Credit Risk Management - Loan Approval Process

• Author: Lulzim Rashiti - Branimir Kalas - Lazar Drec - Nino Stameski
• Position: University of Novi Sad, Faculty of Economy, Subotica
• Pages: 286-290

ISSN 2410-3918

Acces online at www.iipccl.org IIPCCL Publishing, Tirana-Albania

Academic Journal of Business, Administration, Law and Social Sciences Vol. 2 No. 1

March 2016

286

Credit Risk Management - Loan Approval Process

PhD (C.) Lulzim Rashiti

University of Novi Sad, Faculty of Economy, Subotica

PhD (C.) Branimir Kalas

University of Novi Sad, Faculty of Economy, Subotica

PhD (C.) Lazar Drec

University of Novi Sad, Faculty of Economy, Subotica

PhD (C.) Nino Stameski

University of Novi Sad, Faculty of Economy, Subotica

Abstract

The aim of this study is on understanding the international regulations issued by Basel I,

Basel II and Basel III to best supervise and manage credit risk management policies. Part of

paper will focus on the description and impacts of the regulations and the pivotal importance

they play in providing a sound banking system.

Credit risk represents another important element that will be analysed considering that it

lays the foundation during the loan consideration and approval process. The paper will also

explain in detail procedures and responsibilities shared along the process of loan acceptance

by a banker. To sum up, the overall process from application to loan approval or denial will be

explained pointing out the implications that are faced along the way.

Keywords: Credit, Loan, Risk management, Basel regulations.

Introduction

The Committee of Basel I was established in 1974 by the governors of central banks

from ten countries (France, Germany, Belgium, Italy, Japan, Holland, Sweden, United

Kingdom, USA and Canada, and Swiss which had a minor role) aimed to improve

supervising guidelines that central banks or similar authorities impose on banks. This

committee provides banking policy guidelines for both sides of member states and

non-member states and helps the authorities to implement their suggestions.

Basel I – The first agreement was reached in 1988 and mainly focused on credit risk,

by creating a classification system of bank assets. This classification system grouped

banks assets in five risk categories:

• 0% - Cash money in NCB, Government Debts;

• 0%, 10%, 20% or 50% - Debts to the public sector;

• 20% - Debts to development banks, OECD banks debts, debts of non-OECD

countries (less than 1 year maturity);

• 50% - Residential mortgages;

• 100% - Private sector debt, debts from non - OECD banks (over 1 year maturity),

etc.