CCA Portfolio Management and Monitoring Flashcards
6 cards from real CCA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CCA Portfolio Management and Monitoring flashcards as text
What is the purpose of an annual credit review in commercial lending?
Answer: To reaffirm the borrower's creditworthiness and update the risk rating based on current financial performance
Annual credit reviews allow lenders to reassess borrower financial health, update risk ratings, and identify any material changes since loan origination.
Which loan classification under U.S. regulatory guidelines typically requires a specific reserve allocation because full repayment is in doubt?
Answer: Doubtful
Loans classified as 'Doubtful' have collection or liquidation in full highly questionable and improbable, requiring specific loss reserves under regulatory guidelines.
A borrower's current ratio drops from 2.1 to 0.9 within a fiscal year. What does this signal to a credit analyst monitoring the portfolio?
Answer: Significant liquidity deterioration that may impair the ability to meet short-term obligations
A current ratio falling below 1.0 means current liabilities exceed current assets, indicating the borrower may be unable to meet short-term obligations without additional financing.
What is the role of loan covenants in portfolio management?
Answer: They establish ongoing financial performance benchmarks that serve as early triggers for lender action if a borrower's condition weakens
Covenants create contractual tripwires that alert lenders to financial deterioration, enabling earlier intervention before a loan becomes non-performing.
What does 'criticized assets' refer to in the context of bank regulatory examinations?
Answer: Loans classified as Special Mention, Substandard, Doubtful, or Loss by examiners
Criticized assets encompass all loans rated Special Mention or worse by regulators, reflecting varying degrees of credit weakness or loss potential.
Which stress-testing approach best helps a credit analyst assess portfolio resilience?
Answer: Modeling how portfolio performance would change under adverse economic scenarios such as a recession or sector downturn
Stress testing under adverse scenarios reveals potential vulnerabilities in a portfolio so risk managers can take preemptive measures before conditions materialize.