Home  Journals  Finance and Credit  28(364) – 2009 July

Investment lending risk restriction

Available online: 17 September 2009

Subject Heading: Bank risks

JEL Classification: 

Risk restriction through limitation is the most popular method that Russian banks apply. This method seems to be very simple. But in the same time, the creation of qualitative system of limitation is a difficult problem. It’s important to avoid situations when limitation appears to be a chaotic and senseless restriction of bank operations.
     This article is devoted to limitation in investment lending. We provide formulas and determine significant disadvantages of this pattern from practical point of view. We provide risk restriction recommendations including analysis of debt leverage of a certain debtor. We consider types of covenants banks use in investment lending and show how they help to limit risks. Also the article contains their principles. Besides, you will find basic principles of risk limitation which banks can use when working with companies in different branches of economy.

Keywords: investment lending, bank risks, risk management, limitation, covenants

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ISSN 2311-8709 (Online)
ISSN 2071-4688 (Print)

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