Credit Risk Blindspots: Hidden Biases in Lending
Bias is an inherent human tendency, and recognising and minimising it requires deliberate effort. No matter how advanced the financial models or how experienced the analysts, Credit Risk decisions are inevitably influenced by personal experiences and context. The challenge lies in identifying when this reliance on past-experience crosses the line into bias.
Assessing Borrower Liquidity: The Monsters Hide in the Details
For lenders, the Current Ratio is the staple measure of a borrower’s liquidity position. A good ratio shows that the inflows in the short term will easily take care of expected outflows, such as creditor payments. However, this is only a superficial analysis. The real story lies beneath the surface, where surprises may be lurking.
How many Credit Covenants are necessary in a Sanction Letter?
While there are no set parameters on how many credit covenants should be there in a Sanction Letter, one has to keep in mind that ratios tend be inter-linked. One does not become a better banker by stipulating multiple covenants. Two covenants are sufficient to trigger any recourse against the borrower.
Credit Sense – Approach and Perspectives
Risk officers and Relationship managers are always at each other’s throats owning to difference in their perspective, often missing out what lies beyond the optics. Sumit Kakkar draws from his experience to share some key things that both should look at.