Banking Methods to Reduce the Risks of Credit Facilities

Abstract

There is no credit without risks, as risks are synonymous with the credit facilities provided by banks to clients. However, banks strive hard through their prudent credit policies to limit the risks associated with credit facilities, relying on several methods and techniques to minimize these risks to the lowest possible level. Therefore, this study concluded that banks follow two methods for reducing risks. The first is proactive methods which is obtained before granting credit facilities. They are either preventive, initiated by the bank before the risks occur and represented in good inquiry about the client before granting the facility, or remedial, represented in insuring against these risks. On the other hand, the second methods are reactive methods after granting credit facilities, which are also either preventive, imposed by banks before the risk occurs and represented in monitoring credit facilities to ensure that the granted credit is used according to the terms and rules that were given to it. Or remedial, which banks resort to when credit risks occur, represented in debt restructuring.