Azerbaijani banking system to apply single model of credit risk assessment
Azerbaijan, Baku, Jan. 13 / Trend I.Khalilova/
The Azerbaijan Risk Professionals Association (ARPA) intends to hold debates on internal scoring problems (credit risk assessment) in the Azerbaijani banking, ARPA Chairman Rufat Mahmud said.
The debates are scheduled for February
"Banks are facing with problems due to lack of a single scoring standard in the banking sector. Therefore we want to familiarize with this problem and to learn from the experts to what extent is the lack of scoring system is problematic for banks," Mahmud said
It is possible to join efforts of all banks to establish a single model, he added
Scoring allows estimating the probability of future repayment capacity of a potential client or borrower who has already received loan. This evaluation method can be applied at various stages of the relationship between the company and the client: at the time of filing, in the assessment of the client's behavior and repayment
Most credit organizations have introduced scoring in many countries. At present the most important problem for these organizations is to reconfigure scoring models by changing banking loan policy
The loan scoring is expected to play an important role in large banking organizations in the future because of the Basel Agreement (Basel II) new requirements, despite the Central Bank does not see severe need to transfer to the new Basel II standards. The changes can be needed while determining the notions "unreliable" client, and the way to connect the forecast with "probability of default ", "exposure at default" and "lost of default".
The banks should develop scoring models on the basis of most recent data, periodically check the quality of their work, be able to quickly and cheaply reconfigure the model for changing credit policy. "The bank should always be able to control its own scoring".
Given the rapid growth of retail lending and the desire of banks to regional expansion, it is important to have a scoring system capable of growing together with business, to support work in various regions, operate with large amounts of data. Therefore, one of main selection criteria for the scoring system is its adaptability to the circumstances of a particular bank, in addition to the requirements of reliability and scalability.
At present 46 banks held a license for banking activities in the country including 23 banks operate with the participation of foreign capital
As of Dec.1, 2009, banks provided loans worth 8.064.6 million manat compared to 7.963.7 million manat as of Nov.1, 7.163.2 million manat as of January 1, 2009 and 6.855.5 million manat as of Dec.1, 2008
Of the total portfolio of loans, 272.9 million manat were overdue compared to 290 million manat as of 1 November, 159.8 million as of January 1, 2009 and 145.3 million manat as of December 1, 2008. Statistics of overdue loans does not include similar loans of non-bank credit institution Aqrarkredit.
According to the world experience, loans exceeding 10 percent are considered to be a problematic loan. Share of overdue loans has hit 3.8 percent since March, 2009 in the country's loan portfolio, the CBA reported
ARPA was registered in May 2009 and is in process of institutional establishment. The association targets reducing risks in the country's financial sector. The Association co-operate with the CBA and GARP (Global Association of risk Professionals)
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