Volume 03 Issue 12-2023
92
International Journal Of Management And Economics Fundamental
(ISSN
–
2771-2257)
VOLUME
03
ISSUE
12
P
AGES
:
92-97
SJIF
I
MPACT
FACTOR
(2021:
5.
705
)
(2022:
5.
705
)
(2023:
7.
448
)
OCLC
–
1121105677
Publisher:
Oscar Publishing Services
Servi
ABSTRACT
This article presents a method for assessing the risks of commercial banks, mainly analyzing the credit risk, interest
rate risk and capital risk faced by commercial banks. A model for assessing the credit risk of commercial banks in
Uzbekistan is also reviewed.
KEYWORDS
Banking risks, credit risk, interest rate risk, capital risk.
INTRODUCTION
Banking business is considered one of the most
important sectors of the economy throughout the
world. Being high-tech, it is most susceptible to
ongoing changes at the macro and micro levels. What
changes are associated with the increasing
internationalization of credit institutions and markets,
the improvement of banking legislation and modern
computer technologies, an increase in the level of
competition, and the emergence of new banking
products and services in financial markets. Banks act as
a kind of “circulatory system of the economy,” so it is
important that the state’s banking system functions
smoothly, stably and efficiently.
Research Article
ASSESSMENT OF CREDIT RISK OF A COMMERCIAL BANK
Submission Date:
December 21, 2023,
Accepted Date:
December 26, 2023,
Published Date:
December 31, 2023
Crossref doi:
https://doi.org/10.37547/ijmef/Volume03Issue12-16
Tashmatov Shuhrat Hamraevich
Doctor of Economics, Professor, TSUE Department of Fundamental Economics, Uzbekistan
mental
Economics,
Uzbekistan
ics Sw
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Copyright:
Original
content from this work
may be used under the
terms of the creative
commons
attributes
4.0 licence.
Volume 03 Issue 12-2023
93
International Journal Of Management And Economics Fundamental
(ISSN
–
2771-2257)
VOLUME
03
ISSUE
12
P
AGES
:
92-97
SJIF
I
MPACT
FACTOR
(2021:
5.
705
)
(2022:
5.
705
)
(2023:
7.
448
)
OCLC
–
1121105677
Publisher:
Oscar Publishing Services
Servi
The sovereignty of the national banking system
depends on an effective organized system for
managing banking risks in the context of the rapid
development of the banking services sector. Experts
have named many different types of banking risks.
These are credit risk, interest rate risk, liquidity risk, risk
of loss of profitability and others. All these risks play a
significant role in determining the total amount of
banking risk, and each of these types of risks can be
devoted to separate work. Credit risk is the most
significant component of banking threats, since most
bank failures are caused by borrowers’ non
-repayment
of loans and the bank’s ill
-conceived risk policy, which
is especially relevant for the current economic
situation. In addition, the increasing activity of the
banking sector in the field of investment lending leads
to the need to protect the financial interests of
commercial banks and requires a significant
improvement in the quality of management of their
loan portfolio, as well as improving existing methods
for managing credit risk, as well as improving existing
methods for managing credit risk.
Literature review
The theoretical and methodological basis of the study
is the concepts and hypotheses of domestic and
foreign scientists in the field of finance, management,
banking and credit risk management. Many foreign and
domestic works are devoted to the study of problems
of credit risk management in banking.
G.V. Antoshina , A.I. Achkasov , A. Belikova , I.A. Blank
and other scientists can be highlighted . Their works
mainly considered risk issues from the point of view of
the theory of finance, lending and money circulation.
However, the study of modern priority areas of
banking activity encourages the search for new ways
to implement the tasks of credit security and
predetermines the comprehensive use of the
theoretical heritage of foreign and domestic scientists
for objective knowledge of this management process.
Analysis and results
A bank's lending activity is one of the fundamental
criteria that distinguishes it from non-banking
institutions. In world practice, a significant part of a
bank’s profit is associated with lending. At the same
time, non-repayment of loans, especially large ones,
can lead the bank to bankruptcy, and due to its position
in the economy, to a number of bankruptcies of related
enterprises, banks and individuals. Therefore, credit
risk management is a necessary part of the strategy
and tactics for the survival and development of any
commercial bank.
A portfolio of bank loans is exposed to all the main
types of risk that accompany financial activity: liquidity
risk, interest rate risk, loan default risk (credit risk) .
