What is the quality of assets?

Asset quality concerns the overall risk associated with different assets held by an individual or institution. This term is most often used by banks determines how many of their assets are subject to financial risk and how many contributions to potential losses must achieve. The most common assets requiring strict determination of the quality of assets are loans that may be non -paying assets if the debtors fail to repay obligations. Risk managers often evaluate the quality of assets by assigning a numerical assessment to each asset depending on how much risk it concerns. Unfortunately, there is always a risk that debtors will not repay either the initial loan amount or interest payments required by the creditor. Banks offering different types of loans must make sure they are protected from the default values ​​that can cause their overall operation, causing damage to local and possible national economies. Fixed asset quality assessment is essential for overall success as financial institutions.

The general idea of ​​assessing the quality of assets is to assess the individual risk associated with each particular asset. Although there may be different techniques used by risk managers, the most basic way of assessing assets is on a scale of one to five. The order of one would indicate that the asset, as well as a government bond, has a small or no risk to it, while the order of five suggests that there is a clear possibility that the assets in question, as a so -called non -default bond, will not return to the institution with low credit rating.

While companies that borrow from banks and other creditors are most commonly associated with the risk of assets, all types of investment should be the asset of asset quality. For example, investment in stocks is risky if companies offer stocks. Real estate investment may be problematic if the real estate market has a gross patch. There is basically nothing like thatHo as a risk -free investment.

Once the quality of assets is determined by a specific investment, banks and other institutions can assess the risk level of all its portfolios. The best way to attack the portfolio is to balance high -risk investments with safer, which will almost certainly bring something back. In addition, the bank should always make sure that it could cover financially for all its risk assets if the worst scenario occurred.