Lending to small and medium businesses. Small business lending risk management Small business credit risk management analysis
To solve the problem of activating the investment process, the Russian banking system has all the necessary resources. By the end of the first quarter of 2000, the total capital of operating banks increased by 2.8 times compared to the minimum level registered in March 1999 and amounted to 169.2 billion rubles, which is 1.4 times more than the pre-crisis level (in in nominal terms). However, in real terms, capital banking system so far is only about 76% of the pre-crisis level. The ratio of the total capital of the banking system and Russian GDP is about 3.8%. This is much less than not only the level of developed countries, but also many countries with economies in transition, where this ratio is at the level of 15-20%. However, this is enough to move the investment process in the Russian economy, especially in its real sector, off the ground, and first of all - due to investment lending subjects of small and medium business.
Obvious tendencies of stabilization and a well-known recovery Russian economy at the turn of 2000 marked a new stage and new challenges for the development of small business, as well as the practical implementation of versatile support measures small business. A feature of this stage, as we believe, is the realization of all the advantages of a fairly mature stage of development of Russian small business, the active inclusion of the latter in the formation of the general business environment of the Russian economy, its full-fledged market and competitive foundations. In our opinion, a more active development of small business in the real sector of the Russian economy will also be a distinctive feature of this stage. There are hopes that the activation of small business development will occur against the background of general growth industrial production and the proposed restructuring of the manufacturing sector. Finally, in our deep conviction, an important component of the process of integrating small businesses into the general business environment of the Russian economy should be strengthening its interaction with the institutions of the banking and credit system, active use of banking resources by small enterprises to solve their investment problems.
According to surveys, the majority of Russian small businesses rarely used the services of bank lending (According to surveys, in 1999 only 37.1% of Russian small enterprises used bank lending services. See. Novikov V., Sheregi F. Small business and banks: the paths diverge?//Russian Economic Journal. 1999. No. 9--10. P. 56), but without this, Russian small business will never truly get on its feet. It cannot, of course, be said that the practice of bank lending to small businesses has froze at zero. A number of Russian banks are actively working in the field of lending. Thus, some mechanisms have been developed for attracting foreign financial resources for MP. In particular, loans are actively issued under the program of the European Bank for Reconstruction and Development through several authorized banks. The most notable among the latter in lending to SE are Sberbank of Russia and the Small Business Credit Bank. However, this is clearly not enough, and the situation in the field of bank lending to small businesses should be regarded as unsatisfactory.
Firstly, the volume of lending to small businesses is hardly noticeable even against the background of a general low investment activity in the country. The insignificance of lending to SE, in principle, cannot provide significant profits to banks, on the one hand, and to some extent satisfy the needs of small enterprises in borrowed funds, on the other. Secondly, the predominantly short-term nature of the vast majority of loans issued by banks to small enterprises, that is, loans that cannot solve the problems of expanding the borrower's activities, is obvious. Working capital loans are undoubtedly very important to them, but without the possibility of obtaining long-term borrowed funds, the entire activity of the SE is usually limited to a struggle for survival with a perspective of three to four months.
The low volumes of lending by banks to small enterprises are due, along with the generally poor investment climate in the country, to high risks of lending to small enterprises. Moreover, the low profitability of SE lending due to the already mentioned low volumes of lending itself, as well as the high transaction costs of the banks themselves, make the risk of SE lending the main obstacle that stands in the way of expanding bank lending operations with small businesses. In our opinion, the problem of high risks can, if not be solved, then at least radically weaken its acuteness. To do this, it is necessary to implement the processes and mechanisms for managing the risks of banks in lending to small businesses.
Specificity of risks of lending to SE
Operations of banks on lending to small businesses are characterized by certain specifics. Here, both the increased level of all traditional sources of risk and the presence of specific “risk zones” of the smallest business are obvious.
Firstly, it should be noted that Russian small business has grown on the crest redistribution relations. As a result, a situation has developed in which weakness and inadequacy of the positions of Russian small business are revealed precisely as owner some share of the total capital. To date, the share of small enterprises as owners in the fixed capital of the country can be estimated at about 1.5% of total cost of this capital, including ownership of industrial and commercial capital assets - in 2-2.5%. Such indicators are not even consistent with the limited level of small business development that has really taken shape in the current Russian conditions.
We believe that by now the greatest “de-stimulating” effect on the desire of small businesses to increase ownership of fixed assets is exerted by the instability of the markets, forced versatility, even the economic “omnivorousness” of small enterprises, which acts (or, in any case, acted earlier) as an important means of their stability and survival in the peculiar market environment of the Russian economy. It -- second important factor, which is of fundamental importance in terms of the formation of risks of bank lending to small businesses and the implementation of measures to manage these risks.
Indeed, at the initial stage of the formation of Russian small business, the diversification of economic activity was a necessary condition for keeping the business afloat; moreover, through trade and intermediation, many small enterprises managed to retain some elements of the - much less profitable - stage of direct production. However, times are changing. Today, economic "omnivorousness", even forced, is the opposite of long-term commercial success, especially based on long-term investments. It is no coincidence that the largest investments in the small business sector are observed in the construction sector, i.e. where the markets are the most stable, and the areas of economic activity are quite homogeneous (installation of buildings, finishing works, installation of ventilation and plumbing equipment, etc.). The lack of a developed secondary market for equipment also keeps small businesses from major investments in their own fixed capital.
The third factor or a feature of Russian small business that significantly influences the formation of bank lending risks in this area of business and the management of these risks is the well-known isolation, isolation of small business from the formation of the entire business environment. This isolation was due to the fact that small business (still at the stage of the cooperative movement) entered the market environment earlier than large enterprises; the latter took this step later, and for the most part very unsuccessfully. As a result, Russian small business has developed and is developing “without cover” from large enterprises, which, in accordance with world experience, act as a guarantor of the stability of small forms of business interacting with them, and in some cases, direct guarantors of the credit and investment resources they need. However, as the experience of banking activity shows, even a significant part of the ownership by a large enterprise (up to 50% and more) will not yet give a small enterprise a strong economic status and the status of a reliable borrower, if this proprietary connection is accidental, and not based on strong economic interactions. within the framework of unified innovation and production-technological chains.
The fourth factor or a feature of Russian small business that significantly affects the formation of bank lending risks in this area of business and the management of these risks is the deformalization of the economic environment of small business. The main manifestations of this deformalization are the gap between the real and formally recorded volumes of economic turnover of small enterprises, as well as between formally listed small enterprises and their actually current number. There are practically no civilized procedures of bankruptcy and liquidation of small enterprises based on the balance of interests of the parties, which under normal conditions act as the most important institutional and legal guarantor of the interests of all creditors, including banks, are practically absent in the country. Practically not a single state body - neither the registration authorities, nor the taxation authorities, nor the statistical authorities can reliably say how many small enterprises are actually operating in the country. According to some estimates, this figure is at the level of 50% of the nominal number of registered business entities. In this case, it can be assumed that only 1-2% of small enterprises that cease their activities undergo the procedure of official closure.
