What is the purpose of re-classifying a borrower in credit assessment?

Re-classifying a borrower in credit assessment primarily serves to evaluate any changes in the borrower's financial circumstances. This process involves a review of the borrower's current situation compared to the conditions at the time the loan was originally approved. Factors such as fluctuations in income, alterations in credit score, changes in debt levels, or external economic conditions can significantly impact a borrower's ability to meet their repayment obligations.

By re-classifying the borrower, lenders can make more informed decisions regarding the risk associated with the loan. This assessment helps to identify whether the borrower remains a low-risk client or if they should be categorized differently, perhaps as a higher risk. Such changes can facilitate proactive management of credit risks and help in tailoring the terms of the loan or in deciding whether to extend additional credit.

The other options relate to adjustments that might occur due to this process, but they do not directly answer the fundamental purpose of re-classification itself. Adjusting loan amounts, interest rates, or loan agreements may all be outcomes of a deeper analysis stemming from the re-classification process, but the core intent is centered on understanding changes in the borrower's financial position.