Journal of Risk and Financial Management

Running Head: CREDIT AND LENDING
CREDIT AND LENDING
Name of the Student
Name of the University
Author Note

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CREDIT AND LENDING
Executive Summary
The primary purpose of this report is to analyse the various issues faced by the
internal risk rating systems of a bank. The study is supported by studying the credit risk
management process through an internal rating system. It is found that the developed bank
faces various challenges in implementing the various difficulties in following the regulations
of Basel Committee of Banking Supervision. The banks should focus on improving the
techniques more meeting with the various changes related to credit- risk profiles. Bank can
also use FICO score, and debt-to-income ratio to estimate credit extend of the customers.

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CREDIT AND LENDING
Table of Contents
Introduction................................................................................................................................3
Discussions.................................................................................................................................3
Conclusion..................................................................................................................................9
References................................................................................................................................10

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CREDIT AND LENDING
Introduction
Internal Risk Rating System is a system that helps the financial institutions and other
banks, to control the risks that have incurred during the lending process. It also helps to
manage the creditworthiness of the borrower. The first part has discussed on the Credit Risk-
rating management process and the Risk-rating system. The next part has addressed the
various issues related to internal rating systems of the bank, and the last section has provided
specific recommendations to banks on how to execute the risk rating system. The intense of
this paper is to analyze the various issues, that bank has faces in implementing the internal
risk rating systems.
Discussions
Credit Risk Management
Credit Risk management is the process of quantifying the various risks associated
with the bank's capital reserves. Credit risks is that probability of bank loss due to the failure
in making payments to any type of debts. Credit Risk management process will help the bank
to mitigate against these type of bank losses at the given period (Bulbul, Hakenes and
Lambert 2019). Banks and other financial institutions have to follow specific steps to lend
credibility to the borrower. The following are the steps for credit risks management:
1. Adequately understand the overall credit risks by viewing the credit risks of the
customers or individual or to a company portfolio.
2. Implement an appropriate method of quantitative credit solution in the risk assessment
process.
3. A proper model should be implemented for monitoring and controlling the entire
management process.