Default Rate

Default rate refers to the proportion of borrowers who are unable to repay loan principal and interest on time within a certain period. Default rate is an important indicator to measure loan risk and credit quality, and is also an important factor affecting the credit ratings of financial institutions and individuals. The higher the default rate, the greater the loan risk and the worse the credit quality, which will have a negative impact on financial stability and economic development.

Therefore, reducing default rates is a common goal for financial institutions and borrowers. So, how to reduce default rates? This needs to be done from the following aspects:

1. Improve pre-loan review and risk control capabilities

Pre-loan review and risk control capabilities are the first hurdles to prevent and reduce defaults. Before issuing a loan, financial institutions should conduct a comprehensive and strict review of the borrower's basic information, income source, credit record, repayment ability, collateral, etc., and formulate reasonable loan amounts based on different loan types and risk levels. , interest rate, term, repayment method, etc. Financial institutions should also establish complete risk control systems and models, use big data, artificial intelligence and other technical means to analyze and predict borrowers' risk characteristics and behavioral patterns, detect and process risk signals in a timely manner, and prevent the occurrence of non-performing loans.

2. Strengthen loan monitoring and management

Loan monitoring and management are the second level of control and reduction of defaults. After the loan is issued, financial institutions should continue to monitor and manage the borrower's repayment status, credit changes, collateral value, etc., and timely adjust loan strategies and measures based on the monitoring results. For example, for borrowers with normal repayments, incentives such as more favorable interest rates or extended repayment periods can be provided; for borrowers with repayment difficulties or a tendency to default, more flexible repayment plans or additional collateral can be provided, etc. Preventive measures: For borrowers who have defaulted or are at risk of default, remedial measures such as recovering creditor's rights or enforcing collateral can be taken.

3. Improve post-loan recovery and disposal capabilities

Post-loan recovery and disposal capabilities are the third hurdle in handling and reducing defaults. Financial institutions should proactively collect and recover borrowers after loans expire, and adopt different disposal methods according to different default situations. For example, for borrowers whose default reasons are more reasonable and controllable, we can help them restore their repayment ability as soon as possible through communication and negotiation, extensions, interest exemptions, etc.; for borrowers whose default reasons are more serious and difficult to solve, we can help them restore their repayment ability through legal means. Litigation, enforcement, transfer of creditor's rights, etc., to recover creditor's rights as soon as possible or reduce losses.

4. Establish a good credit culture and environment

Credit culture and environment are fundamental factors that influence and reduce defaults. Both financial institutions and borrowers should establish good credit awareness and credit records, and abide by credit commitments and credit norms. Financial institutions should treat every borrower fairly, impartially, and openly, and provide high-quality, efficient, and convenient loan services; borrowers should perform every loan contract honestly, trustworthy, and responsibly, and repay on time and in full. payment. In addition, all sectors of society should also work together to establish a sound credit system and credit supervision, reward those who abide by credit laws, and punish those who violate credit laws, so as to form a good credit atmosphere and credit order.

Conclusion

The default rate is an important financial indicator and an issue related to social stability and economic development. Reducing default rates requires the joint efforts of financial institutions and borrowers, starting from improving pre-loan review and risk control capabilities, strengthening loan monitoring and management, improving post-loan recovery and disposal capabilities, and establishing a good credit culture and environment to reduce loan risks. effective control and maximization of loan benefits.