CCA CCA Portfolio Management and Monitoring 1

Question 1

What is the primary purpose of credit portfolio monitoring in commercial lending?

Accepted Answer

To detect early warning signs of credit deterioration before default occurs

Answer

To maximize loan volume regardless of risk

Answer

To eliminate all underperforming loans immediately

Answer

To reduce the number of borrowers in the portfolio

Question 2

Which metric is most commonly used to measure the overall quality of a commercial loan portfolio?

Accepted Answer

Non-performing loan (NPL) ratio

Answer

Total loan volume

Answer

Average loan maturity

Answer

Number of active borrowers

Question 3

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?

Accepted Answer

Downgrade the loan's risk rating and increase monitoring frequency

Answer

Take no action since the DSCR is still above 1.0x

Answer

Immediately call the loan

Answer

Extend additional credit to help the borrower recover

Question 4

What does a 'watch list' credit designation typically indicate in portfolio management?

Accepted Answer

A loan under enhanced monitoring due to identified risk concerns

Answer

A loan approved for immediate growth capital

Answer

A loan that has already been charged off

Answer

A loan with a perfect payment history

Question 5

Which of the following is an early warning indicator of potential credit deterioration in a borrower's portfolio?

Accepted Answer

Frequent requests for covenant waivers

Answer

Increasing gross margin year over year

Answer

Consistent on-time loan payments

Answer

Declining accounts receivable days outstanding

Question 6

In loan portfolio management, what is 'concentration risk'?

Accepted Answer

Excessive exposure to a single borrower, industry, or geography that magnifies losses if that segment underperforms

Answer

The risk that a single analyst reviews too many loans

Answer

The risk of interest rates rising across the portfolio

Answer

The risk of having too many small loans relative to large ones