Credit Risk Assessment in Consumer Lending - Pov
Credit Risk Assessment in Consumer Lending
September 2012
ABSTRACT
This Point of View is focused on Credit Risk Assessment in the Consumer Lending domain including Auto, Consumer Durables and Personal loans, but excluding Mortgage. It looks at assessment using Credit Risk Modelling as well as Subjective Analysis.
INTRODUCTION
Consumer lending has been beset with severe issues since the debt crisis of 2008. Rising unemployment and decreasing repayment capabilities have brought in increased risk in credit. Consumer deleveraging has also not helped increase the lending volumes of banks.
Banks are beginning to intensify the holistic assessment of risk, risk modeling as well as creation of scoring models. Historically banks had a legacy of poor credit standards, insufficient risk management and focus on volume growth. Regulation has also played an important part in an increased focus on risk and compliance.
Consumer lending in broad business terms refers to Auto finance, Personal loans, Consumer durable loans and Mortgages. This point of view focuses on Credit Risk Assessment in Consumer lending. Credit risk in Consumer Lending is defined as the possibility that a bank borrower will fail to meet his obligations in accordance with the borrowing terms. Credit Risk Assessment is a holistic approach to determine the extent of Credit Risk for each borrower.
Credit Risk Assessment in Mortgage with its distinct subject matter has not been considered in this Point of View.
CURRENT SCENARIO
For the purpose of this Point of View the scope of Credit Risk is Transaction risk or Default risk. Default risk is defined as the risk of loss when the bank considers that the obligor is unlikely to pay its credit obligations in full or is more than 90 days past due.
Delinquencies are projected to rise slightly in the US as more aggressive lending practices return to the industry. Credit Risk Assessment has increased in significance in the light of the growing
September 2012
ABSTRACT
This Point of View is focused on Credit Risk Assessment in the Consumer Lending domain including Auto, Consumer Durables and Personal loans, but excluding Mortgage. It looks at assessment using Credit Risk Modelling as well as Subjective Analysis.
INTRODUCTION
Consumer lending has been beset with severe issues since the debt crisis of 2008. Rising unemployment and decreasing repayment capabilities have brought in increased risk in credit. Consumer deleveraging has also not helped increase the lending volumes of banks.
Banks are beginning to intensify the holistic assessment of risk, risk modeling as well as creation of scoring models. Historically banks had a legacy of poor credit standards, insufficient risk management and focus on volume growth. Regulation has also played an important part in an increased focus on risk and compliance.
Consumer lending in broad business terms refers to Auto finance, Personal loans, Consumer durable loans and Mortgages. This point of view focuses on Credit Risk Assessment in Consumer lending. Credit risk in Consumer Lending is defined as the possibility that a bank borrower will fail to meet his obligations in accordance with the borrowing terms. Credit Risk Assessment is a holistic approach to determine the extent of Credit Risk for each borrower.
Credit Risk Assessment in Mortgage with its distinct subject matter has not been considered in this Point of View.
CURRENT SCENARIO
For the purpose of this Point of View the scope of Credit Risk is Transaction risk or Default risk. Default risk is defined as the risk of loss when the bank considers that the obligor is unlikely to pay its credit obligations in full or is more than 90 days past due.
Delinquencies are projected to rise slightly in the US as more aggressive lending practices return to the industry. Credit Risk Assessment has increased in significance in the light of the growing