Analysis of Credit Risk Measurement Models in the Evaluation of Credit Demands

Abstract

The mission of the loan associations is simply to convert deposits collected with lower interest rates, into credits with higher interest rates. However, return of this cycle involves high potential of risk. In order to minimize the risk, several financial models are utilized. Since these models are insufficient, new models are required to be developed. The purpose of this study is to compile literature reviews on credit risk measurement methods used for assessment of credit demands. The method used is literature scan. This scan was conducted with printed publications and articles from the databases scanned. The information is compiled from these sources. It is discussed that risk mitigation should be given importance instead of guarantee, for evaluation of credit demands with Basel II criteria. A credit requesting entity's future prediction by examining financial statements can only be possible utilizing financial statements analysis techniques (comparative financial statements analysis, vertical analysis, ratio analysis and cash flow statements) together. As a consequence, in 2009 a software ,named "Scoring Model" has been developed for giving credit decisions which uses the techniques together mentioned above. This software merely based on a model is proposed to be integrated into banking system after being reprogrammed as commercial software.

Correlation analysis between risk measurement and project success of small and medium contractors in Gauteng, South Africa

“…According to Potensis (2017), the construction sector accounts for 7% of global employment and contributes 10% to the global Gross Domestic Product (GDP). Some factors attributable to the poor performance of the industry are the undesirable health and safety (H&S) record (Rehacek, 2017a;Sayilir & Farhan, 2017), the recurrence of projects delivered over-budgeted cost, scheduled time and often not at the expected client's satisfaction levels (Albasara et al, 2018;Chileshe et al, 2016). However, these projects are predisposed to a high degree of risk; a reoccurring phenomenon in construction that, if it materialises, can deviate the project from its preestablished goals.…”

“…Projects are based on teamwork with varied skilled and interested stakeholders, and the cooperation among them is formed around extensive, dissimilar, and interconnected processes (Muchenga, 2016). Such complexity is further exacerbated by several external environmental factors (Chileshe et al, 2016). Regardless of the heterogeneity and importance of the CI with its intrinsic risks, risk management has been sparsely applied and practised in recent years (Moshesh et al, 2018) and its reputation in contrast with other industries is relatively weak (Simota et al (2017).…”

“…Furthermore, in examining the impact of projects' characteristics on risk management implementation in construction enterprises, Chileshe et al (2016) stressed that the time commitment is related to many aspects of risk identification and analysis. In the same way, Fernando et al (2018) concluded that organisations in the CI irregularly practise formal risk management owing to the projects' just-in-time characteristics.…”

“…As a result, "standard deviation" is the most common unit now used for RM. However, Canbolat and Gümrah (2015) argued that evaluating risk measurement by computing the relative frequency of known events is often inappropriate, untrustworthy, and misleading as underreporting could occur. Moreover, Omer and Adeleke (2019) observed that using historical data usually does not reflect the probable severity of an occurrence, simply the consequence; they reflect results, not causes.…”

“…Considering the argument that risk matters and that it affects how managers and stakeholders make decisions, it follows logically that RM is a critical step towards managing risks. Canbolat and Gümrah (2015) observed the contrast between risk management and RM and defined risk management as the inclusive process that an organisation follows to outline a business strategy, to detect potential risks, to quantify them, and to understand and control their nature, while RM is a component of risk management that deals with the evaluation of risk exposures. A sample of SMEs was solicited to value the extent to which their company performs risk measurement findings.…”