ACC305 Unit 7 Discussion - Credit Risks, Analysis of Financial Statements

ACC305 

Unit 7 DB: Credit Risks (Analysis of Financial Statements)

Assume Maria, a small business owner, wants to purchase an expensive truck worth $82,000. She paid an amount of $10,000 as a down payment and decided to take a bank loan for the remaining amount of $72,000 to be paid back in 1 year. The risk management department of the bank checked Maria's credit risks before issuing the loan.
Maria, with low credit risk, gets the approval for loan allotment. Maria successfully paid a couple of installments of $10,000 during the year. However, Maria had some big losses in her business due to offering goods on credit to customers with low credibility. The bank thinks that Maria might not be able to make any further payments against the loan. The current situation creates huge risks to the bank against a loan provided to Maria. Moving forward, what can the bank do to mitigate credit risk? Could the bank have done anything differently in Maria's case? Take into consideration how credit ratings are determined.