Credit risk management requires the bank to
constantly monitor the structure of the loan portfolio
and their qualitative composition. As part of the
profitability-risk dilemma, the bank is forced to limit the
rate of profit, insuring itself against excessive risk. It
Volume 03 Issue 12-2023
94
International Journal Of Management And Economics Fundamental
(ISSN
–
2771-2257)
VOLUME
03
ISSUE
12
P
AGES
:
92-97
SJIF
I
MPACT
FACTOR
(2021:
5.
705
)
(2022:
5.
705
)
(2023:
7.
448
)
OCLC
–
1121105677
Publisher:
Oscar Publishing Services
Servi
must pursue a policy of dispersing risk and preventing
the concentration of loans among a few large
borrowers, which is fraught with serious consequences
if one of them defaults on the loan.
The bank should not risk depositors' funds by financing
speculative (albeit highly profitable) projects. This is
closely monitored by banking supervisory authorities
during periodic audits . Credit risk is historically
inherent in the activities of a commercial bank. Despite
the fact that many studies have been devoted to bank
credit risk, there are, however, some differences in its
definition.
Assessing the credit risk of a commercial bank includes
an analysis of various factors that may affect the
borrower's ability to repay the loan. This process
includes the following steps:
1.
Collection and analysis of information about the
borrower: The bank collects information about the
borrower, including his financial statements, credit
history, income and expenses data, as well as
information about his business and the industry in
which he operates.
2.
Assessing the borrower's creditworthiness: Based
on the information collected, the bank assesses the
borrower's creditworthiness, that is, his ability to
repay the loan. For this, various methods are used,
such as analysis of financial ratios, scoring models,
etc.
3.
Determining the category of credit risk: based on
an assessment of the borrower's creditworthiness,
the bank determines the category of credit risk,
that is, the degree of probability that the borrower
will not be able to repay the loan. Typically, the
following credit risk categories are distinguished:
low, medium and high.
4.
Credit risk monitoring: after issuing a loan, the
bank continues to monitor the borrower’s credit
risk in order to monitor his financial condition and
promptly identify possible problems with loan
repayment.
5.
Development and implementation of measures to
reduce credit risk: if the bank identifies that the
borrower’s credit risk is increasing, it develops and
implements measures to reduce this risk. This may
include changing the terms of the loan (for
example, increasing the interest rate or providing
additional collateral), restructuring the debt, or
even going to court to collect the debt.
6.
Formation of reserves for possible losses on loans:
based on an analysis of credit risk, the bank creates
reserves for possible losses on issued loans, which
represent the amount of money that the bank is
willing to lose if the borrower does not repay the
loan. These reserves are taken into account when
calculating the bank's capital and affect its stability
and reliability.
Credit risk assessment in commercial banks of
Uzbekistan follows the same principles as in other
Volume 03 Issue 12-2023
95
International Journal Of Management And Economics Fundamental
(ISSN
–
2771-2257)
VOLUME
03
ISSUE
12
P
AGES
:
92-97
SJIF
I
MPACT
FACTOR
(2021:
5.
705
)
(2022:
5.
705
)
(2023:
7.
448
)
OCLC
–
1121105677
Publisher:
Oscar Publishing Services
Servi
countries. However, there may be some differences in
approaches and assessment methods related to the
characteristics of the national economy and banking
sector of Uzbekistan.
For example, banks may take more conservative
approaches to assessing the creditworthiness of
borrowers, given the high risks associated with
economic instability and corruption. Various national
methods and standards can also be used to analyze the
financial performance of borrowers and assess credit
risk.
In general, the assessment of credit risk in banks of
Uzbekistan should be carried out in accordance with
the legislation of the country, international standards
and the recommendations of the Basel Committee on
Banking Supervision. The Central Bank plans to tighten
requirements for issuing consumer, mortgage and car
loans to the population.
The population's debt burden will be calculated by the
ratio of average loan payments to the borrower's
average monthly income.
From July 1, 2024, the limit is proposed to be set at 60%,
and from 2025 to be reduced to 50%.
This parameter is already used in microcrediting to
individuals. Thus, the issuance of microloans is limited
to half the borrower’s income . In addi
tion, the
innovation will make it possible to whiten the income
of the population, evaluate unofficial sources, and also
push commercial banks towards responsible lending (
responsible lending ).
Average monthly income takes into account indicators
for the last 6 months:
wage;
pension payments and contributions to a savings
account;
income received in a bank account;
taxes paid;
interest, dividends and lease payments.
Moreover, if the loan repayment period exceeds 36
months, then the average monthly income is
calculated for the same period.
When issuing mortgage loans, the Central Bank plans
to set the loan term at 120 months (10 years).