Fifth factor or a feature of Russian small business that significantly affects the formation of bank lending risks in this area of business and the management of these risks is the minimum “internal information security” of small businesses, due to reasons such as the use of simplified forms accounting and reporting and the lack of necessary personnel capable of providing adequate information about the enterprise in the event of its application to the bank with a loan application. The conducted surveys show that representatives of small businesses themselves do not always adequately assess the financial position of their enterprise, are not able to plan and evaluate its activities and financial position for any long term.
Finally, sixth factor or a feature of Russian small business that significantly influences the formation of bank lending risks in this area of economic activity and the management of these risks is the specificity of the formation of the "staff" of small enterprises, primarily from among their owners and managers, which most often coincides in this area of economic activity. And for this factor, the reasons must be sought in the specific conditions for the emergence and development of Russian small business. Actually, this personnel potential merged (including through the phase of the “cooperative movement”) from two sources: crime, which managed to mobilize large capital back in the years of the “planned economy” and the more successful part of the layer of “new entrepreneurs” who entered business in years of perestroika, leaving in a timely manner the sphere of science, military-industrial complex enterprises, public sector enterprises, etc., which are losing prospects. Often such personnel demonstrate exceptional ability to solve the current problems of their businesses, but experience serious difficulties with long-term problems, the development and implementation of large investment projects. This deficiency has to be filled not only by specialized “business training” systems, but also, so to speak, right on the go, by employees of the credit departments of banks.
Risk management is the main content of the bank's work in the process of lending to business entities and covers all stages of this work - from the initial consideration of a loan application to the completion of settlements and consideration of the issue of resuming (continuing) lending. At the same time, risk management is an integral part of managing the lending process as a whole. The latter includes steps such as
analysis loan applications;
authorization of credit operations;
control over credit operations;
report on credit risks and the state of the portfolio;
monitoring the credit activities of the bank's divisions;
ensuring the profitability of credit operations; management of "problem" loans;
control over general credit risks;
staff training in modern methods of development and implementation of credit operations.
the main task risk management - risk minimization to the extent that the current market conditions and the need to at least maintain the bank's position in the lending services market, including in the small business environment, if this meets the priorities and goals of the bank's long-term credit strategy.
Main components of risk management include:
risk sharing;
risk mediation (as a form of its sharing);
acceptance of financial support (pledge);
acceptance of financial security (surety or guarantee);
risk transfer to higher interest rates on loans;
taking the risk of venture lending; formation of funds to write off losses on loans.
This suggests the following areas of work on risk management:
constant individual monitoring of each client;
constant monitoring of the state of the industry (sub-sector) in which the main economic activity of this client is formed;
attraction and analysis of guarantees;
receiving compensation for the risk (realization of collateral, guarantees, etc.).
Let us consider in more detail these components of bank lending risk management, taking into account the specifics that develop in the interaction of banks with small businesses.
At the first stage, the agreement on the loan amount is dictated by the real cost investment project plus the cost of forming the necessary reserves, which are calculated based on the nature of the project and the timing of its implementation. At the same time, understating the loan amount under the pretext of minimizing risks can actually increase these risks significantly due to the danger of incomplete financing of the project and, in fact, its failure at its final stage. The same applies to the choice of the term of the loan. A longer loan term increases its risk; however, artificially "squeezing" the term of the loan can negative impact on the borrower, push him to more risky and even erroneous business decisions and, consequently, increase general risks both the borrower and the bank.
A potentially significant risk management tool can be higher interest rate. Indeed, in most cases, banks lend to small businesses at a higher rate than their large and stable first-class borrowers. However, as the world experience of interaction between banks and small businesses shows, this risk management tool is unproductive in this case. But if “there” play a role developed mechanisms of state support for small businesses and fierce interbank competition, then, taking into account the realities of the Russian credit market, the mechanism of an increased interest rate as a risk compensation factor is unrealizable due to the already high interest rate, poor availability of loans for small entrepreneurs and , as a result, the low volume of credit relations of most banks with this business area.
An essential point of risk management at this stage is the question of risk sharing or their mediation. Risk sharing means sharing the burden of mobilizing funding sources among several investors, including the borrower itself. While obvious for financing projects of large borrowers, this practice is not universal for small business borrowers. This is due to the fact that, due to the limited amount of credit requested, the operating costs of risk sharing and control over co-investors may exceed the potential savings in bank lending risk mitigation. A form of investment lending risk sharing is also the attraction of loan guarantees, which, as a rule, cover approximately from 50% to 2/3 of the project cost and 75-80% of the loan cost. Finally, risk mediation (which is also a form of risk sharing), which is especially characteristic of credit resources directed to small business, often consists in the fact that resources are directed not to direct borrowers, but to some intermediate financial institutions that are directly focused on the needs of small business. and having proven procedures, personnel, etc. Credit unions of small enterprises can act as such institutions (in order to replenish their resources), regional funds small business support, leasing companies providing the appropriate range of services to small businesses.
The main risk management tool in small business lending is the practice secured loans. Loan collateral is generally used in a broad sense and can refer to many types of lending. It is not uncommon for banks to classify their loan portfolio into secured and unsecured loans. Security is usually taken without the expectation that it will certainly be implemented. Collateral management and storage are time-consuming and unprofitable operations for the bank. Often it does not make sense for the bank to take pledge security which the bank is unable to implement. However, issuance of a loan without collateral in accordance with the regulations of the Central Bank of the Russian Federation forces the bank to immobilize significant funds in the corresponding targeted reserves. In addition, the share of unsecured loans (essentially a form of venture lending) is also limited by a special standard designed to ensure the necessary stability and stability of the bank as a whole.
A significant brake on the development of lending to small businesses is the lack of any normal legislation on collateral and infrastructure for the sale of collateral. Following the current legislative acts only leads to the fact that it is possible to return (based on the actual current practice) no more than half of the real value of the pledge. The fact is that having “knocked out” a pledge in the form of goods, real estate, etc., the lender is faced with the difficult problem of converting them into real money (especially since this must be done as quickly as possible). The systems of tenders (bidding) on collateral lead to a sharp decrease in its real price. Without denying the very idea of tenders, it should be noted that losses arise due to their poor organization. There are no specialists in the country who are able to normally (with minimal loss in price) carry out the sale of collateral. There is also no effective infrastructure for the implementation of collateral. As a result of all this bad loans collateral inflicts large losses on the lender. Small businesses are even worse off. The property offered by small businesses as collateral most often does not qualify for a serious loan. There are many cases where property small business, declared on bail, disappears without a trace along with the enterprise itself. It would be much better if it would be possible to turn penalties against small enterprises on the property of its owners (shareholders). But so far this has not been possible.
