Credit risk assessment: a challenge for financial institutions

This study explores financial credit risk assessment. This is an important issue because there is currently no standardized method used by financial institutions for the assessment of credit risk. A critical evaluation of the most popular credit risk assessment methods – the judgmental method, credit-scoring and portfolio models – highlights a number of limitations when used on their own. Several interviewees confirm that credit risk assessment methods should be combined for effective credit risk assessment. Accordingly, the study proposes a framework for improving credit risk assessment, which combines the strengths of these methods and copes successfully with their limitations.