Using Credit Risk Ratings to Determine Asset Quality (Asset Quality Ratings)
The “A” in the CAMELS rating system used by bank regulators is perhaps one of the most important factors they consider when examining financial institutions.
“A” represents Asset Quality, and it is scrutinized extensively when banks are examined. Studies continue to indicate the primary reason banks fail is poor Asset Quality, followed closely by poor policies, procedures and management. Asset Quality is so important that it forms the basis of capital requirements assigned by regulators and is viewed by the investment community to establish value.
Banks approximate Asset Quality and the potential for complete repayment by using Risk or Credit Ratings. Credit Ratings are based on the financial institution’s underwriting standards. If a financial institution’s underwriting standards are weak, then Credit Ratings won’t properly reflect the risk in the loan portfolio.
Regulators expect community banks to have credit risk management systems that produce accurate and timely risk ratings. Regulators consider accurate classification of credit risk among their top supervisory priorities. Learn how to establish or improve the risk rating system in your financial institution.
- Underwriting Standards Required to Expose and Establish the proper Credit Risk Rating
- Key Control Attributes Required for the Grading System to be Effective
- Regulatory Classification of Assets
- Areas of Exposure to Consider When Assigning a Risk Rating
- Latest Developments in Rating Credit Risk
- Establishing a Clear and Measurable Method of Assigning Credit Rating that is More Objective and Less Subjective
- Using Credit Risk Rating to Establish and Maintain an Adequate Allowance for Loan and Lease Losses
Senior/Chief Credit Officers, Consumer Loan Officers, Loan Review Officers, Branch Managers, Commercial Loan Officers, Credit Analysts, Compliance Officers, Senior Loan Officers
Jeffery W. Johnson started his career with SunTrust Bank in Atlanta as a Management Trainee and progressed to Vice President and Senior Lender of SouthTrust Bank and Senior Vice President and Commercial Banking Division Manager for Citizens Trust Bank of Atlanta.
Most of his career has been spent in Credit Administration, Lending, Business Development, Loan Review, Management and Training & Development. He has managed loan portfolios representing a cross section of loan types including: Large Corporate, High Net Worth Individual, Middle Market Companies, Small Business, Real Estate and Non-Profit Organizations.
Mr. Johnson is now a training professional in the financial industry by leading various seminars covering important topics relating to issues in financial institutions. He teaches actively for fifteen state banking associations in the United States, Risk Management Association (RMA) and individual financial institutions nationwide. He co-authored a training course entitled “Lending to Service and Other Professional Organizations” for RMA in 2001.
Mr. Johnson earned a B.A. Degree in Accounting from Morehouse College in Atlanta; a MBA in Finance from John Carroll University in University Heights, Ohio; Banking diploma from Prochnow School of Banking at the University of Wisconsin and a Graduate Certificate in Bank Management from the Wharton School of Business at the University of Pennsylvania.
Institute of Certified Bankers: Visit http://www.icbmembers.org/login.aspx for instructions regarding self-reporting. Estimated credits: 2.5 CE Credits
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