Personal apartments, often offered as collateral by small business owners, cannot actually be such. Nominally, according to the law, they can be taken as collateral. But at the same time, their owners are usually registered in them (in the old way “registered”). For real alienation and sale of the apartment, which played the role of collateral, they must be written out, while providing new housing. And this requires a complex judicial procedure and entails high costs.
Credit control systems should include procedures for detecting and responding to signals of possible non-payment already in the process of executing a credit transaction. In most cases, the control function will draw conclusions based on periodic meetings and negotiations with the client, as well as on the basis of regular analysis of financial information. Red flags may come to light when observing the conduct of a customer's business or in the course of a bank's relationship with the customer, or become apparent from an analysis of financial and other records or explanatory information provided by the customer.
However, monitoring risk and the factors that cause it is, of course, not limited to observing the actions (or inactions) of the smallest borrowing enterprise. No less important are the processes taking place in its economic environment, in particular, in the industry or sub-sector where the bulk of the borrower's economic activity is formed. In order for a small business to successfully continue its activities, it is necessary to predict changes in the industry and respond to them in a timely manner. The bank must assess the client's ability to prepare for possible changes and take preventive measures. Changes in management style, staff turnover, risky entry into new markets are all often (though not always) indicators possible problems in future.
If the bank seeks to control the conduct of the affairs of the borrower, it may become a kind of "shadow company" or its semi-official director and, therefore, bear some legal responsibility for the management of the affairs of this company. In fact, the provision of a loan under the assistance package to this small enterprise is the most important factor in significantly reducing the risk of bank lending to small enterprises (especially investment lending).
However, one of the most effective tools for such risk management of bank lending to small businesses is a system of guarantees, especially those issued on behalf of specialized financial institutions. The guarantee as such does not completely solve the problem of access to credit for small businesses. A guarantee is a marketable commodity that has its own price. At the same time, in the conditions of the Russian economy, a high level of entrepreneurial risks inevitably predetermines the high “price” of such a specific product as a bank guarantee.
In principle, today one cannot speak of the absolute inaccessibility of bank or insurance guarantees for small enterprises - these guarantees are potentially available, but in fact they are so expensive on the “open market” that they are in principle incompatible with the average rate of return on commercial activity, especially when implementing long-term investment projects in real sector of the economy. There is a situation in which guarantee schemes for lending to small businesses should be clearly visible state support component. It is no coincidence that today the most promising regional schemes of such guarantees are characterized by direct forms of state support and therefore operate most widely and effectively in regions that are able to implement such support using their financial resources (Moscow, Yekaterinburg, Nizhny Novgorod and etc.).
At present, the idea of implementing a large-scale (at least inter-regional) project to develop loan guarantee schemes for small enterprises with state (federal-regional participation) is becoming increasingly relevant. The projects under discussion to create large-scale loan guarantee schemes for small businesses are based on mixed public-private financing schemes, a combination of investment and short-term lending, direct loans to small businesses and support for them. investment activity through lending to leasing services for small businesses. At the same time, the state support factor is realized both through the participation of budgetary funds in financing guarantee schemes, and through the ability to combine certain forms of credit support for small businesses with other, already proven tools to promote small businesses (property support, tax incentives, consulting, information and educational support, etc.).
Banks, especially small and medium ones, which see a promising interest in lending to small businesses, but are forced to count every ruble of their risks, are seriously interested in creating such schemes. Wherein there are no significant objections of banks against mixed public-private forms of organization (financing) of these schemes. The main thing is that these institutions should avoid the tendencies of bureaucratization traditional for our state or "para-state" structures, and also not try to assign themselves some kind of immunity regarding the judicial resolution of cases arising in connection with the implementation of issued guarantees.
It is widely believed that there is a high degree of risk when dealing with small borrowers. However, data from a number of banks specializing in lending to small businesses refute this stereotype. Risks in banking practice are the danger (possibility) of bank losses in the event of certain events.
- 1. The most important risks are credit, interest rate and currency risks, the risk of unbalanced liquidity and the risk of banking abuse.
- 2. Market risk - the danger of unforeseen changes in the economic situation of a particular market or in the economy as a whole, country risk, risk of natural disasters.
- 3. The latter, not being exclusively banking risks, may nevertheless have a decisive impact on the financial position of the bank.
None of the risks can be completely eliminated. Furthermore, banking inherently involves playing on changes in interest rates, exchange rates etc. How greater degree risk is assumed by the banking institution, the higher should be the profit on which it can count. In this case, the bank's task is to achieve the optimal combination of riskiness and profitability of its operations, and risk insurance (hedging) is aimed at limiting the impact of unforeseen, unpredictable changes as much as possible, ensuring a minimum deviation of the bank's actual profit from the expected one.
Risk management is the main content of the bank's work in the process of lending to business entities and covers all stages of this work - from the initial consideration of a loan application to the completion of settlements and consideration of the issue of resuming (continuing) lending. At the same time, risk management is an integral part of managing the lending process as a whole.
The main task of risk management is to minimize risks to the extent that the current market conditions allow it and the need to at least maintain the bank's position in the lending services market, including in the small business environment, if this meets the priorities and goals of the bank's long-term credit strategy.
The main components of risk management include:
* risk sharing;
* risk mediation (as a form of its sharing);
* acceptance of financial support (pledge);
* acceptance of financial security (guarantee or guarantee);
* risk transfer to higher interest rates on loans;
ѕ taking the risk of venture lending; formation of funds to write off losses on loans.
This implies the following areas of risk management work:
ѕ constant individual monitoring of each client;
* constant monitoring of the state of the industry (sub-sector) in which the main economic activity this client;
* attraction and analysis of guarantees;
* receiving compensation for the risk (realization of collateral, guarantees, etc.).
Let us consider in more detail these components of bank lending risk management, taking into account the specifics that develop in the interaction of banks with small businesses. A potentially significant risk management tool can be an increased interest rate. Indeed, in most cases, banks lend to small businesses at a higher rate than their large and stable first-class borrowers. However, as the world experience of interaction between banks and small businesses shows, this risk management tool is unproductive in this case.
The main risk management tool in small business lending is the practice of secured loans. Loan collateral is generally used in a broad sense and can refer to many types of lending. It is not uncommon for banks to classify their loan portfolio into secured and unsecured loans. Security is usually taken without the expectation that it will certainly be implemented. Collateral management and storage are time-consuming and unprofitable operations for the bank. It often makes no sense for a bank to take collateral as collateral that the bank is unable to sell. However, issuance of a loan without collateral in accordance with the regulations of the Central Bank of the Russian Federation forces the bank to immobilize significant funds in the corresponding targeted reserves. In addition, the share of loans without collateral (essentially a form of venture lending) is also limited by a special standard designed to ensure the necessary stability and stability of the bank as a whole.
The most common ways of risk insurance in banking practice are reduced to risk diversification, as well as to constant monitoring by the bank of compliance with the necessary ratios, standards and, if necessary, corrective actions.
