Investigating and identifying factors affecting credit risk and providing solutions to reduce it in Saderat Bank

Dissertation for Master's degree (M.A)

Trend: "Domestic Commerce" winter 2011

Chapter One

Generalities of the research

Introduction:

The word risk literally means risk and hazard, but in definition it means uncertainty and the possibility of deviation of the value of a variable from its intended value. It can also be defined as unexpected important events that are usually changes in the value of assets and liabilities. In other words, risk means the possibility of financial or non-financial damage as a result of an activity. Environmental uncertainty, the intensity of competition between organizations, new advanced technologies, the development of information and communication are major factors that have caused organizations and economic enterprises to face many risks during their lifetime and have made managers of organizations face various challenges.

Strategies and reactions of individuals and organizations in front of risk are often aimed at eliminating or hiding its effect, but this work can only be effective for a short period of time, and in the long run, if not paid attention to, it will manifest itself as a crisis. turn Therefore, the basic solution for this problem is risk management, not its elimination, which in this case not only prevents sudden shocks, but also provides the best use of this created opportunity. In these developed economies, the importance and role of risk management in achieving organizational goals is well known and its achievements are properly used, which in the long run means that risk is not only a threat, but also a suitable opportunity for the all-round improvement of the organization, while most developing countries still do not have this knowledge. It did not happen, and despite the significant damages caused by the lack of a risk management system on the property, assets, facilities, and human resources of these communities, significant efforts have been made to provide appropriate financing to compensate for these damages. and fulfilling their obligations (including guarantees and letters of credit) in Iran's economy, in the field of granting credit facilities to customers, a consistent and regular process of determining credit risk, grading, and also determining credit limits based on risk indicators is not considered, and the indicators are mostly based on expert judgment and credit committee. In the past studies, statistical methods such as logit regression models and Perbito audit analysis method were used for scoring and rating customers.

But in recent years, with the development of models based on artificial intelligence and innovative methods, many studies have been conducted on the application of these methods in scoring models in credit rating.   But unfortunately, in our country, this model has not been so successful and we are still facing a high number of overdue items in banks. In this alignment, Saderat Bank of Iran, due to its special structure, the expansion of branches, the number of units inside and outside the country, and the growing number of customers of this bank, has prompted the establishment of a comprehensive and comprehensive risk management system, especially at the level of credit risk, in order to minimize the loss of the aforementioned risk components that affect the bank's shareholders' equity and assets, as well as the quality of banking performance, in order to achieve the high goals. Non-repayment of the principal and sub-debt (fulfilment of obligations) by the recipients of the facility at the end of the receipt forms the basis of credit risk that can affect the change in the value of Ani Bank's assets and performance, and this can be caused by internal factors (such as weak credit management or inappropriate internal controls, insufficient follow-up, lack of continuous monitoring, and lack of systematic rating of customers) or by external factors (such as the economic record of the crisis, etc.). In this respect, one of the factors of success of credit decisions and banks should be suitable criteria for the complexity of activities and the economic environment around them. Risk assessment for customers to choose.(Agricultural Quarterly –Arab Mazado Ruin 1385)

Keyly, the bank's credit risk assessment should pay attention to three issues:

Probability of default: how likely is it that a person will not fulfill his obligations during the commitment period or in a specific period of time such as one year?

Range of credit risk: in case of default, what amount of commitments will be at risk?

Return rate: When defaulting, what deficit of credits at risk can be recovered by declaring bankruptcy or other settlement methods?

1-2-   History and records of the subject (research system):

Credit risk is one of the oldest forms of risk in financial markets. If we define credit as the expectation of receiving the principal and sub-loans paid, then credit risk is defined as the failure to meet this expectation. Credit risk is as old as the age and history of the loan and goes back to 1800 years before Christ. Credit transactions and lending were also common in ancient Egypt, and lenders have always faced the risk of non-repayment. Asgariyeh 2018)

2-Presenting the credit risk model in the entrepreneur bank (Ali Lotfi 2019)

3-Examining the factors affecting the credit rating of customers (Ibhtaj Mousavi 2018)

1-3-   The importance and necessity of the research position:

Despite the innovations and innovations in the banking system, the risk of non-repayment of the loan by the borrower is still It is also considered as the main reason for the failure of banks and the reason is that usually 80% of a bank's balance sheet is facilities granted to customers. The increase in credit losses caused by non-repayment of loans and the decrease in profitability of banks in the last decade has expanded the idea of ??measuring and controlling and eliminating credit risk. In fact, it is said that the probability of loss in a credit operation during which the borrower will experience financial helplessness or bankruptcy. This causes the loss of the value of the bank's assets. and credit institutions. Without following a proper credit risk management system, the effect of the loss of banking operations will be unpredictable and preventable. In fact, the purpose of credit risk management is to prevent the occurrence of such events and seeks to curb the credit risk in the bank's capital. The stability of the bank's assets and ensuring appropriate returns is another goal of credit risk management. Therefore, the existence of such a system gives the bank the possibility to create a loan repayment, the purpose of which is to achieve a suitable yield, and it also causes the bank to fulfill its public obligations and create value for the shareholders. Doing things such as using the credit risk management system, rating the credit risk of customers, predicting the financial consequences of existing borrowers and credit rating of new customers will facilitate the risk and analysis of customer credit changes. Therefore, the credit system provides access to the necessary and timely information regarding the affairs of individual credit customers and the overall quality of the loan. In addition to the mentioned cases, these systems are a suitable tool for estimating expected losses and unexpected losses. In the banking industry, one of the important issues that should be considered by credit policy makers is credit risk management. In order to manage and control the aforementioned risk, the credit rating systems of the customers are determined and they are assigned based on the risk that they will face to the bank. It is obvious that the use of such a system helps the bank in the selection of its customers and while controlling and reducing the credit risk, it improves the productivity level of the process of granting banking facilities. (Tat-Flah Shams Bank Quarterly 1387)

1-4- Research objectives:

1-Examination of how to identify bank customers (credit rating of bank customers based on the recommendations of the wing committee and supervisor's preparations)

2-Studies to determine the appropriate model in order to create an internal rating system for customers.

3-Examination of effective indicators in the rating of legal and real customers

4- Review study in order to optimally implement the project of internal credit rating of customers from the bank through outsourcing by one of the credit rating companies with the approval of the respected management of the bank (in the form of a trial implementation at a certain level of review and if necessary, correction of feedback and final implementation at the level of the bank network after going through certain steps and calculating the regulations). .