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Loan portfolio is a total of principal debt on loans granted by the financial institution. The term “loan portfolio” includes all loans issued by the financial institution: both to individuals and to legal entities. The approaches to loan portfolio formation for businesses and individuals need to be differentiated and take into account qualitative and quantitative characteristics, as well as internal and external factors.

In a non-bank financial institution portfolio management requires virtually jeweller’s precision. Since a non-bank financial institution has usually a far smaller cash reserves than a bank, there is practically no room for mistake. A couple of problem loans, lack of loan repayment from major customers and financial health of the credit institution is threatened.

In financial and credit relations a manager should always strive to form a credit portfolio maintaining balance between the two factors: "risk - rate of return." It is better to manage portfolio of a non-bank financial institution by adhering to lending policies and issuing "micro-loans" or small cash amounts, say, up to 1000 Euro. In this case the occurrence of bad debt will not have a detrimental effect on financial standing of the organization.

As for the optimal maturity of loans, short-term lending would be more profitable for a non-bank financial institution. Short-term lending allows for quick return of principal and interest on the loan.

If you are interested in training on managing NBFIs loan portfolio, please call +7 (812) 498 65 80. TA Consult experts will answer your questions. 

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