Credit risk is the risk for a lender that a borrower will not pay principal and interest on a debt.
Diversification of credit risk involves the dispersal of bank lending opportunities. A bank's credit risk increases as total lending increases and the degree of concentration of loans among a limited number of borrowers increases. Therefore, banks prefer, with a constant volume of credit investments, to provide loans for smaller amounts to a larger number of independent customers. In addition, loans are distributed by terms, by purpose of loans, by type of collateral, by method of setting the rate for a loan, by industry, country, etc.
In order to diversify, credit is rationed - banks set floating credit limits or credit ceilings for borrowers, beyond which loans are not provided. Credit control systems should include procedures for detecting signs of possible non-payment and measures to respond to this danger already in the process of executing a credit transaction. Red flags may come to light when observing the conduct of a customer's business or in the course of a bank's relationship with the customer, or become apparent from an analysis of financial and other records or explanatory information provided by the customer.
One of the most effective tools for such risk management of bank lending to small businesses is a system of guarantees, especially those issued on behalf of specialized financial institutions. The guarantee as such does not completely solve the problem of access to credit for small businesses. A guarantee is a marketable product that has its own price. At the same time, in the conditions of the Russian economy, a high level of entrepreneurial risks inevitably predetermines the high "price" of such a specific product as a bank guarantee.
A situation is emerging in which a component of state support should be clearly visible in guarantee schemes for small businesses. It is no coincidence that today the most promising regional schemes for such guarantees are characterized by direct forms of state support and therefore operate most widely and effectively in regions that are able to implement such support with their financial resources (Moscow, Yekaterinburg, Nizhny Novgorod, etc.).
Banks, especially small and medium ones, which see a promising interest in lending to small businesses, but are forced to count every ruble of their risks, are seriously interested in creating such schemes.
In world practice, mechanisms aimed at reducing banking risk in lending to small businesses are widely used. As a rule, there are two main models:
- 1. A credit organization works directly with a borrower, assessing its solvency, assessing collateral, etc. According to a survey of MB owners, this scheme is used in 80-85% of cases. In this case, the bank itself assumes all the risks associated with non-repayment of the loan.
- 2. A third participant (the state, international organizations, credit cooperatives), which assumes the obligation to partially subsidize the interest rate, deposit its own property as collateral, and guarantee the return of the loan. In a number of regions of Russia, this MB lending scheme is being actively introduced. The created mechanisms of interaction allow to reduce banking risks and increase lending.
Thus, we can say that today, in the conditions of an unstable market situation for small businesses, there are obstacles to further development. But, despite the drop in demand and an acute shortage of financial resources, there are fewer forecasts for a further deterioration in the state of business of small enterprises: business is adapting. loan. In the banking sector, the segment of small business lending remains the leader in terms of growth loan portfolio, but accounts for only 4.2% of its total volume.
Risk management is the main content of the bank's work in the process of lending to business entities and covers all stages of this work - from the initial consideration of a loan application to the completion of settlements and consideration of the issue of resuming (continuing) lending. Taking into account foreign experience, it seems appropriate to take measures in Russia to stimulate financial support for small businesses.
Taking into account the current situation in the field of small business lending, the next stage of the thesis is based on a comparative analysis of loan products provided for this segment, which will identify positive trends, understand the weaknesses in the development of small business lending programs. Need to define profitable terms lending to meet the needs of enterprises and individual entrepreneurs in lending.
Many small businesses (SMEs) open every year, but many also close. How to reduce the risks associated with those MPs who are destined to die? The criterion for dividing all MPs by risk level is their age.
Foreign data show that small business (SB) bears the heaviest losses in the first 18 months, when half of all established enterprises die. Then the rate of death falls, and by the age of 10, about 20% of the MP remains alive. Although let's not forget that even giants die in old age.
From these statistics, for example, we can conclude that 40% of enterprises registered less than a year ago will close, and only 3% of those that are 7 or more years old. The graph reflecting the probability of MP closure within 10 years from the date of registration (Fig. 1) shows three characteristic risk zones:
- zone 1 ( high risks) - MP less than 3 years old;
- zone 2 (medium risks) - MC aged 4 to 6 years;
- zone 3 (low risks) - MC from the age of 7 years.
With the help of the graph, it is possible to estimate what is the probability of closing the MP over the next year if a loan to small businesses is issued, for example, for a year.
Probably, for those over 7 years old, regular banking procedures can be used. But for younger MPs, you need to look for additional arguments. Although you can set the first bar - cut off everyone who is less than a year old or less than a year and a half, which banks do. The SM age range of 2 to 6 years is probably the most problematic in terms of risk assessment. On the one hand, the MP has already passed the critical period of its development, but on the other hand, the probability of its closure is still quite high.
One note needs to be made here. If you completely discard SEs younger than two years old, then there is a danger of cutting off enterprises that could become strong and reliable businesses.
All risks are in one person
Practice shows that in more than 90% of cases, the enterprise dies due to the fault of its owner. Do not believe when they say that they were not lucky, the staff was very weak, there was not enough money, or force majeure circumstances occurred.
The peculiarity of the MB is that in one person, called an entrepreneur, the conflicting interests of a person, a business owner and his head, collide. We are not able to unravel this tangle of interests and express it in numbers, and therefore we are trying to find other methods of assessment that reduce risks.
The task, it must be said, is not at all simple, but not hopeless either. In order to assess entrepreneurial potential, you need to use the “portrait” of an entrepreneur, from which you can learn a lot, for example, about the owner’s education, work experience and previous positions, ownership of other enterprises and their condition, his partners and much more.
If the "portrait" is compared with the entrepreneur's most important parameters for success in business, then additional arguments "for" and "against" can be obtained.
In fact, a small business loan is always issued for the entrepreneur, and not for the business itself, and it would be wrong to disregard the person who decides everything in business.
It is easier to unravel the tangle of interests when there are several entrepreneurs or the director of the SE is not its owner, because additional information appears in the form of agreements between these persons.
The future success of a business is in its past.
Figure 2 shows two different types of enterprises in the SB: those that will quickly grow beyond the IB and become medium and even large (so-called fast-growing), and those that will remain small for a long time or forever.
The first group is the "cream" of the MB. There are not so many of them in the total number of MPs, but they will become the most attractive clients.
If a bank wants to get them among its customers, it must learn to recognize such MTs before their growth becomes public knowledge. This requires a special system for selecting clients at the initial stage of business development, i.e. in the high risk area.
For each MP, three characteristic stages can be distinguished: stage 1 - business formation, stage 2 - business development and stage 3 - business stabilization.
It is very important for the MP to get back on its feet as quickly as possible, because initially it does not have reserves. Time from 1.5 to 3 years is enough for the business to provide for itself and its development. If during this period it is not possible to achieve financial stability, then you need to be careful: something is being done wrong and, most likely, this is not the case with the entrepreneur himself.
