Credit policy of banks: tools, improvement, goals, directions

In 1980 monetary policy began to be used to control the market mechanism. In a narrow sense, it means government measures aimed at effective management of the financial system. In broad - it is a set of measures developed by the central bank (CB) and the government in the field of credit relations. The object of the operation is the demand for money and their supply. Subject - state, Central Bank. The effectiveness of credit policy (PBC) depends on the stability of the financial system. Read more about what tasks are set, as well as what impact mechanisms and tools are used in the framework of this area, read further in the article.

Classification

There are two types of credit policy: expansionary and restructuring. In the first case, direct prohibitions are used to reduce the volume or tighten the conditions for operations on money market. The second is aimed at expanding the amount of resources. The monetary policy of the central bank is of two types: general and selective. In the first case, the activities carried out apply to all institutions, in the second - to individual operations.

Goals

They can be divided into three groups: strategic, medium-term and tactical. Since the PBC is part of economic policy, its long-term goals are set and regulated by the authorities. The monetary policy of the central bank is formed depending on the development goals of the region for the current year. It can be an economic and macroeconomic equilibrium, price stability. These indicators are carried over to economic ones: production growth, increase in the efficiency of used funds, stability of the monetary unit, labor force employment, balance of payments. The credit policy of banks is primarily aimed at maintaining stable demand for the national currency and ensuring supply. Another goal is the stabilization of prices, eliminating the deficit or surplus of the money supply.

PBC is also used to regulate the economy. To alleviate crises, curb inflation, the state adjusts the rate Bank reserves changing the amount of available cash resources. A decision made in one area affects others. Therefore, a balance should be maintained between monetary, credit and foreign exchange policies.

Loan management allows you to achieve strategic goals more efficiently. Lack of funds prevents the implementation of commercial transactions, and excess weight depreciates the currency and reduces the living standards of the population. In the first case, the credit policy of the central bank is aimed at expanding the activities of financial institutions, and in the second, at reducing it. In this case, indirect and direct methods of exposure are used. They will be considered in more detail below.

The quality of the loan portfolio is affected by the level of overdue and bad debts. The bank needs to strike a balance between risk and return. PBC reduces risk and maximizes profits. Decisions made by management are delegated to employees. So an important task is performed - a unified approach to conducting transactions is created.

Advantages and disadvantages

Monetary policy of the bank is characterized by:

• Speed ​​and flexibility in comparison with fiscal policy.
• Weak dependence on political pressure.
• Monetarism.Change in supply affects the level of economic activity.

Monetary policy of the Bank of Russia has its drawbacks:

• Cyclical asymmetry. The implementation of the policy of “expensive” money will lead to the point at which banks will have to limit the volume of loans, that is, the supply of resources in the market. In the opposite situation, small financial institutions will be able to form reserves. Funds allocated for the purchase of bonds from the public can be used to repay loans. Such asymmetry during periods of crisis can become a hindrance. Under normal conditions, an increase in reserves increases the supply of funds in the market.
• During inflation, the velocity of money circulation tends to increase, as a result, the credit policy of banks ceases to function effectively.
• The impact of investment. Bank lending policies may be frozen due to high demand for investments. But a recession can undermine confidence in entrepreneurship and nullify the effect of “cheap” money.

Credit policy of a commercial bank

At the level of a specific institution, it represents a strategy and tactics in the field of financial transactions, that is, a set of principles and tools used by the organization to fulfill its tasks. The purpose of the bank’s credit policy is to create conditions for the efficient allocation of resources and ensure profit growth. Structure:

• organization of financial activities;
• portfolio management;
• credit control;
• delegation of authority principles;
• general criteria for selecting loans;
• limits for individual transactions;
• loan agreement support;
• reservation.

The credit policy of banks creates the prerequisites for the effective work of personnel, unites their efforts, reduces the likelihood of errors. It contains requirements for the borrower (minimum level of financial stability, equity, etc.), structure and subject of pledge (acceptance limits commodity loan) etc.

The pricing strategy includes conditions for changing rates on existing contracts, forms and purposes of granting loans, limit amounts. The Bank seeks to expand its portfolio of liabilities to reasonable limits, avoiding a significant concentration of risk by industry, territory, and type of loan. It also provides for the procedure for conducting operations with certain categories of borrowers, recommendations for the employee to monitor “bad” debt.

