Credit check

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The credit check is the initial and ongoing monitoring of the creditworthiness of a borrower at credit institutions .

This process is generally binding for lending and loan extensions by credit institutions in Section 18 KWG . In particular for loans to a borrower that account for 10% of the liable equity , max. Exceed EUR 750,000 , this check is mandatory for the banks and is monitored accordingly by the banking supervisory authority BaFin as part of their annual audits of the credit institutions.

General

A credit risk pay all creditors (such as the debtor risk of the supplier ); Whether and to what extent these creditors examine their risk more closely is up to them. There is a legal requirement only for credit institutions, especially since the credit risk is usually their main risk. A credit risk for credit institutions can only be assessed if they receive up-to-date information about the legal and economic situation of their borrowers and evaluate and evaluate them using uniform guidelines.

Therefore, § 18 KWG requires - albeit in a very general form - that credit institutions have to regularly have the economic situation of their borrowers disclosed during the credit period. Since this provision of the Banking Act only applies to the relationship between the credit institutions and the banking supervisory authorities, it must be implemented in relation to borrowers. The Federal Court requires in interpretation of this provision by the banks, a sustained to the submission of financial statements for the purpose of financial statement analysis or an investment position to strive with additional information and to make the further lending of such a template-dependent, ie the loan terminate if they fulfill Your legal obligation is made impossible by the further behavior of your customer. In order to make this binding, corresponding passages are included in the loan agreements (see also covenants ). This creates a contractual obligation for the borrower, non-compliance with which means a breach of a contractual obligation ( Section 314 (2 ) BGB ). This includes the failure to submit creditworthiness documents as part of the disclosure of the economic situation or other documents relevant to the contract. This is an important reason that triggers an extraordinary loan termination option on the part of the credit institutions.

The creditworthiness check is the subject of asymmetrical information , because the applicant could try to give the bank a better creditworthiness than actually exists before concluding the loan agreement , while the bank has to prevent a wrong judgment and determine the true credit risk . This asymmetry is called hidden information ( English hidden information ). A better credit rating usually promises a more favorable credit margin , which the bank does not want to allow for a bad credit rating . This situation can only be prevented by doing the credit check. It is intended to give the bank the opportunity to check the creditworthiness specified using objective methods.

The position of § 18 KWG on special regulations

The Capital Adequacy Ordinance (CRR) in Art. 144 No. 1a requires a meaningful assessment of each debtor , whereby a rating system must take into account the risk characteristics of the debtor and the business (Art. 170 No. 1 CRR) and, in the case of credit approvals, each debtor must be given a rating is to be assigned (Art. 172 No. 1a CRR). A rating presupposes that the credit institutions have appropriate documents about the assets , debts and income of the borrower. Since the Capital Adequacy Ordinance is to be seen as an implementation provision of Section 10 of the KWG, it is a “ lex specialis ” in relation to the KWG , which must take precedence over the general provisions of Section 18 of the KWG.

The MaRisk - as Implementation Regulation for § 25a , Section 1 of the Banking Act -. Require banks to a risk classification system for loans. Therefore, the borrower must be classified accordingly with every credit decision . This is only possible with complete information about the borrower's financial situation, regardless of the loan amount. In accordance with AT 2.3 MaRisk of December 2012, extensions also require a credit decision under banking supervisory law because risk-relevant facts (credit period) change.

Both regulations result in the need for credit institutions to have the economic situation disclosed, even for borrowers whose credit volume does not reach or exceed the disclosure limit of 10% of liable equity or a maximum of 750,000 euros. However, there is a clear gradation with regard to the minimum scope of the documents to be submitted.

Components of the exam

General

As already mentioned, the central qualitative standard provision for requesting documents on the economic situation in Section 18 KWG is formulated very generally. For this reason, BaFin had specified this provision in more concrete terms in numerous circulars that were barely manageable in order to make it easier for banks to practice their lending. These extensive circulars from BaFin on the implementation and interpretation of Section 18 KWG have been discontinued since May 2005. At the same time, however, BaFin instructed the credit institutions to ensure compliance with Section 18 KWG through their own regulations. As a result, instead of a uniform framework, individual implementation provisions now apply. The principles for the material disclosure of the economic situation are now codified in guidelines of the various banking associations , which are based on a few basic principles. This means that they are largely identical in terms of their material content within the institute groups. However, the institutes are free in the practical design, so that deviations in detail may be possible. However, it is precisely this risk of different handling by the institutions that the provision in Section 18 of the KWG wanted to counteract.

Principles of Section 18 KWG

  • Risk adequacy :

The type, scope, complexity and risk content of a credit exposure determine the requirements for disclosure of economic circumstances. The better the credit rating and the lower the unsecured loan part, the lower the requirements may be and vice versa. Since the creditworthiness and unpaid portion can be assessed differently by different institutions, different requirements cannot be ruled out.

  • Traceability :

The process procedure for the disclosure of the economic situation must be regulated by the institute in a detailed and comprehensible manner in the bank's internal work instructions. The transparent presentation of the customer's economic situation can be quickly understood during audits by banking supervisors or auditors.

  • Completeness :

All documents that the institute believes are necessary for a proper credit check must be obtained. On the basis of the documents submitted, the institution must be able to conclusively and comprehensibly assess whether a borrower will also be able to meet his interest and repayment obligations in the future. In the case of good economic conditions, the requirements for documents can therefore be met more quickly than in difficult cases.

