Role of Financial Statements in Decision Making

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This proposal study explores financial credit risk assessment. This is an important issue because there is currently no standardized method used by financial institutions for the assessment of credit risk. There are needs for a critical evaluation of the most popular credit risk assessment methods such as the judgmental method, credit-scoring and portfolio models along with limitations used. Survey interview process is needed for confirming that credit risk assessment methods should be combined for effective credit risk assessment. Accordingly, the study proposes a framework for improving credit risk assessment, which combines the strengths of these methods and copes
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Since information derived from self-assessment can be useful in a wide range of activities from strengthening risk management systems to formulating business strategy large differentials in business management are likely to arise among financial institutions depending on the utilization of this valuable information. As the Bank of Japan has introduced the Tracing Method of asset assessment and loan losses in order to support financial institutions to maximize the use of their own assessments as a management tool. The Tracing Method is used to observe changes in the condition of individual assets in a time series and is one way to utilize financial institutions' self-assessment of assets. The Bank conducted a follow-up analysis in the recent on-site examination to analyze how many of the loans classified in the previous examination (1993-94) were later "written off and others" in relation to financial losses from support by renunciation of claims, and losses from sales of nonperforming loans to the Cooperative Credit Purchasing Company.

The empirical study using the Tracing Method suggests the following points of importance
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