Design And Implementation Of A Computerized Loan Management System For Rejecting Or Approving Loan Request Using Credit Risk And Evaluation Models
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.
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:
- To analyze the loan sanctioning procedures of the applicants using credit risk and evaluation models.
- To design and implement a system that will help identify the credit worthiness of the borrowers.
- To help the efficiency of loan disbursement and Loan recovery among banks.
- 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.
5.0 Summary of Findings, Conclusion and Recommendation
5.1 Summary of Findings
The study revealed that all the Loan Applications that participated in the study have a loan risk management policy that is in operation. This implies that all these Loan Applications have clear guidelines on how to approach and manage the loan risks that they may encounter from time to time. It is also evident from the findings that the Loan Applications involve various stakeholders in varying degrees in the formulation of a credit policy. The stakeholders who are involved in credit policy formulation to a great extent are the members of these organizations and the regulator while the employees and the directors are involved in the credit formulation process only to a moderate extent. The study confirmed that the existing credit policy of the organization forms the basis for developing a new credit policy that is used by the organization. The other factors that are considered as revealed from the findings include trends of creditors and overhead costs. The general state of the economy was found to be of moderate significance when developing a credit policy.
It was certain from the study findings that the CAMEL Rating System plays a very significant role in rating the soundness of the Loan Applications. Among the components of this system that were found to be of very great significance in rating the soundness of the organizations are the capital adequacy, earnings and liquidity. Management and asset quality were also established to be important but not as equally important as the first three components that are mentioned above. On the parties that are involved in the risk identification process, the boards of directors of the various Loan Applications were found to play a very critical role. The board of directors is followed by the credit managers, employees, credit committee and executive management.
The study has revealed that three components that is capital adequacy, management quality, earnings and liquidity have a positive relationship with loan allocations. Loan Applications in Nigeria should ensure that the management of these three variables is enhanced in order to improve their loan portfolios.
It is also clear that the Loan Applications use the existing credit policy as the primary document for formulating a new credit policy. It will also be important if the Loan Applications can also consider using credit policy documents from other successful similar organizations as a benchmark for best practices.
5.3 Suggestions for Further Research
Since the business environment is dynamic and presents new challenges and opportunities, it will be important to replicate this study after a duration of five years and establish the position as at that time.
This study should be compared with findings from other industries in order to establish the similarities and differences that may be evident. This will assist the Loan Applications to benchmark with other organizations.
The Loan Management System (LMS) is 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. The system also provides the facility of backup as per the requirement.
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