At stage 2, due to own funds growth of up to 40% per year can be achieved. But it is not uncommon for the SE when it grows at a higher rate - 100 and even 200%. The need for a loan from small businesses during this period is very high. The length of stage 2 can be very individual.
At stage 3, MP volumes grow slowly or stabilize. The need for loans for small businesses is the same as for other customers. The stabilization phase can continue for as long as you like, provided that the business generates a profit.
If the company is several years old and on the chart we plot the values of sales volumes for each year, then we will get the "history" of the company. History shows how a business develops and at what stage it is. The real history of the MT will not be as smooth as it is shown in the figure, but any deviations from the expected development, such as dips or stagnation, give additional features for analysis.
The history of the development of the SE provides more valuable information than the credit history that banks love so much. Firstly, most SEs do not have any credit history, which is understandable. Secondly, the credit history of a particular small business does not give grounds to believe that SE will be creditworthy in the future.
The history of the enterprise, on the contrary, makes it possible to assess the trends in the development of SE for the period of lending to this particular small business. The analysis will be more complete if you set the goal (in terms of volume and time) that the entrepreneur sets for his business.
Each stage of development has its own technologies
A successful MT, even if it is in risk zone 1 by age, still remains successful. How to distinguish him from among those who are convulsing or will inevitably perish? The answer is provided by information that allows us to assess the probability of the onset of the main causes of MP death.
There is a logical connection between the stages of MP development and the reasons for its closure.
For example, experts explain the high "mortality" of MT at the very beginning of the journey by the following reasons:
- incompetence of the entrepreneur, i.e. his inability to physically, morally or intellectually handle the case;
- poor preparation of the business for opening, i.e. an unsuccessful business idea or insufficient preliminary study of all aspects of the future business (weak business plan and haste in registering a business);
- lack of experience in managing employees and other resources before starting a business;
- lack of experience in the production of this product or service before starting a business.
The beginning of the path is the drop-off zone for those who were incapable or hurried. Therefore, only the "portrait" of the entrepreneur and the business plan of the enterprise can answer the question posed above at stage 1. Probably, at this stage, the technology of lending to small businesses is akin to lending to individuals.
In stage 2, the main reason for failure is the inability of the entrepreneur to effectively manage the business. This primarily concerns financial management and, as part of it, inventory management, although management of the entire business structure is also important. Perhaps, at this stage, the specificity of the MB is most clearly manifested.
In stage 3, when the business takes its place in the market, business economics, marketing, and other factors become important, just as in the case of traditional banking clients.
Thus, to assess the success of the MP at different stages of its development, different information is needed.
Noose for the client or growth mechanism
The notion that an SE is asking for a loan because it needs money would lead us far from the truth. Most of those who apply for a loan see this money as the only way to solve the accumulated problems, although their solution lies elsewhere - usually in a change in management.
In MB it is not customary to operate with profit, and even more so with return on invested capital. This leads to the fact that at the current high interest rates for MB, the return on invested capital may be lower than the interest rate, i.e. additional profit from the use of the loan will not be enough to service it, and as a result, the SE will be in a worse position than before the loan was received by the small business.
The bank needs to be clear that it is itself increasing credit risk when it offers its client a noose, even if the client stubbornly sticks its head in this noose: the repayment conditions for small business loans will be worse than the bank estimated on the basis of financial reporting for the past period.
Of course, MP needs money for development. For example, for the purchase of equipment, for the same materials, and finally, for a good foreign trade deal. And only the entrepreneur himself can explain how he intends to develop with the help of a loan. Therefore, a feasibility study (feasibility study), albeit on a page, is necessary.
So why, as they say, the requirement of a feasibility study is tantamount to a refusal? For two reasons. Firstly, the entrepreneur does not know how to compose it. Secondly, the entrepreneur cannot clearly explain why he needs a loan.
In these cases, lending to small businesses is risky. But, let's note that the risk is not in the MB, but in the bank itself - in its incorrect assessment of the entrepreneur and business.
From the entrepreneur you need to get his personal assessment of the real return on invested capital. There are definitely pitfalls here. Both in profit and in liabilities there can be a certain hidden part and no one will disclose them to the bank. However, this figure, whether it is true or not, will in any case serve as the basis for a dialogue with the entrepreneur, as a result of which important information about the entrepreneur and business management will be obtained.
Getting a loan for a small business is difficult, paying it back is even more difficult.
Most entrepreneurs do not ask themselves this question, how to repay a loan, because the answer seems obvious and simple to them - accumulated the right amount and returned.
About 2/3 of credit resources are directed to replenish working capital. Consider the case of a wholesale trading company, when the loan is used to replenish the inventory, and the existing inventory is the loan security (see table). Note that this is a logical and convenient form of support for MPs.
The situation shown in the table is typical.
The entire product range of the company is divided into four groups according to profitability. Group number 1 is the "stars". There are only 22 of them and they give a total of 30% of income. Group No. 2 - "workhorses" - 152 positions and 50% of income. Group No. 3 - "outsiders" - 142 positions and 15% of income and, finally, group No. 4 - "sump" - 220 positions and 5% of income. In fact, Group 4 does not generate any income and is most likely a loss if we calculate the proportion of the firm's own expenses that is attributed to these goods.
With the same markup, the share of each group in the inventory should be approximately the same as in income. In reality, the situation turned out to be completely different - as always, there are not enough popular (liquid) goods, but there are surpluses (group No. 3) and illiquid goods (group No. 4).
Thus, this firm has "dead" 34% of its funds.
After receiving the loan, at the most in a month, all the money will spread over the same groups in exactly the same proportion - after all, nothing has changed in procurement management. Soon there will be a shortage of money again, and 34% of the loan will again be deadened in surpluses and illiquid assets.
Part of the credit resources will work efficiently, sales volumes will increase, wage, other costs will increase due to infrastructure development.
Obviously, liquid goods (group No. 1 and the upper half of group No. 2) are most effectively converted into money. Having repaid the loan, the MP is left without money and without a hot commodity. The volume of sales is falling, and the developed infrastructure is beginning to eat up the business. The situation after the return of the loan will be worse than before it was received.
It is, of course, impossible to return a loan from profit to a small business, and the entrepreneur's dreams of a miracle do not come true. Therefore, at the very last moment, he rushes headlong in search of a new creditor in order to re-borrow the required amount.
If the bank does not know how the client is doing with financial and inventory management, then he himself increases the risk of lending to small businesses. And if he makes a change in the management of purchases a condition of granting a loan, then he significantly reduces his risk.
Transparent bag for a cat
Let's see what are the possibilities for the bank to return their money if the borrower failed to "re-borrow".
It is quite clear that there are practically no chances to wholesale the pledge from the goods of group No. 4 and very few chances to wholesale the goods from group No. 3. The goods of group No. 2 can be sold in bulk, but at a discount. It is not difficult to calculate how much money will be obtained from the sale of collateral. The provision turned out to be only complacency that everything was done according to the rules. Therefore, banks are not very fond of accepting inventory as collateral, calling it a "pig in a poke".