Requirements

The credit policy of the bank should correspond to the market situation. Therefore, all developed provisions and rules need to be regularly updated. In practice, this happens once a year. Additions can come either from above or from below. An employee who is faced with unusual situations every day can also suggest rational suggestions. At the same time, the chosen strategy should not contradict the law: maximizing profits with a simultaneous sharp increase in risks will not bring a good result.

Regulation methods

The mechanism of influence is formed on the basis of the conditions and the order of application of tools and methods. The second concept is more capacious. Methods - a set of ways to influence objects to achieve goals. Each of them is called a tool. They are classified by objects of influence, form, nature, timing. Under the first criterion, the directions of the bank's credit policy are implied. Increasing or decreasing the cost of loans, the state aims to revitalize the situation, to prevent the economy from being oversaturated with monetary resources. According to the form of impact, the instruments are divided into administrative (directives, regulations, instructions) and economic. By nature - on quantitative and qualitative parameters.

States of all countries of the world use such methods of influence:

• Operations with treasury securities.
• Discount rate of interest.
• Reserve ratio.

All these tools of the monetary policy of the central bank are used to achieve the global goal of maintaining stable demand for the monetary unit.

Securities transactions are considered the most effective: purchase and sale, currency swaps, placement of term deposits, pawnshop auctions. In implementing a policy of “cheap” money, the Bank of Russia acquires bonds. Their market value is growing, and profitability is declining. As a result, a commercial institution has increased resources. This is reflected in the cost of loans.

Transactions in the market are classified according to several parameters: conditions, objects (state, private securities), urgency of transactions, scope, method of setting rates (by the Central Bank or the market), source. Direct operations are transactions of the regulator with securities without obligations. If they are made on a cash basis, payment must be made before the end of the day. Regular transactions provide for the transfer of settlements to the next day.

Now consider the second tool - the discount rate at which the regulator provides loans to commercial banks. When implementing the policy of "expensive" money, it rises. As a result, loans to financial institutions become expensive, they reduce the volume of credit operations, thereby reducing the circulation of funds. This method has recently been used by Rossiya Bank. The credit policy in this case is aimed at the formation of a market rate. The higher its level, the more expensive it will cost to refinance a commercial bank. By changing the rate, the state regulates the cost of loans. This is an indirect and relatively simple method of influence. All banks resort to loans from the regulator. Therefore, the change applies to the economy of the country as a whole.

The third tool is the adjustment of the reserve ratio, that is, the amount of deductions from liabilities. During the implementation of the policy of “expensive” money, the regulator increases the norm, reducing the money supply. The decrease occurs when it is necessary to increase the amount of banks' resources. Norms are established in quantitative and qualitative indicators. Usually this is the share in liabilities or the volume of their growth over a certain period. In many countries, reserves are differentiated by types of deposits: term deposits, demand deposits. A higher rate is set for the second group of deposits. One of the requirements is to place deposits with the Central Bank in the amount calculated as the average value of liabilities for a certain period (month).

In practice, such bank credit policy tools are also used:

1. Commercial financial institutions commit themselves to comply with regulatory requirements on a voluntary basis.
2. Fixing limits on the growth of funds in circulation.
3. Foreign exchange intervention.

Central bank

The Bank of Russia is the country's main financial institution. In the process of performing his functions, he is guided by the Constitution, the Civil Code, and the Federal Law of the same name. He is not liable for government obligations and covers all expenses from his own income.

Central Bank Credit Policy Tools:

• interest rates;
• reserve ratios;
• deposit operations;
• open market transactions;
• currency management;
• setting benchmarks for the growth of funds;
• quantitative restrictions;
• bond issue.

Interest rates, open market operations and regulatory standards have already been mentioned. The Central Bank attracts funds from banks in order to maintain the liquidity level of the entire system. Under foreign exchange regulation refers to the purchase and sale of a foreign currency in order to influence the ruble exchange rate and the money supply as a whole. The amount of funds is also regulated by setting limits on the number of certain transactions.

Improving the credit policy of the bank

In financial institutions there are employees who deal with the issues of the algorithm for calculating the solvency of the borrower, the selection of specific schemes and products. The credit policy of the bank is developed on the basis of the current situation in this region. Knowledge of the trend allows free use of funds. One tool that is used to determine the level of potential risks is stress tests. They show what losses a bank may suffer in a given unforeseen situation.

Classification:

• One-factor stress tests - display changes in a specific indicator on the value of the portfolio. But they do not always show the full picture, since in stressful situations several parameters can change.
• Multivariate stress tests - take into account a large number of indicators, but are based on historical scenarios, not adapted to modern market infrastructure.

