CREDIT DECISION-MAKING IS AN IMPORTANT COMPONENT OF CREDIT RISK AND PROFITABILITY MANAGEMENT

The article examines the theoretical and practical aspects of credit decision-making in financial institutions. Special attention is paid to the importance of improving approaches to decision-making in order to increase the efficiency of credit activities, balancing risk indicators and profitability of banking and microfinance institutions. An analysis of publications on the topic of determining the credit decision and credit limit was carried out. The conclusion was drawn that despite the high practical importance of this topic, insufficient attention is paid to it and it requires further elaboration. The hypothesis about the possibility of developing a universal model for describing the credit decision, which includes the decision to approve/reject the loan application and at the same time determine the credit limit, was formulated and confirmed. The principles that credit limits must adhere have been defined. A model has been developed that meets these principles and is flexible and convenient to use due to the inclusion of economically justified parameters for setting the dependence between the credit limits and the probability of default. The development of risk-oriented and profitability-oriented credit limit policies is a significant aspect of the research. The risk-oriented approach emphasizes assigning credit limits based on probability default, ensuring that higher-risk clients receive lower limits. Conversely, profitability-oriented policies focus on maximizing institutional revenue by aligning credit limits with borrower profitability rather than solely their risk profile. This dual approach reflects the nuanced objectives of financial institutions. The proposed universal model for credit decisions, which accommodates both risk and profitability objectives, holds significant potential for practical application. By addressing limitations of existing approaches and offering customizable parameters, the research contributes to the development of more efficient and transparent credit management practices, ultimately supporting the financial sector’s resilience and growth. In the article the method of mathematical modeling was utilized to describe the process of making credit decisions and calculating credit limits; graphical method was utilized for convenient presentation of the obtained results and substantiation of the main statements.