Tag: Credit Grading

Improving Your Bank’s Credit Grading System

Better Credit Grade Granularity

Lots of banks have a limited number of credit grades. For the most part, the average bank has eight different categories, the first four of which are pass grades. If this is your bank, you are ripe to get hurt both in risk management and in loan marketing. Larger banks that use an infinite number of grades in their pricing model or at least use a two-tier system composed of probability of default and loss given default are at a material advantage when competing against a community bank that has a limited number of credit grades.

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