Decision Making in the System of Assessment and Insurance of Credit Risks

Abstract

The aim of this research paper is to study the system of assessment and insurance of bank's credit risks and develop a task on the assessment of credit risks in banks of the region. To achieve the stated goal, the paper proves the topicality of decision making in formalization and software implementation of credit risk assessment in commercial banks. The theoretical background and practical experience on ensuring the system of credit risk insurance are reviewed; the methodological recommendations on the evaluation and insurance of credit risks of banks on the basis of the task statement, formalization and implementation with use of simulation modeling via the Monte Carlo method are presented. The Russian segment of retail lending keeps growing at a high rate, which is accompanied with a much lower growth rate of household income alongside with a high market competition, which requires more careful attention towards mathematical modelling of the processes of assessment and insurance of credit risks of commercial banks aimed at loss reduction. This provision determines the topicality of the considered problem. The paper states the necessity of objective forecasting of credit risks. The task of credit risk management was set, formalized and implemented in the region's banks through calculation of the value of the required economic capital with account of unexpected risks generated by the bank's loan portfolio. The constituent part of the proposed methodology is rating of bank's borrowers on the basis of the model of rating functionality dependence on the factors characterizing different aspects of the borrower's activity (financial and economic analysis), which determine the current credit score of a borrower and hardly formalized characteristics of the borrower's risks, which identify the financial capability (qualitative analysis).