Question

a) The internal records of the bank are very important sources of information to identify problem accounts. What aspects in the internal records may indicate that the financial position of a customer is deteriorating?

b) What alternatives should a banker consider when dealing with high risk/problematic accounts?

Answer 1

a) Aspects to be considered to understand the financial position of a customer:

• Cash position of the customer: The cash position of the customer is very important to analyze the financial position of the customer. If a customer's financial position is deteriorating, it means he may not have sufficient funds for circulation or use or insufficient account balance for a long time
• Debt position: If the customer does't repay the debt properly, then the financial position of the customer is deteriorating. Repayment History shows the graph of the repayment capacity of the customer
• One or more loans at a time: If the customer is handling one or more loans at a time without proper
• Dealing with suspicious transactions: If a customer transfers money or deals with other accounts which is suspicious, the account becomes problematic such that the financial position of the customer deteriorates

b) Alternatives a banker must consider when dealing with high risk/ problematic accounts:

• Check for Red Flags about the transactions of the customer: It is better to watch the baking activities of the customer to avoid the risk of getting into high risk transactions
• Advise the customer about the financial position: It is a good alternative to advise the customer about the cash position, debt repayment and transaction activities on a regular basis to improve the customer's financial position and also advise the customer to take calculated risks