Monitoring the credit risk at the stage of credit utilization
Importance Instances of stagnation in the Russian economy and banking sector entail more bad debts (non-performing loans). The way they are identified and managed requires a bank to have an ongoing monitoring system so to detect probable bad debts of corporate borrowers. It is important to devise tools and credit risk identifiers, solvency evaluation methods, approaches to building client’s credit score models. However, when there is no effective mechanism to coordinate the interaction of the bank’s department in monitoring of the credit risk, including the mentioned components, at the stage of loan drawdown, it will not mitigate the credit risk to the lowest possible level and improve the quality of the credit portfolio. Objectives The research strives to attract the banking community’s attention to the monitoring process the largest banks have already tested and mastered. The article illustrates a step-by-step monitoring procedure of the lending transaction at the stage of credit utilization, considering today’s challenges and interaction of the bank’s departments involved into the lending process. Methods Upon analysis and synthesis of information on the credit cycle in a profit-making bank, I propose tools for monitoring lending transactions so to mitigate credit risks of corporate borrowers represented by medium-sized and large businesses. Results I outline a scheme for setting up the monitoring procedure that will reduce the default risks associated with loan repayment. Conclusions and Relevance It is crucial to set up a well elaborated and structured procedure for monitoring the credit during its utilization in order to make the monitoring process an integral part of the risk management.