Loans are major assists that the banks and other financial organizations gives to their clients as part of their equity and must be returned. Portfolio is the aspect of grouping financial assets such as stocks, bonds, and cash equivalence and are managed by the financial managers. In this study, we focus and analysis of the given data on a loan portfolio. Loan portfolio management is a very crucial process that is capable of reducing the risks associated with lending of money. It should be noted that loans act as the source of revenue for the lending companies.
Observations made on the portfolio based on the supplied data
From the data provided, it can be observed that the reserving coverage rate percentages for the loans provided ranges between 0.02 and 0.39%. The coverage ratio is used to measure the ability of a lone to repay their debt. In an analysis, the higher the ratio is the better the position of the organization or company to repay or fulfil its obligations to the lenders. The ratio is important, in this case since it enables the firm lending the cash to be provide risky loans to the clients. The fact that the ratio in this scenario remain as low as 0.02% and 0.39% is a sure way to show that company under study undertook its financial obligations on a risky business.
Another observation that we can make from the data presented is that majority of the people who made borrowings to the institution were repeat customers. Repeat customers are more advantageous than new customers since they have already proven their loyalty to the firm. In addition, there seems to be a pattern in the amount of money that can be borrowed, the highest amount being $5000. The implication of the low amount of borrowing is that the company experiences low risks.
In terms of quality of the portfolio, state whether it is increasing or decreasing over time
It should be noted that investors seek to improve their portfolios by engaging in businesses that can increase profit and decrease the risks. In this case, the company in questions engages a risky business of loans. This means that increasing the profit and reducing the risk is the key aspect for the company. Judging from the data provided, we can make an observation that the portfolio is increasing with time. The reason behind this reasoning is that the number of repeated customers is increasing. An increasing number of repeated customers means that the lending risks is lower, since the organization already established that the customers are capable f returning the borrowed money.
Reserve Coverage against riskiness of Portfolio
In the data, the reserve coverage value for the loans given out ranges between 0.02% and the highest at 0.39%. Most of the new customers have low risk coverage values. Comparing the risk coverage ratio to the riskiness of the portfolio, the reserve coverage seem to be increased on a number of individuals. This implies that the rate of risk reduces as the customer loyalty increases. In other words, the organization increases its trustworthy metrics as the customers prove their loyal in repayment of their loans.
Additional data fields
If I were to include other data fields for this analysis, I would include a new sub-portfolios to establish different types of loans. This sub portfolio should include a column for risk rating of the individuals. The inclusion of this column is too enable the assessment of the riskiness of providing loans to individual groups of people. In other words, before assigning any loans, it would be important to know the probability of each individual in repayment of the loan.
In terms of the quality of data presented for the analysis, I would state that the data is complete and accurate. This implies that the provided information can be used to establish the relationship between loaned and the borrower. However, in terms of accuracy of information, it is important to note that the information given does not include issues associated with cases of individuals who may have failed to repay the loans.
While making the analysis, I made an assumption that the high reserve coverage rate recorded was associated with individuals who have the highest capability to repay the loan.
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