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 primary purpose of credit portfolio monitoring in commercial lending?
Answer: To detect early warning signs of credit deterioration before default occurs
Credit portfolio monitoring exists to identify early warning signs of borrower stress so lenders can take corrective action before a loan defaults.
Which metric is most commonly used to measure the overall quality of a commercial loan portfolio?
Answer: Non-performing loan (NPL) ratio
The non-performing loan ratio (NPLs divided by total loans) is a standard industry metric for assessing portfolio credit quality.
A credit analyst notices a borrower's debt service coverage ratio (DSCR) has declined from 1.45x to 1.05x over two annual reviews. What is the most appropriate action?
Answer: Downgrade the loan's risk rating and increase monitoring frequency
A significant DSCR decline signals deteriorating repayment capacity, warranting a risk rating downgrade and heightened monitoring even if the ratio remains technically above 1.0x.
What does a 'watch list' credit designation typically indicate in portfolio management?
Answer: A loan under enhanced monitoring due to identified risk concerns
Watch list status flags credits with elevated risk indicators for closer oversight, allowing management to intervene before the credit further deteriorates.
Which of the following is an early warning indicator of potential credit deterioration in a borrower's portfolio?
Answer: Frequent requests for covenant waivers
Repeated covenant waiver requests suggest the borrower is struggling to meet agreed financial thresholds, a key early warning of financial stress.
In loan portfolio management, what is 'concentration risk'?
Answer: Excessive exposure to a single borrower, industry, or geography that magnifies losses if that segment underperforms
Concentration risk arises when a portfolio is overexposed to one segment, meaning a downturn in that segment can disproportionately harm overall portfolio performance.