Study on Corporate Credit Monitoring Practices in Bank

 Study on Corporate Credit Monitoring Practices in Bank

Abstract

Banks conduct credit monitoring as post-approval operations for existing credit customers in order to identify early warning signs of credit risk. As a result, the research was successful in observing credit monitoring practices in Nepalese commercial banks. The research included a sample of ten commercial banks, five of which were private sector banks and five of which were joint venture banks. This study seeks to ascertain Nepalese bankers understanding of the importance of credit monitoring as risk detection tools. According to the study's findings, the periodic review of security documents, credit processing procedure, compliance of covenants established during credit approval, technique to control default, risk reporting, review of loan account, and regular follow-up were all used differently as credit monitoring practices in Nepal's private sector and joint venture banks. 

These variables were likewise shown to be significant predictors of credit monitoring. Furthermore, there was a favorable connection between credit monitoring practice and its components rather than default control method.

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Introduction

Credit monitoring management is a key activity of all banks and financial institutions that reflects in the credit portfolio's quality. Banks must continuously evaluate and adjust where necessary to ensure that any unforeseen risks are handled at the appropriate time before they occur. Because banking operations are so intertwined with monitoring, any ignored or reduced risk may have extremely long-term large and bad repercussions. It is impossible to prevent or eliminate credit risk. As a result, the only option is to exert control over it. Banks create credit for this reason. Banks have difficulties in minting the credit in pass categories. According to Diwan and Rodick (1992), large NPLs raise banks' concern about their capital position and, as a result, restrict their access to further funding in normal banking operations.

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Conclusion

Lending is a critical commercial activity for the bank. The loan portfolio is one of the bank's biggest assets and a major source of income, but it is also a significant source of risk to the bank's safety and soundness. In light of growing concerns stemming from the slowing of credit growth in various portfolios, there is a need for robust and effective structural mechanisms to be put in place at all levels. Because credit monitoring is a fundamental preventative tool for revealing regulatory and functional flaws in credit management. Monitoring is an essential component of our credit risk management procedures.

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