Credit Analysis and Lending Management (4th)

Abstract

Lending constitutes one of the most important functions of any financial institution. In a typical bank nearly 70 percent of assets are invested in only one type of asset: loans and advances. If the lending function is not managed properly, it could lead to credit quality problems and eventually threaten the existence of the financial institution. No wonder stakeholders such as governments, the central bank, regulatory authorities (such as the Australian Prudential Regulation Authority) shareholders, analysts and the general public carefully watch the quality of the loan portfolio of any financial institution. Committees reviewing the financial system in any country invariably refer to the problem of credit quality. To manage the lending function properly and to mitigate credit quality problems, adequately trained staff are required. In Australia, the Martin Committee stated back in 1991 that ‘banks should ensure that their assessment of risk and other related areas such as ability to repay are thoroughly investigated … Bank loan officers should be adequately trained in risk assessment techniques’. Many Australian universities subsequently introduced courses (variously called ‘Credit Risk Management’, ‘Credit and Lending Decisions’ and so on) that impart the knowledge and skills required for credit risk analysis