Assessing creditworthiness with GLOM compliance

See how GLOM guidelines empower financial institutions to enhance credit assessments, reduce risk, and drive smarter lending decisions.

GLOM requirements align with best practices

The Guidelines on Loan Origination and Monitoring (GLOM) provide a framework that aligns closely with industry best practices for assessing borrower creditworthiness. By following these guidelines, financial institutions can ensure thorough and accurate evaluations, reducing the risk of loan defaults. These EBA guidelines themselves are not mandatory, but when a national regulator implements them, they become mandatory for financial institutions in that country.

These are the relevant guidelines regarding borrower creditworthiness:

• Collecting comprehensive borrower information: Institutions must gather detailed information about the borrower’s income, employment, financial commitments, and household composition. This includes verifying employment status, checking income sources, and understanding the borrower’s regular expenses and dependents.
  
  
• Evaluating credit history and repayment capacity: Institutions must emphasise the importance of analysing the borrower’s credit history. This involves reviewing credit scores, payment history, and existing debts to understand past behaviour and predict future repayment capacity.
  
  
• Using qualitative and quantitative methods: Institutions must use both qualitative and quantitative methods in creditworthiness assessments. Qualitative methods evaluate the borrower’s financial behaviour and stability, while quantitative methods calculate debt-to-income ratios, analyse cash flow, and assess other financial metrics. This combined approach provides a holistic view of the borrower’s financial health.
  
  
• Considering external factors: Although not explicitly covered by GLOM, considering external factors such as economic conditions, industry trends, and potential changes in the borrower’s personal circumstances is a best practice. These factors can significantly impact the borrower’s ability to repay the loan and should be included in the assessment.
  
  
• Regular updates and reviews: Institutions must regularly update and review the information used in creditworthiness assessments. This ensures that assessments reflect the most current information, allowing institutions to make better lending decisions and manage risks more effectively.
  
  
• Documenting and verifying information: Another best practice, though not always stipulated by GLOM, is to thoroughly document and verify all information collected during the credit assessment process. This ensures transparency and accuracy, which are crucial for regulatory compliance and risk management.

By integrating these best practices with GLOM requirements, financial institutions can improve their creditworthiness assessments, ensuring robust and prudent lending decisions. This alignment not only meets regulatory standards but also promotes sound risk management and financial stability.

Using Akkuro to implement best practices aligned with GLOM

Implementing GLOM requirements can be challenging. Akkuro is cloud lending software that makes implementing GLOM requirements a breeze. Furthermore, Akkuro incorporates many best practices to make growing and running a lending business effortless! How does Akkuro help to integrate GLOM guidelines? What are the best practices, and industry standards for assessing creditworthiness?

 Collecting comprehensive borrower information

Akkuro covers the entire lending space - from consumer to micro, small, medium-sized, and large enterprises. Each of these segments has specific requirements regarding collecting comprehensive borrower information. For example, for medium-sized businesses, ownership structure, annual reports, liabilities, and bank statements are important elements. For consumer lending, the borrower’s income, employment, financial commitments, and household composition is important.

Akkuro supports all different types of borrowers and is able to store this information for further processing. Beyond the capability to properly collect and manage borrower information, it is important to ensure the information is reliable. In many cases, Akkuro uses verified digital sources to obtain reliable information - such as validated XBRL, PSD2, and company registries.

 Evaluating credit history and repayment capacity

Akkuro’s fully configurable underwriting framework contains rules concerning credit score, payment history, and existing debts. The pre-configured rule set of Akkuro is based on industry standards and best practices. Additionally, our clients are free to deviate and formulate different or additional rules. For example, a lender can decide to create extra stringent requirements regarding repayment capacity for business clients active in a specific sector.

The evaluation of credit history and repayment capacity is included in the origination and monitoring workflows, making implementation really easy!