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Credit Monitoring and Compliance

In: The Practice of Lending

Author

Listed:
  • Terence M. Yhip

    (University of the West Indies)

  • Bijan M. D. Alagheband

    (McMaster University and Hydro One Networks Inc.)

Abstract

This chapter shifts the spotlight away from credit origination to credit management, which essentially ensures that a borrower stays in compliance with the loan agreement and that any signs of credit quality deterioration are handled promptly. The chapter outlines the reasons for credit monitoring and discusses best practices that well-managed banks have in place, such as monitoring loan covenants, loan documentation and collateral, reviewing the borrower risk rating and credit exposures, and implementing a watch list process to flag deteriorating accounts. The chapter discusses the requirements of an effective monitoring system (e.g., enterprise-wide centralised data, accuracy, and timeliness) and the benefits from automating the process, one of which is detecting deteriorating credit trends for individual borrowers and for a loan portfolio.

Suggested Citation

  • Terence M. Yhip & Bijan M. D. Alagheband, 2020. "Credit Monitoring and Compliance," Springer Books, in: The Practice of Lending, chapter 10, pages 421-430, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-32197-0_10
    DOI: 10.1007/978-3-030-32197-0_10
    as

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