Problems of the evaluation of credit risk in commercial banks

Abstract

The introduction of the requirements of the Basel 2 agreements for Latvian commercial banks to estimate their capital adequacy has changed the approaches to credit risk evaluation. On the one hand, it enabled commercial banks to apply different economic models and methods of credit risk evaluation. On the other hand, it has created new problems connected with the formation of the banks credit portfolio.

The aim of the research is to analyze the methods of credit risk assessment according to the requirements of the Basel Committee and to develop recommendations on introducing these methods in the practice of Latvian commercial banks and their customers.

Tasks of the research:

• to investigate the essence of the standardized approach to credit risk assessment;
• to compare Basel 1 and Basel 2 approaches to credit risk evaluation;
• to investigate the essence of the credit risk assessment approach based on internal ratings;
• to identify the advantages and disadvantages of the approaches of credit risk assessment;
• to analyze the process of introducing the new approaches to credit risk assessment in the practice of Latvian banks.