Credit policy of a commercial bank - determining priorities in the credit market and loan objectives. A credit policy maker should see the difference between policies and procedures. The policy defines the basics of credit policy, and the procedures are the ways of its implementation. Formulating the fundamentals of credit policy, the management of a credit institution fixes in the document the priority areas of the economy, the type of ideal client - the borrower and the nature of the relationship with him, methods of securing loans, etc. [1]
This term implies knowledge and understanding by the manager of the management process, including planning, organization, activity and control.
The credit policy of a commercial bank clearly defines the objectives of lending and contains rules for the implementation of specific goals, including standards and instructions that constitute methodological support for its implementation. As a rule, its development and improvement is carried out by the senior management of the bank (most often it is the president of the bank, vice presidents, credit committee). It formulates the main areas of credit activity: objective standards and criteria by which bank employees should be guided; main actions of persons making strategic decisions in the field of lending; principles of control over the quality of credit management in the bank and the work of internal and external audit services. Usually it is documented and includes provisions governing the preliminary work on the issuance of a loan, as well as the lending process.
Credit administration includes all four aspects of the management process and follows the logical process of satisfying a loan application. Even before it comes to a specific loan , loan officers, managers and the board of directors of the bank should develop a philosophy that covers all phases of lending activities. This philosophy, embodied in credit policy, is the first element of credit administration [2] .
Credit Policy Elements
In credit policy, there are 2 key elements: lending stages and regulated parameters and procedures [3] .
Preliminary work on the provision of loans
- composition of future borrowers;
- types of loans;
- quantitative lending limits;
- borrower credit rating standards;
- loan valuation standards;
- interest rates;
- loan repayment methods;
- monitoring compliance with the procedures for preparing a loan.
Credit Processing
- forms of documents;
- technological procedure for issuing a loan;
- control over the correctness of the loan.
Credit Management
- loan portfolio management procedure;
- control over the execution of credit agreements;
- terms of extension or renewal of overdue loans;
- procedure for covering losses;
- credit management control.
Credit Policy Objectives
The development and implementation of a credit policy by the bank is aimed at achieving the following goals:
- the assumption of only such a nature of risk that ensures the creation of high quality assets and a constant target level of profitability;
- the formation of a highly professional team of loan officers, providing high quality loan portfolio of the bank;
- granting loans to finance economically promising, profitable projects that are in line with the strategic goals of the bank;
- Promoting the development of long-term relationships with revenue-generating clients:
- refusal to use highly competitive, but unjustified lending methods.
The main functions of credit policy
The commercial function is to make a bank profit from various financial (in particular, credit) operations.
The stimulating function is to stimulate the accumulation of temporarily free cash in the bank and their rational use. The incentive for the client to abandon current consumption for a certain period is the possibility of obtaining additional income from funds placed in the bank on deposit, and the possibility of obtaining a loan from the bank is important to cover the temporary need for additional funds, while the incentive to pay off the debt as soon as possible The deadline is the need to pay interest to the bank for the use of the loan. The stimulating function of credit policy for banks is manifested in their desire to attract the cheapest resources on the market for a relatively long period and place them with maximum benefit.
The control function is manifested in the ability of credit policy to control the process of attracting and using credit resources by banks and their customers, taking into account the priorities determined by the credit policy of a particular bank.
The specific function of credit policy is only one, but very important. This is a function of optimizing the lending process. The action of this function is aimed at achieving the goal of banking policy.
Credit Policy Factors
Exogenous or external factors
- the degree of stability of the macroeconomic situation;
- business cycle phase;
- inflation;
- state budget deficit and external debt of the country;
- the level of material well-being in society;
- general condition of the credit market;
- competitors policy.
Endogenous, internal factors
- staff qualifications;
- existing customer base;
- loan approval process (risk tolerance for the bank);
- the amount of equity that can be used for lending, etc. [4]
As a rule, the credit policy of the bank should include at least such elements as [5] :
- development of a number of intra-bank regulatory documents on lending;
- credit risk management;
- loan portfolio management.
Based on domestic and world experience in optimizing credit policy, the following scheme for forming a credit policy of a commercial bank is recommended:
- definition of general provisions and objectives of credit policy;
- creation of a credit operations management apparatus and empowerment of bank employees;
- organization of the loan process at various stages of the implementation of the loan agreement;
- banking control and credit process management.
Credit Administration
A key element of credit policy is the administration of loans [6] , which includes:
- approval process
- credit affairs (fixing responsibility for opening and conducting credit affairs, access problem),
- security,
- guarantees and obligations
- credit audit monitoring,
- identification of problem loans and their administration,
- collection of bail,
- refinancing of loans, [7]
- interest waiver policy,
- write-off at a loss
- review of provision for loan losses.
Global trends in credit policy of Russian banks
The main trends:
- a more responsible approach of banks to the adoption of credit risks after the crisis, while maintaining this trend in the future [8] ;
- decrease in investments in securities of banks specializing in retail lending;
- active increase by credit institutions of the share of products and services that bring them commission fees, in addition to operations on the securities market;
- restoration of the number of loans issued by banks to the pre-crisis level (loans to GDP ratio of 41%) [9] ;
- development of remote banking systems ( RBS ): multibank payment systems, promotion of new products using Internet banking systems, integration of ATM networks [10] .
RBS systems are intensively developed using information kiosks, which, however, are traditionally designed for individuals . An exception is the terminal for automatic selection of financial services for small businesses [11] (the developer is Uralsib Bank ). This service will allow an entrepreneur to enter key data about his company without leaving his home or office and immediately receive information about the conditions of the bank for financing his project. However, this system has not yet been put into operation and works only in test mode.
Notes
- β Credit policy of the bank and mechanisms for its implementation (inaccessible link) . Date of treatment July 29, 2011. Archived April 3, 2012.
- β Morsman E.M. Credit Department of the Bank. - M .: Alpina Publisher , 2004 .-- 47 p. - ISBN 5-9614-0034-4 .
- β Elements of credit policy
- β Credit policy of a commercial bank (inaccessible link) . Date of treatment July 29, 2011. Archived February 23, 2010.
- β Credit policy of the bank
- β Credit policy of a commercial bank
- β What is credit refinancing. How to refinance a loan. . fincult.info. Date of treatment June 30, 2018.
- β The future of the Russian banking sector: growth potential, challenges, development scenarios
- β The banking system of Russia: trends and priorities of post-crisis development, tasks of modernization of the economy (Inaccessible link) . Date of treatment July 28, 2011. Archived March 5, 2016.
- β Russian banking sector: growth potential, challenges, development scenarios
- β Seliger 2011 prepares businessmen of a new formation (inaccessible link)
Credit policy of the bank - implies credit activities of the state in the bank. Since politics is a state activity