Credit Risk Management

Technology is essential in the measurement of risk because through the latter, the bank can have standardized ways of dealing with it. Besides these, robust technology is also critical in the actual process of managing the risk. (Damiano and Massimo, 2006) The latter facts may seem quite basic to the bank, however, a word of caution is necessary when dealing with this issue. Because of the forces of globalisation and the technology wave, many banks and financial instructions are merely rushing to the latest IT products without due consideration of their personal needs. This is the point at which these financial institutions go wrong. the most sophisticated form of IT can be worthless if it does not meet the needs of the bank. Consequently, there should be more emphasis on the process rather than the product in this regard. If all bank needs is a simple IT tool to meet their needs, then they should opt for only what they need. In certain cases less is more. credit risk management ought to take precedence over other systems that are required to implement them. Numerous companies tend to operate from the wrong side thus making it increasingly difficult to proceed with one’s choices. As can be seen above, the most important function among these bankers is the management and development of a bank’s portfolio. Information technology is, therefore, a vital tool in effecting strategies for effective risk management.
Aside from technology, a bank needs to have a comprehensive strategic policy for the achievement of effective credit risk management. It should be noted that this forms the backbone of successful credit risk management. The principles and guidelines provide a background against which banks can operate in a sound environment. These policies serve as directional pointers to financial institutions because they are a set of rules that can be applied in a series of credit situations facing them. (Brigo and Pallavicini, 2007)
The bank understudy needs to put in mind the fact that those companies that have failed in their credit risk management endeavors have done so because of a lack of commitment to their policies and procedures. Having a set of rules that have been smartly laid out by a series of credit risk management experts is just one side of the story. The other side is largely composed of a commitment to the management of this policy. At the end of the day, policies and procedures are just rules that have been agreed upon. What makes the fundamental difference is when those rules become part of the day to day operation of a financial institution. Consequently, the bank’s credit risk management policy can be deemed effective when backed by the commitment of the bank’s employees. (Pykhtin, 2003) Additionally, credit risk policy should not be examined through structural perspectives alone. Many countries have specific guidelines for credit risk policies and so do certain categories of institutions. If these policies are adhered to blindly, then chances are that they may be just ineffective as not having the policies themselves. Consequently, the case study should have a vision and strategy for its credit policy. When a company operates under a long term strategy, then they eliminate the risk of getting caught in every day nifty gritty and can instead focus their attention on the more visionary aspects of their credit policies.