Credit Early Warning Signs & Problem Loan Management

Some level of probability of default is inevitable in any credit provision situation. Whilst the level of probability will initially be within acceptable tolerance levels, there is concern when that level of default probability increases. This will be triggered either by changing external environmental conditions such as deteriorating economic conditions which has the potential to impact loan portfolios or by factors specific to individual companies.

In either case it is important that the lender remains vigilant to the borrower’s environment and is able to identify early warning signs so that an effective plan can be implemented in order to minimise the risk and potential loss to the lender. The lender needs to be pro-active to ensure they become a doctor rather than an undertaker.