needed consumers, lack of capability to gather the information of the consumers, and the lack of push to have an aggressive debt collecting. The non-performing loans can definitely cause too much stagnation of the financial sources. To provide the credit risk management effectively, the banks and other financial institutions should asses the credibility of the loaners. In terms of an enterprise, the assessment of their credit portfolio is enough to provide a system that continuously promotes the reviewing the risks and the capability of the business enterprise to pay.
It is very common that the banking process limits the occurrence of the risks during every transaction; therefore, the bank managers should also rely on the effectiveness of the imposed regulations to anticipate the future risks. From the different financial indicators, the position of the institution on the market failure are still depends on the internal process and the actions of the people. The economic theory in banking encompasses the interest and income theory in which is the basis of the cash flow approach in bank lending (Akperan, 2005). Credit risk management needs to be a robust process that enables the banks to proactively manage the loan portfolios to minimize the losses and earn an acceptable level of return to its shareholders. The importance of the credit risk management is recognized by banks for it can establish the standards of process, segregation of duties and responsibilities such in policies and procedures endorsed by the banks (Focus Group, 2007).
Credit risks appear in banking institution because of the uncertainties plagued the financial system. The uncertainties remain a major challenge in country. Still, the major approaches applied by the banks are the continuing efforts on research and close monitoring. Banks believe that the research and monitoring are the key sources of uncertainties like data generating institutions and the treasury (Uchendu, 2009). The market structure is important in banking for it influences the competitiveness of the banking system and companies to access to funding or credit investment. The economic growth affects the structure and development of the banking system. In addition, the vast knowledge in risk assessment and managerial approach is recognized as part of the development. Moreover, because the banks and the processes are highly regulated, it became very useful in assessing the effects or impact of the credit risk management in the banks and even in other financial sources (Gonzalez, 2009).
Conclusion
The lack of aggressiveness is popular in the developing countries and this is perceived as the banks specific factor that can also contribute to the non performing debt problem. Banks should understand that the non-performing loans are closely related the banking crisis. In the economic development of the country, it is impossible to perform when there is a financial crisis and partnered on the economic downturn.
References:
Akperan, J., (2005) Bank Regulation, Risk Assets and Income of Banks in Nigeria [Online] Available at: http://www.ndic-ng.com/pdf/adam.pdf [Accessed 12 October 2010].
Focus Group, (2007) Credit Risk Management Industry Best Practices [Online] Available at: http://www.bangladesh-bank.org/mediaroom/corerisks/creditrisks.pdf [Accessed 12 October 2010].
Gonzalez, F., (2009) Determinants of Bank-Market Structure: Efficiency and Political Economy Variables, Journal of Money, Credit &Banking, 41(4)
Unchendu, O., (2009) Monetary Policy Management in Nigeria in the Context of Uncertainty. [Online] Available at: http://www.naijalowa.com/wp-content/uploads/2009/08/Monetary-Policy-Management-in-Nigeria-in-the-context-of-uncertainty.pdf [Accessed 12 October 2010].
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