A Research Project On Credit Risk Management Basic

The theoretical framework or theoretical review can be defined as a set of linked idea that facilitate to better understand the content of a research project. ( Investopedia.com) According to Van Gestel and Baesens in their book â€Å"Credit risk management basic† in order for banks to ensure a good credit risk management and to maximize its profitability it is very important that banks pays particular attention to four practices. Those practices are the selection of a solvable counterparty, limitation is to fix a limit risk exposure regarding the counterparty, diversification spread the credit risk in order to avoid a concentration on credit risk problem this will allow the bank to not bear the risk alone and finally the Credit echanment is†¦show more content†¦The Credit Scoring is a set of decision models and the underlying techniques that help in the decision to grant consumer credits (Thomas 2002). In summary, we can say that Credit Scoring is risk management tool that aims to predict the probability of default of a new loan using the previous loans. Thus, the purpose of the Credit Scoring is to predict risk and not to explain it. 1.1.2 The five C’s model â€Å"When a small business applies for a business loan, a bank or other lender follows a certain protocol when evaluating the application. One thing the bank uses is the 5 C s of credit analysis to evaluate the application for the loan.† (Peavler, 2016) Character: The first criterion is of course an analysis that covers the client (honesty, transparency, experience, training, past successes, strengths, etc.). The lender looks at the character of the leader and company foremost. The lender will ask himself question such as, do I trust the person before me to grant him a loan? Is he going to repay the loan as agreed? In addition, the lender will look at the quality of the managers in place. Even in difficult times, a team of competent managers will manage the activities of the company and take the