Difficulties arise due to the lack of data that are used in testing, for example, credit risk assessment. Also not taken into account liquidity risk But in times of crisis, the outflow of capital greatly affects the value of assets.

Recently, another evaluation method has become widespread in the Russian Federation - DataMining. Its essence is to build a tree based on data from previous periods. The class of the situation depends on whether the funds were returned in full or if there were delays. All situations under consideration first fall into the upper node, and then are distributed downwards depending on additional parameters. The more of them, the further objects move.

If the initial conditions change, the tree can be rebuilt. Further, the credit policy of a commercial bank will be improved by detailing the factors.

Scoring

An automatic system for calculating the risk of loan default is more often used by Russian banks. It is a statistical model that is built on the credit history of the client. It depends on the characteristics of the bank, legislation, traditions in the country.

The most common scoring technique is the Duran model. It includes groups of factors that determine the degree of risk by various factors. They characterize individuals by such parameters: age, gender, profession, length of stay in the region, financial indicators. In a simplified form, the model consists of the sum of these characteristics. The higher it is, the more reliable the client is considered. The difficulty lies in the fact that scores require constant confirmation and updating. And it can be expensive for the bank. Now financial institutions require an average of 5 to 9 documents to assess the solvency of the borrower. Since there is no official algorithm for working with them, the papers should contain a maximum of information about the client.

The advantages of scoring are quick and impartial decision-making, lack of staff training costs, and the ability to manage a loan portfolio. The main disadvantage is low adaptability. In the USA, a person who has changed many jobs is considered more in demand. In Russia, this indicates his inability to get along with colleagues or his low value as a specialist.

The problem also lies in the fact that the parameters by which the selection takes place are divided into “good” and “bad”. In Europe, a client is considered more risky, which delays payments for more than three months, as well as one that quickly repays the debt. In the second case, the bank does not have time to make money on it. The same parameter has been transferred to the domestic market.

Credit bureaus

“Problem loans” arise from a lack of information. Therefore, the United States has begun the practice of exchanging data on the provision of loan capital. At the National Credit Management Association, managers of various institutions exchange information about borrowers.The database contains information about all persons who have ever applied for a loan to any organization in the country: socio-demographic indicators, court decisions, bankruptcy data. The existence of the bureau was laid down by the legislation of the country. Only in the USA there are 3 thousand such organizations.

But more valuable is the information received from other banks serving this client. Financial institutions provide data on the size of the deposit, part of the outstanding debt, delays in payments and even about the competitors of the organization. From this information it is possible to judge from what means working capital is financed. The dissemination of information may harm all parties to the transaction. If the client finds out that the bank has provided unflattering feedback from the supplier, then he will refuse the partner. And if the case gains wide resonance, the bank will no longer receive the information it needs in this way.

Problems

The advantages of credit bureaus are obvious:

• The database of information about potential borrowers is growing.
• Unscrupulous customers are screened out. The lender has reduced risks, reduced reserves, increased liquidity.
• The cost of obtaining information is reduced.

However, banks are in no hurry to share customer information received. The participants in the process do not know how to use the data correctly. There is no mechanism for reporting fraudulent transactions. Despite this, the number of requests to the credit bureau in recent years has been continuously growing. Therefore, in 90% of cases, the client is denied a loan due to poor credit history in the past. Another 10% depends on the profession, age and recall. And if the fact of a forced collection of a debt or delay in payment of more than 180 days is discovered in the credit history, one should not count on another loan.

The system of reminders about the next payment would help to solve the problem of non-repayment of the loan. Calling by phone, SMS-message, email - all these methods of notification of debt are effective and uninterrupted. But their full implementation is a difficult task. Information needs to be stored somewhere, somehow processed, transferred and protected. Now IT capabilities are used by 15-20%. To achieve the main goal of the bank’s credit policy, an automated system must be created to meet the needs of customers in different products.

Conclusion

PBC is used to maintain stable supply and demand for foreign currency. Depending on the goals set by the state, the Central Bank conducts operations with securities, adjusts the discount rate, reserve standards, affecting the amount of available cash resources. Tool kits are combined into bank credit policy methods. Ceteris paribus, reducing the norms and rates, the regulator seeks to increase the amount of available funds. These methods work well in stable market conditions. During periods of crisis, they must be used very carefully.