A critical study of credit risk management in the First Bank of Dissertation

A critical study of credit risk management in the First Bank of Nigeria PLC - Dissertation Example First one is reaction against bank losses from the Newton, it is realized that losses are unbearable after the losses have occurred. The second aspect is that that bank has been pushed by the recent progress in the area of financing securitization, commercial paper and competition with other non-banks to find possible loan borrowers. Big and stable companies have been seen to shift in the open market sources like those in bond markets of finance.The degree of risk of assumed losses can be minimized by organizing and managing the lending criteria with professionalism and also with active approach. Credit risk management issues can be measured if bank could tap progressively refined measuring technique.The adoption of more rigorous credit risk has been facilitated by the technological developments, predominantly the growing availability of low cost computing power and communication. A lot of banks still have a long way to go in the implementation of such new approaches.Competition in t he provision of financial services is increasing probable due to the acceleration of change in credit risk management in the banks which is viewed as an unavoidable response to an environment and, thus need to classify new and gainful business prospects and appropriately measure the related risk is mounting for the banks and other financial institutions. ... When banks extend their credit considering that borrowers will pay back their loan amounts then the extended credit to the borrowers may be at the risk of default, banks income decreases due to the necessity for the provision for the loans as some borrowers usually default. Commercial banks are exposed to an additional risk of variability as they do not have a clue of what proportion of loan borrowers will default. As a matter of fact almost all the financial institutions bear a certain degree of risk when these institutions lend to consumers and to the businesses, hence when certain borrowers fail to repay the loan amount, they experience some loan losses. Credit risk face by a bank has a possibility of loss arising in case of non-repayment of interest or principal or both. Payment delays and the credit risk among procedures can be transferred by the banks and other financial intermediaries (Demirguc-kunt and Huzinga, 2000). Certain techniques are developed for the measurement of th e credit risk which can be linked with pace of evolution (Laker, 2007; McDonough, 1998; Couhy, 2005; Brown, 2004). Different banks are differentiated with their adoption of different credit risk management policies. A bank having assets that constitutes of loans in their portfolio are relatively illiquid and exhibits the highest credit risk (Koch and MacDonald, 2000). According to the asymmetric information, good borrowers and bad borrowers are might be impossible to distinguish, which can result into an adverse selection and moral hazards problems (Auronen, 2003). Due to the adverse selection and moral hazards banks are led to substantial accumulation of non-performing accounts.