NECESSITY OF RISK ESTIMATION, CLASSIFICATION OF LOANS IN BUCKET AND ADJUSTING THEM

Abstract

Financial assets that are mainly represented by loans or similar investments are produced and controlled by credit institutions. These, together with the services, can contribute to a sustainable economic development, sometimes under conditions of risk and uncertainty. Among the financial assets existing on the market, credit can be a strategic pillar for the development of Romania's economy in a healthy economic environment. However, in an economic environment perceived as having a high risk determined by different internal factors, the financial intermediation offered by the credit institutions can be negatively influenced. The size of the bad loans and the estimation of the risks for adjusting the loans according to their categories, determines the credit institutions to find the best models of risk assessment. IFRS 9 introduces a new approach regarding the classification of financial assets, determined by the business conditions of the credit institutions, that is how a bank manages, under financial risk conditions, to generate the cash flows. In this paradigm, the contractual cash flows from the banking business representing exclusively payments of the principal and of the interest related to the value of the principal due, eliminates the categories of classification of the financial assets stipulated in IAS 39. and their proper adjustment. The research methods used in this study are: observation, grouping and comparison.

Keywords

• risk buckets; amortized cost; fair value; debt service
• rating categories.