This post is a part of Bite Sized Wisdom series.
Having a low Non-Performing Loan(NPL) is critical to a lender, and in effort to speed up growth of a lending business, some banks/financing companies increasingly willing to lend to riskier profiles (corporate/personal). They are pressured by shareholders, by the market, and also by the government to channel funds, to grow the economy, and to support the country. But how does a lender suppress their Non Performing Loan?
One way is to have a great credit scoring metrics for corporate clients, starting from (obviously) a guarantee (in the form of long term asset like land / building), the guarantor/sponsor, and finally, the industry the business is operating in and the bank’s point of view on whether the industry is growing or contracting.
The good thing about having a very prudent lending is that your NPL is very low and controlled, and you are able to channel more financing to 1 client. But on the other hand, it’s risky because you only have a small number of clientele, even 1 disaster can impact your NPL significantly.