Credit risk assessment: a challenge for financial institutions

^** E-mail: vangeli3{at}eaee.gr This study explores financial credit risk assessment. This isan important issue because there is currently no standardizedmethod used by financial institutions for the assessment ofcredit risk. A critical evaluation of the most popular creditrisk assessment methods—the judgmental method, credit-scoringand portfolio models—highlights a number of limitationswhen used on their own. Several interviewees confirm that creditrisk assessment methods should be combined for effective creditrisk assessment. Accordingly, the study proposes a frameworkfor improving credit risk assessment, which combines the strengthsof these methods and copes successfully with their limitations.