Risk evaluation is easy with Balanced Scorecard system

The entire world is living on credit. Or it is more correct to say that the entire world lived on credit several years ago just before the financial meltdown. However, the banking sector seems to be gradually recovering, and some banks have already restored credit programs to millions of customers.

Issuing a loan or a credit is also associated with certain amount of risk. Indeed, a bank gives money to a person or organization hosing to get money back (plus interest). If the bank does not get its money on time, it faces certain problems. Besides, it is a very painful situation for borrower as well. Credit risks need to be always measured, even if this is very difficult to do.

Use BSC System for proper loan risk management

Use BSC System for proper loan risk management

By assessing credit portfolio you are able to protect yourself against undesirable problems with the borrowers and potential partners who may turn insolvent. What is the best tool to evaluate credit risks? Finance managers and credit experts recommend using Scorecard System to measure loan and credit risks. Armed with this tool you will be able to feel more confident in the changeable business world.

Use reliable tools to measure credit risks

Use reliable tools to measure credit risks

So, what are the most typical ways to use Balanced Scorecard system to measure credit risks? First of all this tool will be very helpful for bank managers. On the other hand Balanced Scorecard system is a great tool to be used by borrowers who might change their decision to ask for a credit if they see that there might be risks of possible insolvency. So, as you can see credit risk metric is helpful for both parties, as failure to pay credit is unpleasant for both bank and borrower.

As known, Balanced Scorecard system employs the principle of KPI evaluation. KPIs are key performance indicators, and they are different in different business spheres. So, what KPIs are measured in credit risk evaluation?

Capital adequacy. This is actual amount of capital divided by EC amount and multiplies by 100.

Gross Debt Service Ratio is property taxes plus annual loan payment divided by Gross Customer Income and multiplied by 100.

Customer credit quality. This figure is base don credit history and reports.

Sure, there are many more KPIs which directly or indirectly evaluate loan risks. But with Balanced Scorecard you will be able to measure the most important ones, thus getting the most accurate results.

Risk evaluation systems will be surely helpful for all market participants who deal with issuing and taking loans.

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