Importance To survive financial volatility and remain competitive, commercial banks try to optimize their lending policies by analyzing and assessing risks of their credit portfolios. The research deals with economic relationships that originate as commercial banks develop and progress in their activities. Objectives The objective of the research is to formulate theoretical provisions and practical guidelines for setting up a mechanism for commercial bank's credit portfolio management, using the credit risk assessment method based on the VaR model and simulation modeling procedures. Methods The Value-at-Risk model enabled us to assess the risk of the commercial bank's credit portfolio through an analysis of the bank's maximum losses broken down into expected and unexpected ones. Results We substantiate the need to articulate the commercial banks' credit risk management method by assessing the probability of the borrower's default. We suggest assessing expected and unexpected losses to plan the bank's reserves for possible litigation losses and determine internal security of the credit portfolio. Conclusions and Relevance The proposed method for managing the commercial bank's credit risk will enable the bank's top executives to internally assess the risks on an ongoing basis, take effective managerial decisions in order to set up lending limits in line with changes in the credit portfolio and their effect on the credit portfolio risk.
Keywords: risk management, credit risk, monitoring, credit policy, commercial bank
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