Consumer loans

Since March 2016, the credit check for consumer loans has been specified in section 18a KWG . The new provision is based on Directive 2014/17 / EU of February 4, 2014, which understands the creditworthiness check in Art. 4 No. 17 to be the assessment of the prospect "that the debt obligations from the loan agreement will be met." The newly inserted § 18a In parallel to Section 491 (3) BGB, KWG differentiates between general and real consumer loan contracts . While there must be no “significant doubts” with the general consumer loan agreement, with the real consumer loan agreement it must be “likely” that the borrower will meet his obligations under the loan agreement. These vague legal terms are of little help and do not match the risk parameters of the probability of default (Art. 4 (1) No. 54 CRR), the loss of default rate (Art. 4 (1) No. 55 CRR) and to be applied under the Capital Adequacy Regulation (CRR) the default loan amount (Art. 261 para. 1 CRR), which are specified in the standardized approach by the banking supervisory authority. The formulation in Section 18a (1) KWG leaves simple doubts sufficient as a positive creditworthiness aspect, while a high repayment probability would rather reflect the requirements of banking practice.

Conversely, from Section 18a (1) KWG, no consumer loan contract may be concluded if the credit check turns out negative. According to Section 18a (4) KWG, the examination of real estate consumer loan contracts may not be based primarily on the fact that the value of the property , right or building is likely to increase or exceed the loan amount. It can only be inferred from this that expected increases in value or the amount of credit security may not be a main criterion for the loan . While this means that the lending value , lending limit and lending period lose importance when lending objects , the - income-related - economic key figure of the debt service coverage ratio comes to the fore. Paragraph 18a of the German Banking Act was adopted in the same way in Paragraph 505a of the German Civil Code (BGB) and Paragraph 505b of the German Civil Code ( BGB) in order to force lending non-banks to perform credit checks.

General requirements of banking supervision

Since May 2005, BaFin has only provided the general framework that banks must observe when making decisions about granting loans. Then you have to consider the following criteria:

  • When granting and processing loans, the institutions must use a system that corresponds to their individual business profile, with which they can comprehensively assess their counterparty default risks on their own responsibility.
  • In addition, the assessment intensity and frequency as well as the documents required for this are to be specified in the bank's internal organizational guidelines according to the type, scope, complexity and risk content of the transactions.

This means that credit institutions must ensure that unacceptable accumulations of risk are avoided even below the disclosure limit (i.e. less than 10% of the liable equity capital, max. 750,000 euros).

documents

Essentially, the examination is based on concrete and detailed figures and data in the form of loan documents . Depending on the customer segment, this must meet qualitative requirements (e.g. annual financial statements for companies or signed self-assessments for private customers).

Basically, the higher the loan application or the blank loan part , the greater the demand for the scope and quality of the information and data . In particular in the corporate customer lending business, figures ( quarterly reports ) are required during the year . In all cases, the information requirement will be based on the requirements of the internally applied classification and evaluation procedures ( rating or credit scoring ).

Procedure

When collecting the characteristics of the borrowers, a distinction is made between the prescriptive and the descriptive determination. In the first case, the sizes are determined from surveys conducted by credit management. In the descriptive procedure, the determination is made from a statistical evaluation of past processes.

Descriptive procedure

Linear discriminant analysis

The properties under consideration are weighted here. The result is the discriminant evaluation numbers ("scores"). By weighting the factors, an attempt is made to determine these numbers in such a way that groups of “good” and “bad” borrowers can be distinguished. As is usual with statistical tests, there are two possible sources of error , on the one hand that “good”, ie creditworthy, borrowers are rejected and, on the other hand, that “bad” borrowers are accepted.

Logit model

The logit model is based on logistic regression . It is assumed that the conditional probability of insolvency is a lognormally distributed random variable, the value of which is smaller than the sum of the product of the weight vector and characteristic plus a constant.

Calibration of the valuation numbers

The empirical calibration is based on the borrower groups and a calibration curve.

Borrower Groups

  • Order based on the rating number
  • empirical failure rate

Calibration curve

  • parametric and nonparametric regression

See also

Individual evidence

  1. ↑ The threshold value anchored in the law does not mean that lending below this level does not require a credit check.
  2. ↑ BGH, judgment of March 1, 1994 , Az. XI ZR 83/93, full text
  3. ↑ Volker Lang / Paul Assies / Stefan Werner, Modernization of the Law of Obligations in Bank Practice , 2002, p. 161
  4. ↑ Britta Kunze: Monitoring operational risks at banks: internal and external actors in the context of qualitative and quantitative monitoring . In: Gabler Edition Wissenschaft . Deutscher Universitätsverlag, 2007, ISBN 978-3-8350-9486-4 , p. 158 (379 p., Limited preview in Google Book search).
  5. ↑ Gerd Waschbusch, Banking Supervision: The Monitoring of Credit Institutions and Financial Services Institutions According to the Law on Credit Systems , 2000, p. 464, ISBN 3-486-25506-1 ( books.google.de )
  6. ↑ This corresponds to the content of Section 25a (1) KWG, according to which every credit institution must have a proper business organization, appropriate internal control procedures and suitable regulations for the diversification, monitoring and control of risks. This provision is specified in MaRisk. Here, the banks are given what their credit risk strategy, but also their specific credit granting, processing and credit monitoring should look like. Ultimately, these requirements lead to a procedure for risk classification, which ultimately forms the prerequisite for the application of the so-called IRB approach for risk weighting of loans and determination of the SolvV.