3 يونيو

The Importance of Credit Risk

3 يونيو 2023

Credit risk is considered a very important element in any bank as it supports the improvement of day-to-day banks activities as well as serving the customers better. 

What is Credit Risk

Credit risk is the likelihood of a borrower (could be a person or a company) to fail in paying a loan which contains the owed principal amount plus interest, in which case the bank will suffer a loss from such failures. 

The Importance of Credit Risk Management to Lenders

The major benefit of integrated credit risk management is to reduce losses. Monitoring credit risk will allow the credit risk manager to identify any potential clients with high risk.

Given that loan default is considered to be the major risk for any bank, for that reason, the banking industry has been focusing more on credit risk management and the ability to manage its process is essential for their success. 

An effective credit risk management will definitely improve the overall performance of a bank and ensure a competitive advantage. 

The Importance of Credit Risk Analyst

A Credit risk analyst role is important to any bank’s efficiency as its designed to manage and assess credit risk, evaluate applications, ensure credit-worth of the borrower’s and to evaluate the borrower’s capacity to repay its financial obligations.

When the principal amount and interest are not being paid on time, the bank's cash flow will suffer. For that, the role of a credit risk analyst has become a survival strategy even though it's impossible to know exactly who will fail to pay but a properly assessing and managing credit risk can lessen the harm of such losses and protect the bank’s assets.