It is easy to make the bag transparent if the bank does its inventory analysis. This can be done very simply and quickly. To do this, you need to get from the client the profitability for each commodity unit, the number of products sold per year and the amount of inventory.
But if the client is unable to provide these statistics, it is a red flag that the client is not managing finances and inventory well - after all, this is the biggest cash flow in a trading company. Working with such a client is fraught with great risks.
Are there goggles for cloudy water?
The opacity of the MB is a problem, but there are still ways to solve it. You can be sure that if legal information allows you to consider the borrower as creditworthy, then he is so. At the same time, legal lending is a way to legalize business, because large volumes are involved in legal circulation.
In addition, in the MP you can always find information that gives a more complete picture of the business as a whole. Such information is provided, for example, by inventory. Specific transactions are shady or legal, and goods, as a rule, are not put on the shelves according to these characteristics. Therefore, the size of the stock and the dynamics of its formation allow you to get a more complete picture of the business as a whole and, for example, of the generated profit. You can also look for other tools.
In general, the MB contains more information than is often assumed. You just need to find it and use it correctly.
Help "BO"
Currently, about 900 thousand small enterprises are registered in the Russian Federation, of which in the Central and North-West federal districts 50% work, in Moscow - 25%, in the South - 9.7%, in the Urals - 6.7%, in the Far East - 4.8%.
According to Ilya Yuzhanov, Minister of the Russian Federation for antitrust policy and entrepreneurship support, the contribution of small businesses to the country's GDP is 21% (for comparison, in Italy - 67%, in France - 60%).
About 13 million people, or 17% of those employed in the economy, work at small enterprises in the Russian Federation (for comparison, in Moscow - 34.4%, in Europe on average 50%).
According to ARB President Garegin Tosunyan, the need for small businesses in credit resources is estimated at $7 billion, but no more than $1 billion is actually allocated.
The Russian budget for 2004 allocated 3 billion rubles to support small businesses.
Small and medium business in modern conditions is one of the most profitable target segments for Russian banks. There are several reasons for this increased interest:
lower level of competition in this sector compared to serving large businesses;
more "market" nature of the relationship with the client, less risk of using the "administrative resource" in resolving disputes;
the absence of a “buyer” market, respectively, the possibility of obtaining more high interest and commissions (with increased risk, of course);
the presence of both state and international (EBRD, International Finance Corporation) programs for refinancing loans to small and medium-sized businesses - an opportunity for banks to attract relatively cheap financial resources;
the possibility of implementing mass banking products, which reduces costs and leads to an increase in the efficiency of the banking business.
But potentially high incomes are also associated with high real risks. Of course, lending to small and medium-sized businesses is much more risky compared to large businesses. And the reasons are not only in the incomparable financial power of enterprises in these sectors. Many risks are associated with the specifics of the activities of small and medium-sized businesses in Russia. One of the most obvious risks is related to the lack of transparency (unreliability) of financial statements, the use of schemes tax optimization etc., in other words, the inability to assess the true financial position of the enterprise according to official statements, while the standard credit analysis methods used to evaluate potential borrowers either do not work or give a distorted picture. The reason for this situation is the desire of enterprises to avoid taxation. Avoidance of taxation or a serious reduction in the tax burden since the 90s is seen as a competitive advantage, so the use of "special accounting" and "tax-saving technologies" remains a widespread phenomenon among small and medium-sized businesses. Of course, the scale of evasion and the degree of aggressiveness in tax optimization is now much lower than in the 1990s. Moreover, a significant role was played by the demand for loans and the spread of bank lending. What are the most common problems with the financial statements of small Russian enterprises:
negligible amount of own capital of the enterprise;
non-transparent ownership structure of the company;
the presence of fictitious borrowed capital or debt not reflected in the balance sheet;
concealment of "losses" in the balance sheet asset or the absence of reflection of real assets in the balance sheet;
fictitious expenses of the enterprise, designed to reduce the tax base;
the presence of "off-balance sheet" liabilities of the enterprise, not reflected in the financial statements;
lack of standard reporting forms (balance sheet, income statement, etc.) in the case of using the simplified taxation system (STS).
The most important role of banks in the development of small businesses is explained by the difficulty for small and medium-sized enterprises to obtain financial resources from other sources. At the present stage, there are more than 5 million small and medium enterprises in Russia, the bulk of which operate in such industries as wholesale and retail trade, services, construction, and manufacturing.
This segment has a huge growth potential, and the volume of lending to small and medium-sized businesses will continue to grow. The growth of the SME lending market is a direct consequence of the general stabilization of the situation in the economy, an increase in demand for loans, as well as an increase in the access of SMEs to borrowed funds.
"Management in credit institution", 2013, N 4
In recent years, the segment of lending to small and medium-sized businesses has become quite attractive for Russian commercial banks. However, it is characterized by both high labor intensity of the organization of the credit process and significant risks. The sources of credit risk on the part of the bank are concentrated in two directions: the methodology for assessing the borrower's creditworthiness, taking into account the specifics of financial reporting, and the organization of the credit process. Let us analyze the organization of the credit process as an important factor in minimizing bank risks.
Recently, many new players have appeared in the small business lending market. They offer a large number of a variety of loan products depending on the amount, availability of a particular type of security, loan terms. This niche has become popular relatively recently.
Small business lending is a worthy alternative to high-margin consumer lending, which has been the leader in popularity over the past two years. However, with all the advantages, retail has significantly more disadvantages than small business lending. In an effort to gain the upper hand in the competition, banks are increasingly agreeing to consider the unofficial income of individuals during very quick (and not always complete) checks of borrowers, which is one of the factors affecting the growth of retail portfolio defaults and, as a result, the size of the created reserves for possible loan losses.
The situation is different when it comes to lending to small businesses. Checking the financial situation of such borrowers is usually more thorough. Virtually all products, except for microcredit, require collateral.
From the point of view of the severity of the consequences for banking groups around the world, credit risk is the most dangerous today. In the face of growing competition for small business borrowers, the probability of default of some of them increases, as well as the deterioration in the quality of loan portfolios, which, of course, entails problems with non-repayment of loans received. The likelihood of this type of risk has increased significantly in recent years.
The economic literature provides a list of methods for managing credit risks, as a rule, without their specific structuring. Let us present our own generalized classification of methods and tools for managing credit risks (Table 1).
