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  • Assessing Credit Risk Management in Financial Institutions

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    aleo2208
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    Examining financial ratios related to loan quality reveals information about a financial institution's management of credit risk and sustainability of operations. Banks provide quarterly reports disclosing delinquent loans, loans that are no longer accruing interest, and reserves for future losses. While future losses from unpaid loans are uncertain, sound institutions maintain sufficient capital reserves to cover potential losses.

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    Assessing a financial institution

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    Examining financial ratios related to loan quality reveals information about a financial institution's management of credit risk and sustainability of operations. Banks provide quarterly reports disclosing delinquent loans, loans that are no longer accruing interest, and reserves for future losses. While future losses from unpaid loans are uncertain, sound institutions maintain sufficient capital reserves to cover potential losses.

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    16 vues2 pages

    Assessing Credit Risk Management in Financial Institutions

    Transféré par

    aleo2208
    Examining financial ratios related to loan quality reveals information about a financial institution's management of credit risk and sustainability of operations. Banks provide quarterly reports disclosing delinquent loans, loans that are no longer accruing interest, and reserves for future losses. While future losses from unpaid loans are uncertain, sound institutions maintain sufficient capital reserves to cover potential losses.

    Droits d'auteur :

    Attribution Non-Commercial (BY-NC)
    Téléchargez comme DOCX, PDF, TXT ou lisez en ligne sur Scribd
    Signaler comme contenu inapproprié
    sur 2

    Assessing a financial institution's management of credit risk reveals information about

    sustainability of operations. The analysis involves examining financial ratios related to


    loan quality. Future loss from loans that are not repaid is never certain. However, sound
    institutions have sufficient reserves of capital for potential losses (see References 1, page
    29). Banks provide quarterly reports to the Federal Financial Institutions Examination
    Council disclosing loans that are delinquent and those that are non-accrual---meaning no
    longer accruing interest income on the bank's financial statements. These reports also
    disclose reserves for future losses.

    Instructions
    things you'll need:

     Most recent Call Report---the Consolidated Reports of Condition and Income


    filed with the Federal Financial Institutions Examination Council (FFIEC).
     Calculator

    1. Ratio Calculations
    o 1

    Divide the bank's reserve for loan loss by total loans. An adequate reserve
    for potential losses is generally a minimum of one percent.

    o 2

    Calculate the bank's coverage ratio by dividing the reserve for loan loss by
    non-performing loans. Non-performing loans consist of non-accrual loans
    plus loans that are 90 days or more overdue but still accruing interest. A
    result that exceeds 1.5 is considered sound.

    o 3

    Divide the bank's loans that are over 30 days past due by total loans. This
    ratio indicates adequacy of credit underwriting standards and collection
    procedures. The past due loans should be a low percentage of total loans.
    A rising percentage of past due loans over several quarters is indicative of
    a bank's deteriorating loan quality.

    o 4

    Add the bank's total equity and reserve for loan losses. Divide the result
    into non-performing loans. A ratio of more than 1 indicates that the bank
    has insufficiently managed risk by having inadequate capital for potential
    losses (see References 2).
    Read more: How to Assess Credit Risk Management in Financial Institutions | eHow.com
    http://www.ehow.com/how_6900906_assess-risk-management-financial-
    institutions.html#ixzz1HEWJhvqw

    http://www.ehow.com/how_6900906_assess-risk-management-financial-institutions.html

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