Early warning indicators (EWIs)
What are early warning indicators in credit risk, and how does a bank use them?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Early warning indicators are the signals a bank monitors to catch a borrower's deterioration before it shows as arrears or a covenant breach: a line pinned at its limit, excesses and dishonoured payments, falling credits through the account, late or qualified accounts, shrinking covenant headroom, stretched creditors, senior departures or a change of auditor. Portfolio teams often score them automatically and send a file for review, or to the watch list, when several appear together. Their worth is their lead time: a signal that appears only once collections are calling tells the bank what it already knows.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
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- Standstill agreement
- Expected loss
- Watch list
- Loan loss provision
- Receivership
- Forbearance
- Evergreening
- Non-performing loan (NPL)
- Probability of default (PD)
- Loss given default (LGD)
- Exposure at default (EAD)
- Significant increase in credit risk (stage 2)
- Write-off
- Workout
- 13-week cash flow forecast
- Shadow director
- Voidable preference
- Voluntary administration (VA)
- Scheme of arrangement
- Debt-for-equity swap
- Haircut (restructuring)
- Credit bid
- Pre-pack sale (pre-packaged administration)
- Mortgagee sale
- Independent business review (IBR)
- Shortfall debt (residual debt)
- Creditors' compromise (Part 14)
- Farm debt mediation
- Wrong-way risk
- Credit-impaired (stage 3)
- Probation period (forborne loans)
- 90 days past due (90 DPD)
- Unlikeliness to pay (UTP)
- Rating migration
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