Credit monitoring – is a system of bank control over the entire process of lending – it is manifested in the constant control of the passage of individual loans, as well as the quality of the loan portfolio as a whole.
Monitoring can be of two types: monitoring of the borrower and monitoring of the lending bank.
Almost all the units of the bank participate in the monitoring of the borrower: legal, security, operational, if necessary – units engaged in foreign exchange operations and securities transactions, analytical, and others. Of course, the credit department plays the main role.
Loan officer is obliged to fix the monitoring activities and report regularly about the progress made with the submission of the analytical conclusions about the level of risk for each loan, and credit manager – about a bank’s loan portfolio as a whole.
Watching for a loan is aimed at gathering information about the borrower during the period for which the credit is issued, to establish control over the change for the worse for the bank side of that data that formed the basis for an initial assessment of the creditworthiness of the borrower.
Monitoring of credit differs from an initial assessment of creditworthiness:
– According to the time of commission. Credit check is carried out before issuing a loan, and the observation starts after the issuance of the loan;
– According to intended purpose. Credit check is conducted to identify risk before making a final decision on lending, and credit monitoring is performed to determine the credit risk over time, which the credit is issued;
- According to periodicity. Credit check is carried out in its original form once, and monitoring of credit is current, i.e. periodic or systematic;
- According to volume – when calculating the creditworthiness, it is estimated reliability of the borrower and collateral.
The objective of monitoring the credit is as follows:
Protection of the bank’s property from losses;
Fulfillment of regulatory requirements of the Central Bank;
Compliance with loan covenants;
Maintaining the creditworthiness of the borrower at the proper level;
Improving the quality of loan portfolio;
Timely organization working with troubled lenders.
The object of monitoring is compliance with the loan agreement.
The bank draws attention to the timely submission of all documents specified in the contract (financial statements, certified by the Tax Inspectorate, the individual transcripts to the balance sheet, etc.), verifies the proper use of credit, timeliness and completeness of payment of principal debt and interests.
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