Credit Risk Management in Banking and its Implementation in Iran

Abstract

The main task in the system of banking in Iran is equipping the resources and allotting them as bank subsidies (facilities) to the customers. In this system most of the bank’s assets belong to depositors i.e. bank hold people’s properties and lends them to customers. To make decision about lending, an overall study should be made to minimize loan risks especially the credit risk, which is the main risk. An important question to be asked here is: “is there any meaningful relationship between credit risk indices and customers’ commitments? To answer this question we first determine the credit risk indices, which are the most related to the customers’ payback and then we design a model by which a number, as the credit index of borrower, will be assigned to the borrower. This credit index is a criterion which helps us to decide about lending.