This lesson provides a systematic framework for conducting customer due diligence and credit assessment.

7.1 The Credit Assessment Framework

The credit assessment process follows a structured methodology. The Institute of Banking Studies (IBS) outlines a comprehensive framework:

  • Walk through the credit assessment process: Data collection, due-diligence steps, use of checklists, site visits, and preparation of the credit assessment report .

  • Credit assessment documentation package: A comprehensive set of documents required for evaluating a credit application .

  • The Credit Assessment Checklist: A systematic tool to ensure all necessary information has been collected and evaluated .

  • The Site Visit and Site Visit Report: An essential step in assessing the borrower’s business operations and verifying information .

7.2 Core Elements of Credit Assessment

A thorough credit assessment evaluates multiple dimensions:

  • Industry Risk Assessment: The risks associated with the borrower’s industry sector .

  • Business Risk Assessment: The borrower’s market position, competitive dynamics, and business model .

  • Management Risk Assessment: Quality, experience, and integrity of management .

  • Financial Risk Assessment: Analysis of financial statements, key ratios, and cash flow .

7.3 Information Gathering and Verification

Lenders must collect and verify comprehensive customer information. Key requirements include:

  • Income Verification: Identifying applicant’s total income and expenditure to calculate available funds for servicing the loan .

  • Credit History Investigation: Investigating and verifying the applicant’s credit history .

  • Security Checking: Identifying the need to take security to minimise risk exposure .

  • Address Verification: Using documents such as utility bills, rental agreements, or bank statements .

7.4 The Credit Report and Recommendation

The final output of the credit assessment process is a comprehensive credit report. The IBS training emphasises that credit professionals must be able to:

  • Prepare and present a complete, well-reasoned credit report that consolidates findings and supports recommendations .

  • Adhere to the bank’s credit policy and risk appetite in the recommendation .

  • The credit decision is a structured process involving investigation methods, decision-making techniques, and line of credit management . 

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