Question

Q) How would you as a bank manager analyze and manage credit risk faced by your bank branch?

Answer 1

As a bank manager,I would manage credit risk faced by bank branch through following ways:

i)Thoroughly check a new customer's credit record:

ii)Start building the customer relationship:Most efficient tool for managing credit risk of customer is building a long term,trusted relationship.This can obviously take years to fully achieve.But start lying the groundwork by discussing our credit terms with new customers before we extend credit.This will help us gauge the customer's attitude to credit,and enssure that they clearly understand what we expect of them.

iii)Use credit and/or political risk insurance:This will protect us against non-payment,contract cancellation,breach of contract,expropriation,currency restrictions,political violence and more.

iv)Use Factoring:Under this we sell our receivables to factoring company for its cash value less discount.However,we should factoring on non-recourse basis,which means bank is not liable if the customer defaults.