Early detection of stressed loans has been one of the principal focus areas in the global banking sector. In recent times, its need has been further fueled by subdued oil prices, changing demand dynamics towards renewable energy and an overall slowdown in economic activity. Consequently, as a result of these adverse factors, management of non-performing assets have become one of the biggest challenges being faced by the banking system, impacting most customer segments across banks' portfolio and, in particular, that in the SME segment.
These developments have necessitated that banks today adopt a proactive, comprehensive approach towards management of non-performing loans (NPLs) through early detection and effective mitigation of credit risk. Building an effective early warning solution (EWS) requires a bank to adopt a customised approach that is fine-tuned to address the unique nuances of its portfolio as well as its own risk appetite and culture.
The Early Warning Framework Conference discussed the need for proactive loan monitoring as it is of paramount importance that banks leverage both internal data as well as external events within a strong analytical framework for analysing their borrower's creditworthiness.
