Credit Management

Banks accept deposits for the purpose of lending. Lending/ Credits are the largest assets in a bank balance sheet and a major source of income. Banks are highly leveraged in the financial industry. Banks' stock in trade is the deposits from the customers. Since banking is a low-profit margin business therefore there is not much room for judgmental errors. Banks' primary obligation is to depositors and not to borrowers.

 Credit Management by definition is to supervise the execution and conduct of credit. The organization is charged with the responsibility to monitor and enhance the quality of the credit portfolio as a whole. Credit management needs to be supportive of those activities that ensure quality in a systematic way. Practically credit management includes each of the management functions in support of portfolio quality control.

 Credit Management process

Credit Management must be an integral part of the management process. Credit Management may be considered to have four elements;

1.  Planning process; planning process may include loan policy formulation, loan process identification, and competitive assessment.

2.   Organizing process; the organizing process may include a loan approval mechanism, job description, and staffing

3.  Directing process; directing process is include functional credit training, development of written credit procedure, and development of interpersonal skills that relate to landing such as negotiation and listening process

4.  Controlling Process; it may include loan review, problem loan management, corrective action, monitoring tools such as comments on periodical statements of finances, and performance appraisals by identifying variance and addressing the variances.