Getting to Know About the Importance of Credit Analysis and its Functions
A bank or other financial institution cannot immediately lend money or approve someone’s credit just like that. An in-depth process is required before arriving at the conclusion that the credit has been approved. This process is known as credit analysis.
What is the meaning of this activity? What are its functions and what is the purpose of this analysis? If you are curious, take a look at the various important information regarding the analysis below so that you can understand it well.
Understanding the Process of Credit Analysis
According to OJK, Credit Analysis is a process of character, capacity, capital, collateral, and economy condition analysis. Importantly, Credit analysis should not just be a formalities to complete the credit and financing procedure.
This method is used to avoid mark up and fraud that can be harmful to the financing company
Read Also: What is the Difference between Credit and Financing?
Credit Analysis Process (5C)
Every bank or financial institution that provides loans and credit, of course, really wants to avoid what is called a non-performing loan (NPL). This risk can occur if you do not ensure the various factors of the borrower or debtor.
In order to avoid these unwanted risks, an analysis process must be required. Here, you will assess and analyze the feasibility of a credit application to ensure that the loan issued is safe so that it can be repaid on time, and that the money lent is used for the purposes that are in accordance with the debtor’s request.
In the process, the 5C principles will be used, namely:
The character and nature of the customer is one of the important points in the consideration of being able to get credit. Debtors are expected to be able to fulfill their responsibility for the amount of funds borrowed. Other statuses such as age, marriage, and residence history are also other important aspects of this assessment principle.
Capital is the amount of funds or capital owned by the prospective debtor. The greater the capital in the company, the higher the seriousness of the debtor is needed to be able to pay off its financial obligations. Creditors will feel more confident when confirming the credit application.
Read Also: How To Do A Good And Correct Credit Survey?
The debtor’s ability to run a business to generate profits to pay obligations to creditors is another important principle in the analysis. In addition, they must also be able to meet the daily needs of the profits generated. Debt service ratio (DSR), debt burden ratio (DIR), and income value based on salary slips or savings accounts are one way to identify this.
Political, social, economic, and cultural conditions that affect the state of the economy are also an important part of the analysis’ activities. This will certainly affect a person’s ability to be able to pay their obligations to creditors.
Collateral is goods or objects that are used as collateral in order to receive credit from creditors. The goods or objects will be assessed to determine the risk of the customer’s financial obligations to creditors. However, in KTA (credit without collateral), this is not required.
Read Also: Teknik Penyelesaian Kredit Macet dan Contohnya
BI Checking to Strengthen the Analysis
Debtor customers will be given a score based on collectability records. The breakdown of this score helps assess how their previous credit history is. The scores used are:
- Score 1 (Exceptional), which is a borrower or customer who is never in arrears and always pays credit loans on time until the loan is paid off.
- Score 2 (Very Good), namely borrowers who are in arrears on credit payments for 1-90 days.
- Score 3 (Good), namely borrowers who are in arrears on credit payments for 91-120 days.
- Score 4 (Fair), namely borrowers who are in arrears on credit payments for 121-180 days.
- Score 5 (Bad), namely borrowers who are in arrears on credit payments for more than 180 days.
That’s information about what a credit analysis is and we hope this information can help you understand it. To expedite the process of borrowing credit from your company, use the ServIn credit application from AdIns. This application is equipped with a customer profile filtering feature and automatic installment calculation that makes it easier for you and your mobile customer.
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