Collection Management in Consumer Lending

The collection phase of the credit cycle covers accounts that have failed to make one or more contractual payments – that is, they have become delinquent and are in default of their contractual obligations to repay. Non-delinquent over limit accounts are also to be covered by the collections phase.

Collection is to achieve the objective of minimising the combined collection expense and credit loss costs. It is one of the key steps in consumer lending credit cycle. [Read more…]

Credit Policy for Mortgage Collateral Assessment

Collateral acceptable to home mortgage loan should be clearly defined in credit risk policy. Collateral assessment is one the key process in mortgage loan in consumer credit.

Policy must clearly defines the specific requirement of robust collateral assessment and valuation. What is specific requirements on mortgage collateral in consumer lending ? [Read more…]

What is Stress Testing and Why It is Critical

Stress testing is one tool for the estimation of capital requirements under ‘extreme’ circumstances, by projecting the performance of key measures in conditions of economic downturn.

Stress-test analysis indicates the effect of economic downturns on credit quality and consequently capital requirements. This involves identifying possible events or future changes in economic/industry conditions, market liquidity, etc. [Read more…]

Why Credit Risk Scoring is Important for Consumer Lending

Credit risk scoring is the preferred assessment methodology given its consistency and objectivity in credit decision in high volume consument retail lending environment. All applications for products where there is a scorecard available should be credit scored.

Competition have led bank and other financial institutions to search for more effective ways to attract new creditworthy customers, and at the same time, control losses. It is in this environment that risk scorecards offer a powerful, empirically derived solution to business needs.

Aggressive marketing efforts have resulted in the need to process customers rapidly and effectively. It also has led to growing automation of the credit application processes. The Risk Manager is now challenged to produce solutions that can not only satisfactorily assess creditworthiness, but also keep the per-unit processing cost low, while reducing turnaround times for customers. [Read more…]

What is Enterprise Risk Management, Why Bank Must Have

Enterprise risk management framework is an approach to manage all risks in bank. This framework ensures that bank have a consolidated view of all its risks and manage its exposures in a holistic manner taking into account possible interactions between different risk exposures.

Enterprises risk management framework will ensure that all different risk types, both on and off balance sheet,  are managed on an integrated basis. This framework definition states that bank should have a proactive and systematic risk management processes to identify, measure and manage all the risk exposure inherent in bank activities. They are including Credit, Market, Liquidity and Operational Risk management framework for banks. [Read more…]