Table 1
Methods and tools for credit risk management
Method group | Tool |
|
| Risk warning | Creation of structural divisions of the bank that regulate the level of credit risk, and competent distribution of responsibilities between them | Organizational structure of the bank for credit risk management |
Selection and evaluation of loan officers, their development | The system of criteria for the selection of qualified personnel, staff development |
|
Creation of a competent credit policy | Credit policy |
|
| Studying a potential borrower | Preliminary parameters for the selection of borrowers, data from credit bureaus |
|
Searching for new areas for offering loan products | Improvement of credit products |
|
Risk assessment and measurement | Assessment and monitoring of the creditworthiness of the borrower (counterparty) | Financial analysis system of the borrower (counterparty) |
Assessment and monitoring of loan portfolio quality | Loan portfolio scorecard |
|
Assessing the quality of collateral | Establishment of requirements for securing obligations |
|
Risk avoidance | Refusal to lend to an unreliable client | Borrower financial analysis system |
Refusal to lend to a dubious transaction | List of transactions determined by the bank and banking supervision and regulation authorities |
|
Risk reduction (minimization) | Use of diversification of loans in various areas | Diversification by types of credit products, industries of borrowers, etc. |
Reservation of funds | Allowance for possible losses on loans, loan and equivalent debt |
|
Limitation | Limits for counterparties, types of products, industries, country limits, etc. |
|
Loan structuring | Individual conditions for a specific loan transaction agreement |
|
Risk transfer | Redistribution of obligations to reimburse credit losses to an insurance company | Risk insurance with the help of an insurance company |
Hedging on derivatives market using derivative financial instruments | Credit derivatives |
|
Securitization |
||
Syndication |
||
Transfer of risk to collection agencies |
||
| Retention | Creation of structural divisions for work with problem loans | Problem Loan Department |
Given in table. 1 classification reflects the existing set of instruments both for an individual bank and for the banking group as a whole. And the set of tools used depends on the credit policy of the bank.
Consider the problems faced big banks in the management of credit risks in lending to small businesses, and their possible solutions. In particular, we will consider possible options for risk prevention.
Large banks have a developed branch network. As a rule, in each regional center there are one or two specialists in lending to small businesses. Staff turnover in the regions is high. In some banks, it reaches up to 50% of the staff per year. On the one hand, loan officers are often not motivated enough, on the other hand, they are under pressure from the branch manager when there is a strict need to fulfill plans.
The problem lies in the lack of responsibility of the loan officer when providing financial information in a credit summary. To solve it, it is necessary to clearly regulate the responsibility of a specialist for the information provided in the internal documents of the bank. In cases of its unreliability, loan officers and managers must report to the disciplinary commission or other similar management body of the bank.
The second problem is the reliability of the data indicated in the credit summary and the submitted documents. In large Russian banks with a developed branch network, there is almost always seasonality in considering loan applications. This is due to the monthly or quarterly plans of branches for issuing loans. Most of the applications are accumulated by the end of the planning period (month / quarter) and often come to the head office for consideration in raw form without a complete package of documents. In the hope of haste and consideration through the fingers, loan officers send unfinished applications, which significantly affects the time it takes to complete the application as a whole. To solve this problem, in addition to a credit summary, it is necessary to create a questionnaire that clearly establishes the criteria for accepting an application for work (Table 2).
table 2
Questionnaire for submitting a new application for small business loans to the risk division of the head office
Borrower(s) |
||
Date of the client's contact with the bank |
||
Departure date for analysis |
||
Date of sending to the head office of the bank |
||
| Criteria for accepting an application for work | Criteria met (yes/no) | Comment (in case of negative value) |
Requirements for accepting a job application |
||
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Necessary approvals for deviations from lending standards and tariffs |
||
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Stop factors | ||
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| ||
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Credit policy provisions |
||
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|
If the criteria "Requirements for accepting an application for work", "Necessary approvals for deviations from lending standards and tariffs", as well as paragraphs 9 - 12 of the criterion "Regulations of the credit policy" are not met, the credit summary is not accepted for work. For the criterion "Stop factors" it is necessary to make a matrix. For example, if three or more points from this section are not observed, the credit summary should be refused, less than three - the application is not accepted. Also, a refusal to lend should follow in case of non-compliance with paragraphs 1 - 8 of the criterion "Regulations of the credit policy". The difference between non-acceptance of an application for work and refusal is the possibility of review when the risk department re-receipt of a credit summary: in the first case, review is possible, in the second - no.
From the problem described above follows the problem of multiple submissions of a credit summary to the head office. In this case, there are complaints from the business divisions regarding the time and speed of consideration of applications both to the branch and to the risk division of the head office. In order to know exactly "whose side the ball is on", the risk department, in addition to the criteria for rejection and rejection, needs to have clear criteria for sending credit resumes back to the branch for revision. This will also allow you to accurately calculate the time spent by the resume at the branch and at the head office and understand which department is delaying the review.
The criteria for improvement are as follows:
- Non-transparent/unreasonable lending purposes, including non-submission of loan documents for investment goals, no comments on intended use loan.
Examples of non-transparent/unreasonable goals:
a) when lending for investment purposes:
- fixed assets were not purchased at a market price, there is no cost justification;
- the payback period of the project exceeds the term of the requested lending and (or) for the period of the entire lending the project is unprofitable;
- fixed assets acquired from an affiliated company;
- the implementation of the investment project entails a deterioration in the financial position of the borrower (for example, for the period of construction / reconstruction, it is necessary to suspend activities for a long time or there is a risk of a drop in revenue);
- there is a clear risk of underfunding the investment project, that is, the availability of the necessary own funds or other sources of financing for the project has not been confirmed, and there are no own (leased) areas for the installation and subsequent operation of the acquired fixed assets;
- investments are made without the appropriate permits from regulatory authorities (for example, construction without initial permits, project documentation etc.) or justifications for the absence of these documents are not provided;
- acquired fixed assets encumbered with the rights of third parties (pledge, arrest, restrictions imposed by state authorities on the acquired property or a special status real estate(for example, an architectural monument of federal or local significance, the presence of restrictions on changing the purpose of the object, etc.)).
b) when lending to replenish working capital:
- the turnover period of inventory items is greater than the industry average turnover period for this type of business, both with and without a new loan (overstocking);
- loans are requested to replenish working capital for activities that do not require working capital (for example, consulting, real estate services, accounting support services, etc.);
- if there is a seasonality factor in the business, a loan is requested to replenish working capital after the end of the season (for example, the purchase of fur coats in February, grain in September, etc.);
- inventory items are acquired in the absence of conditions for their storage;
- there is no or limited market for purchased products;
- an overdraft is requested in the absence of cash gaps;
- there is a risk of underfunding the contract (the loan amount is less than the contract amount, while there is no confirmation of the existence of own Money or other funding sources)
- no contracts have been concluded, the implementation of which requires replenishment of working capital, in the course of contract activities.
- There are no explanations for the dynamics of revenue and turnover on settlement accounts.
- The "Credit History" section does not match downloads from credit bureaus.
- There are no (or incomplete) comments on the negative conclusions of other departments of the bank.
