Evaluation of Management Risk: Risk that counter parties may default as a result of poor managerial ability including experience of the management, its succession plans and teamwork. Evaluation of Security Risk: Risk that the bank might be exposed due ':o poor quality or strength of the security in case of default. This may entail strength of security & collateral, location of collateral and support. Evaluation of Relationship Risk: These risk areas cover evaluation of limits utilization, account performance, conditions/covenants compliance by the borrower and deposit relationship. CREDIT RISK
Financial risk
Business/Industry Risk
Management Risk
Security Risk
Leverage
Size of Business
Experience
Security Coverage
Liquidity
Age of Business
Succession
Collateral Coverage
Profitability
Business Outlood
Team Work
Support
Coverage
Industry Growth
Relationship Risk
Account Conduct Utilization of Limit
Compliance of Covenants/Condition
Personal Deposits
Market Competition Barriers to Business
Step II
Allocate weight ages to principal Risk Components
According to the importance of risk profile, the following weight ages are proposed for corresponding principal risks. Principal Risk Components
Weight:
Financial Risk
50%
Business/Industry Risk
18%
Management Risk
12%
Security Risk
10%