Pages: 46-53

Abstract

Accounting has a significant positive impact on the banking system because it represents a detailed financial information system for transactions. It is a major component in the management of credit risk. The important aspects of the accounting of loans are recognition of the rights of the customers and the calculation of provisions for problematic loans. Current practice requires that the risk that accompanies the loan to be reviewed often. Concentration risk refers to the risk of the portfolio resulting from increased exposure against a borrower or a group of borrowers. Traditionally, portfolio managers are based on intuition to assess the risk of concentration and the first limits of exposure were the intuitive defense but arbitrary against concentrations of credit risk. The periodic nature of the concentration of credit problems raises the issue why did the banks allow concentrations to develop. Banks appear more sensitive to the risks in some situations where they are focused on increasing assets or increasing owned part of market. Many banks are exploring techniques for identifying concentrations based on common risk factors or correlations between factors. Small banks may also find it hard not to be near the limits of concentrations.