- Incorrectly compiled balance and comments to it:
- unconfirmed (visually and (or) documented) assets are taken into account;
- the data is not reflected at the balance sheet date;
- personal property not involved in the business is taken into account;
- not taken into account accounts payable for which there are no letters confirming that it will not be claimed;
- balance sheet data is confirmed only by certificates from the client, and not by primary documentation for fixed assets;
- the data indicated in the balance sheet do not correspond to the submitted documents;
- Personal loans that are in fact aimed at business purposes are not taken into account (personal loans that are not aimed at business are taken into account);
- short-term and long-term liabilities are distributed incorrectly by terms (incorrect breakdown of debts);
- loans issued/received from affiliated companies and (or) persons are reflected;
- creditor and accounts receivable not cleared of debt to affiliated companies/persons;
- the balance sheet includes data for only one group company;
- inventory items are indicated at the sale price, under the general taxation system they are indicated without VAT;
- in the "Investments" section, expenses are indicated that in fact do not increase equity (for example, a redecoration of a store that did not increase the value of real estate, the purchase of an advertising banner, etc.).
- The analysis of accumulated net income for the last 12 months was performed incorrectly, major acquisitions were not confirmed.
- Not confirmed (visually and (or) documented) inventory.
- Incorrectly filled in data on suppliers and contractors (the terms of turnover and deferment / prepayment do not match).
- There are no comments on the reasons for the discrepancy between official and managerial accounting.
- Revenue was not confirmed in accordance with the approved list of documents.
- The mark-up has not been confirmed, there is no documentary evidence/justification for the increase in the mark-up compared to the data of the previous financial analysis.
- The repayment dates for borrowed funds are incorrectly reflected in the income statement, there is a discrepancy between the data and the data in the "Credit history" section.
- The profit and loss statement forecast is unreasonably completed (for example, revenue is unreasonably overstated, peak/one-time revenue values are taken into account, an increase in expenses is not taken into account, dividends and other expenses are underestimated, an increase in loan contributions is not taken into account (individual schedule, new loans) / no comments ).
If, when considering an application by the risk division loan officer branch unreasonably changes the numbers compared to the originally submitted credit summary (for example, understates personal expenses, increases the amount of revenue, etc.), it should be removed from consideration.
Opinion. M.A. Bobrik, JSC "Bank of Moscow", director of the construction and development lending department, Ph.D. n.
One of the main challenges facing commercial banks, is the minimization of credit risks. To solve it, different methods are used, including formal, semi-formal and informal evaluation procedures. The problem of the competence of credit analysts and the quality of filling out credit reports by them, of course, is important, but it refers to the operational risk of the bank. For the purposes of developing and implementing effective methods of managing credit risks in lending to small businesses, it is necessary to have a deep and versatile knowledge of the factors of credit risks that arise when lending to enterprises in this segment, and their systematic assessment. Of particular importance is the methodology for assessing the risks of lending to small businesses in conditions where the borrower is an individual entrepreneur and (or) applies a simplified form of taxation. An equally important task in this segment is credit monitoring.
On the basis of monthly data on the average number of revisions per application or on the basis of the percentage of applications sent for revision by the risk department, it is necessary to adjust the amount of the bonus part of the salary of loan officers. For example, if the coefficient of return of applications for revision is not higher than 0.5 (more than 50% of applications are sent for revision), the bonus rate is additionally increased by 1%.
To reduce the number of revisions, it is necessary to train loan officers, which includes several stages (Table 3).
Table 3
Loan officer training program
Learning phase | Description | Result | Responsible department |
|
| The presence of personal competencies necessary for work in the bank is determined | Before hiring | The applicant is enrolled in the state | |
With Regional Manager (GO) | The knowledge and skills of the candidate in the field of loan products, the process, the structure of the transaction and the needs of the client are checked | Regional Center (GO) |
||
With an employee of the risk department | The knowledge and skills of the candidate in the field of credit analysis, creditworthiness assessment, credit risks are checked | Risk division |
||
| The Credit Analyst is trained on the job in the following topics:
Basic principles of financial analysis. credit risk. managerial balance. Report about incomes and material losses. How to fill out a credit summary. Connectivity and Consolidation. Structural scheme of business. Statement of cash flow (Cash Flow). Communication of three reports. Comparative analysis. Analysis of official reporting. General system of taxation. Basic accounting accounts. Analysis of financial ratios.
| As you study all presentations, webinars, pass trainings and tests, but no more than 5 working days from the date of employment | After completing each topic of study, an assessment test is conducted. Marked on the examination paper | Regional Center (GO), HR |
| The loan officer gains practical experience in financial analysis (3 - 5 site visits under the guidance of an experienced mentor) | 5 working days | An experienced loan officer-mentor characterizes the professional level of the trainee loan officer: analytical skills, knowledge of financial analysis and structuring of the transaction, product conditions and the lending process. Assessment in the examination sheet | Mentor Visa |
Preparation of loan applications at the workplace (during a business trip) | The loan officer prepares 3 - 5 loan applications and sends them to the risk division | As applications are written, but no more than 5 working days | An employee of the risk division assesses the level of preparation of loan applications and determines the feasibility of further training. Marked on the examination paper | Risk division |
| Loan officer gains experience in credit risk analysis and loan approval | 5 working days | Initial theoretical testing with assessment. At the end of the internship, a final practical test is carried out, the employee of the risk division must assess the level of preparation of a loan application, knowledge of financial analysis and credit risk analysis. Marked on the examination paper | Risk division |
| The loan officer prepares 3 - 5 loan applications and sends them to the risk department | As applications are written | An employee of the risk division evaluates the level of preparation of loan applications and determines the appropriateness of assigning a category, but not earlier than the end of the probationary period | Risk division |
Based on the results of the training, each loan officer is assigned a category depending on the level of professional skills, responsibility and attentiveness.
Depending on the category, the loan officer may send a simplified package of documents for verification to the head office. Separately, for each category, a list of documents is compiled and assigned maximum amount limit per borrower/group of companies. Thus, the category reflects not only the level of qualification of the loan officer, but also the level of trust in the information provided in the credit summary.
It is necessary to revise the categories based on the results of the month / quarter / half year. After the revision, the category can be changed both to the best and to the worst side if the loan officer shows inefficient work or the quality of the loan portfolio deteriorates.
The main problems of banks with a wide branch network in lending to small businesses are related to the lack of responsibility of a loan officer when providing financial information in a credit summary, with the reliability of the data indicated in a credit summary and submitted documents, as well as with numerous revisions of a credit summary and changes in information. .
To solve these problems, it is necessary to clearly regulate the responsibility of loan officers, develop criteria for accepting an application for work, and criteria for sending a credit summary for revision. Effective measures to reduce the number of revisions are financial incentives for loan officers depending on the number of applications sent for revision, as well as regular training of specialists. The result of training can be the assignment of a category, the so-called trust rating.
Such measures will not only reduce the likelihood of credit risk, but also increase the efficiency of processing applications for lending to small businesses in large banks.
A.P. Mironova
Director
Validation Department
credit risks
CB "Uniastrum Bank" (LLC)
