Evaluation of Credit Policy Implementation in Commercial Banks: Evidence from Latvia

The implementation of the bank’s credit policy is influenced by both internal and external factors. External factors include the state of the country’s economy, inflation rate, growth rate of gross domestic product, monetary policy of the state, level of banking competition, prices of banking services, demand for loans. The main internal factors affecting the implementation of the bank’s credit policy are the level of credit risk, the quality of loans, the structure of liabilities, the amount of financial resources, price policy, loan security, as well as the qualifications and experience of the bank’s staff. When implementing credit policy and evaluating credit risk, at a minimum, the level of financial stability of borrowers, the size of the enterprise’s assets, their level of liquidity, turnover and solvency are analyzed and evaluated. At the same time, it is important to take into account that the process of implementing the credit policy begins with planning the placement of financial resources in credit transactions, and the process of assessing credit risk begins at the stage of considering the borrower’s credit application and continues in the process of credit monitoring. Therefore, it is very important in the implementation of credit policy to ensure an interconnected system for assessing credit risk at all stages of the lending process. In this paper, the authors propose a system for assessing credit risk from the consideration of a credit application to the end of the credit monitoring process. The study is based on data from commercial banks in Latvia. The novelty of the study lies in the fact that on the basis of an expert assessment the significance of factors affecting the implementation of the bank’s credit policy is determined, and a system for assessing credit risk at various stages of lending has been developed. © 2022, The Author(s), under exclusive license to Springer Nature Switzerland AG.