Over the
past few years, the financial sector have dedicated numerous resources to
developing internal models to better quantify their financial risks and
attain economic capital. These endeavors have been supported and recognized
by bank regulators. Over time, banks have extended these efforts into the field
of giving out loans to qualified customers. The loans are given out based on
certain conditions like collateral and other factors, these factors may
include checking if the customer is loan worthy, or through customers’ salary
structures. These strict conditions must be clearly met by the customer
seeking loan offer from the bank or they won’t be qualified for the loan they
are requesting for. In this research, a computerized loan management system
for rejecting or approving loan request using credit risk and evaluation
models is to be designed, to solve the enormous challenges financial
institutions face in giving out loans. The concept of giving out loans by
banks was well understood and the pros and cons were ascertained, this helped
in building the system to meet credit risk and evaluation models. The
computerized system will provide less risk for the banks when reviewing
customers loan request, the system will ascertain if the customer is loan
worthy or not automatically. The newly developed system is automated,
effective, comprehensive, interactive, and gives the financial institution
less credit risk.
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Financial institutions offer loan services to
small organizations individuals and this was initiated after a number of
considerations on the banking system. This project attempts to design and
implement a computerized loan management system for rejecting or approving
loan request using credit risk and evaluation models and know about loan
sanctioning and lending procedure among banks across the globe. It also
attempts to use the credit risk and evaluation models to develop a strict
approach to these areas, to think through policies, principles, and practices
to accomplish the new tasks. By the time the system is fully implemented, it
will be able to understand, think, and be fully equipped to handle today’s
and also for tomorrow’s credit managerial work in financial institutions.
Moreover, there is a significant question for banks and their regulators is
assessing the accuracy of a model’s forecasts of credit misfortunes and
losses, particularly given the small number of accessible forecasts and
estimates due to their typically long planning horizons. Utilizing the credit
risk and evaluation, we propose evaluation techniques for credit risk models
based on cross sectional dependent. In particular, models are evaluated and
accessed not only on their estimates over time, but also on their forecasts
at a given period in time for simulated credit portfolios. Once the estimates
corresponding to these portfolios are generated, they can be evaluated using
various statistical methods. This
project when implemented, will provide a smooth channel for processing of
Loans in financial institutions across the country. The proposed system upon
completion will replace the manual loan application process and automates the
loan process from both, the banks as well as the customers’. Customer can now
apply for loans seamlessly without having to visit the banks and if approved
customers can track their loan details from the comfort of their homes. The
loan management system with credit risk and evaluation models is a very
efficient process to handle all loan related transaction in a very accurate
and convenient way. The Credit Risk becomes important to implement in
financial and accounting. It incorporates bankruptcy forecasting, financial
distress, corporate performance bunching / expectation and credit risk
estimation. The online Bank loan management system is an interface which
facilitates a customer to apply for a loan using a digital channel through
the internet, the system check for possible bankruptcy prediction, credit
risk estimation to track the status from time-to-time. This system provides
detail about the customers’ financial status over a period of time, their
loan details, risk estimation and possible bankruptcy prediction. Getting a
loan is a very tiring and complicated process in Nigeria. It may take weeks
or even months for loans application to get reviewed, before getting
approvals and people have to visit the financial office for documentation and
customer verification.
1.2 STATEMENT OF THE PROBLEM
Currently, most financial institutions do not
have any an automated system to help manage the data of customers applying
for Loans, Grants and Investments with credit risk evaluation. They have to
rely on manual procedures which is time consuming and doesn’t calculate the
credit risk evaluation in case of bankruptcy. This manual procedure doesn''t
maintain customer records with proper security and can’t track details
easily. It doesn’t allow the customer to check their loan request, submit
bank account statement if need be. The Existing manual procedure isn’t
equipped with basic functionalities of fast access to information such as
customer details and maintenance of all the loan details so it involves lots
of paperwork. Apart from administrative task being cumbersome, manual system
of registration is also long and error-prone.
1.3 AIMS
AND OBJECTIVE OF THE STUDY
The main aim of this research to Design and
Implement a computerized loan management system for rejecting or approving loan request using credit
risk and evaluation models that will allow bank customers to easily access
loans without stress or visiting the banks with the following objectives:
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To analyze the loan sanctioning
procedures of the applicants using credit risk and
evaluation models.
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To design and implement a system that
will help identify the credit worthiness of the borrowers.
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To help the efficiency of loan
disbursement and Loan recovery among banks.
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Increase accountability in the
financial sector.
1.4 MOTIVATION OF THE STUDY
The motivation for the study is to develop a
system for bank customers to easily apply for loans directly from their banks
via the computerized loan management system and their loan type from the list
available in the system. Once the loan application is complete by the customer,
this data is automatically sent to the bank server, a login ID and secured
password is sent to the user. The application is received by financial
institution for moderation and verification.
1.5
SCOPE OF THE STUDY
They are different financial
institutions in across the globe with different services, for
this research, the researcher pays attention to developing a computerized
loan management system for any forward-thinking financial institution ready
to use technology to dispense loans with critical credit risk and evaluation
models.
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