The current global economic scenario has left the world in a disturbed state and it has jolted the entire financial system badly. It has also presented a set of credit risk challenges for different lending firms at a global level. And they are following strict principles in lending funds to borrowers to mitigate the financial losses in their financial systems.
Due to the prevalent situation of the global financial crisis, it has now become imperative for different financial systems to gather necessary information about credit risk associated with customers. In order to accomplish this task, different financial systems are now following innovative tools and strategies to gather data about customers.
Many financial experts have expressed that the selection of the right strategies for credit risk is important for regulating any financial environment and gaining a business advantage. Moreover, they have highlighted that certain principles need to be kept in mind to judge the ability of a borrower to repay his loan.
Collection of Customer Data
According to financial experts, the main obstacle in judging the gravity of credit risk is the lack of sufficient data related to customers. And it is important to take necessary actions to collect customer data to judge their capability to repay their borrowings. There are certain points related to customer credit risk that need to be studied for it.
These are credit history, capacity to repay the capital, the loan’s conditions, and associated collateral. Only the availability of transparent data related to customers can help to develop a robust credit risk management system for any financial firm.
Meet Credit Risk Challenges
The financial experts have added that it is important for any financial firm to know about the credit risk challenges that it can only do if it has a robust credit risk management system. Through this, it is possible for any financial firm to take necessary actions to overcome the credit risk challenges. This is a crucial thing to do for financial firms to sustain in the current situations in the global financial market.
Develop a Risk Modeling Framework and Use Risk Detection Tools
It is the duty of a financial firm to make use of credit risk detection tools and develop a risk modeling framework to gain detailed knowledge on this subject. Following this step can help a financial firm to take the right action at the right time that can contribute to preventing the condition of bankruptcy.
The biggest thing that credit risk managers can do to mitigate losses due to risks in the emerging markets is to gather appropriate knowledge about current market trends. Reading some good books on credit risk management can help any financial institution to prevent the risks associated with financial systems.
1. Indonesia (Risk Analyses on Islamic Banks in Indonesia) – by Dimas Bagus Wiranatakusuma, Imamuddin Yuliadi and Ikhwan Victhori
https://www.intechopen.com/online-first/risk-analyses-on-islamic-banks-in-indonesia
2. Russia (Credit risk management in a Russian banking system) – by Artem Kovalev
3. Romania (Credit Risk in the Romanian banking system: Empirical Evidence from an ARDL Model) – by Eftychia Nikolaidou and Sofoklis D. Vogiazas
4. Financial Risk Management: A Practitioner’s Guide to Managing Market and Credit Risk
5. Financial Risk Manager Handbook (Wiley Finance)