At the same time, the new requirements will affect
only 85% of the banks’ loan portfolio. Credit institutions
will be able to dispose of the remaining 15% of the
volume at their own discretion - without complying
with the requirement that loan payments not exceed
half of the borrower’s average monthly income.
The regulator also envisages the introduction of
indicators for assessing credit risk - the loan/collateral
ratio and the debt burden indicator.
In particular, the “loan/collateral” ratio is calculated by
relating the loan amount to the value of the collateral.
Let's say the apartment costs $1,000 and the down
payment is $200. In this case, the borrower will need to
take out a mortgage loan of $800, and the coefficient
will be 80%. The Central Bank intends to limit the
loan/collateral ratio for mortgages to 80%, and for car
loans to 75% .
Volume 03 Issue 12-2023
96
International Journal Of Management And Economics Fundamental
(ISSN
–
2771-2257)
VOLUME
03
ISSUE
12
P
AGES
:
92-97
SJIF
I
MPACT
FACTOR
(2021:
5.
705
)
(2022:
5.
705
)
(2023:
7.
448
)
OCLC
–
1121105677
Publisher:
Oscar Publishing Services
Servi
The regulator emphasized that they assess the risks for
car loans higher than for mortgage loans. Prices in the
automobile market may be artificially high due to
limited supply. Moreover, when the market becomes
saturated, car prices may fall more easily than real
estate prices, he added.
In addition, from July 1, 2024, the borrower’s credit risk
will be assessed for consumer, mortgage and car loans.
The Central Bank has developed a measurement scale
for different types of lending with an assessment of
credit risk, calculated as the ratio of the loan/collateral
ratio and the debt burden indicator.
Thus, the debt burden indicator is calculated by
relating the amount of average monthly payments on
all loans and borrowings, including a new loan, to the
borrower’s average monthly income. The hi
gher the
loan/collateral ratio and the debt load indicator, the
higher the credit risk. The new requirements will apply
only to commercial banks and microfinance
organizations connected to the Credit Information
Bureau system. However, some types of lending,
including gray installment plans, will not be subject to
the new restrictions. However, the pace of consumer
lending is not expected to slow down once the
proposed restrictions take effect.
CONCLUSION
In the credit risk management system, a significant
place is occupied by the mechanism for banks to create
reserves for possible loan losses. At the same time, the
volume of contributions to the RVPS is very significant,
which imposes special requirements on justifying its
value, in order to determine the reserve, which allows
you to effectively respond to changes in micro and
macroeconomic factors, will reduce its value, thereby
providing an opportunity to direct the released part of
the funds to the development of the banking business
. Since loans serve as the main source of bank income
and at the same time the main cause of risk, its stability
and development prospects depend on the structure
and quality of the loan portfolio.
So, credit risk is the main risk that a bank faces in its
activities. It arises as a result of non-fulfillment,
untimely or incomplete fulfillment by the debtor of
financial obligations to the bank in accordance with the
terms of the agreement. Credit risk management is the
process of identifying and assessing risks, as well as
selecting methods and tools to minimize them.
Regardless of the classification, credit risk is
multifaceted and is associated with negative trends in
the business of the borrower, the counterparty to the
transaction, in the market environment, and with the
violation and failure of the debtor to fulfill its
obligations. Risk can arise at any stage of management
and management decisions.
REFERENCES
1.
Antoshina G.V. Basic approaches to credit risk
management // Bank lending. 2009. No. 4. pp. 10-
15.;
2.
Achkasov A.I. Active operations of commercial
banks. M.: Consalbanker , 2016. 173 pp.;
Volume 03 Issue 12-2023
97
International Journal Of Management And Economics Fundamental
(ISSN
–
2771-2257)
VOLUME
03
ISSUE
12
P
AGES
:
92-97
SJIF
I
MPACT
FACTOR
(2021:
5.
705
)
(2022:
5.
705
)
(2023:
7.
448
)
OCLC
–
1121105677
Publisher:
Oscar Publishing Services
Servi
3.
Belikova A. Methodology for assessing credit risk:
foreign experience and Russian practice // RCB.
Stocks and bods market. 2016. No. 5. P. 42-46.
4.
Blank I.A. Financial Risk Management: Financial
Manager Library. Issue 12. K.: Nika-Center, 2012.
5.
Kostyuchenko N.S. Credit risk analysis. St.
Petersburg: Skifiya , 2015. 440 p.
6.
Lavrushin O.I. Banking risks, M., KnoRus , 2014. 232
p.
7.
https://www.spot.uz/ru/2024/01/05/lending-
restrictions/
