The quantitative analysis includes analysis of the financial statements of the company, as well as analysis of certain financial indicators.
The ultimate objective of the credit analysis for the bank is to assess the credit risk, i.e. the creditworthiness of the loan applicant..
Lenders look at a variety of factors in attempting to quantify credit risk.
Three common measures are probability of default, loss given default, and exposure at default.
Probability of default measures the likelihood that a borrower will be unable to make payments in a timely manner..
Credit risk analysis is the means of assessing the probability that a customer will default on a payment before you extend trade credit.
To determine the creditworthiness of a customer, you need to understand their reputation for paying on time and their capacity to continue to do so..
Although credit analysis can rate risks and estimate the probability of default, default risk is only one entity-specific risk factor.
Lenders consider costs and benefits holistically when determining if the anticipated outcomes are acceptable to their business and financial exposure.
