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INTRODUCTION:
Credit risk is the risk of loss that may arise from the failure of a business partner to reimburse a loan when it is due. For example, if a bank expects a counterparty to reimburse a $10 million loan on a specific date, and the counterparty fails to provide funds, the bank incurs a credit loss. Credit risk is simply defined as the prospective that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms and conditions. In addition to direct accounting loss, credit risk should also be viewed in the context of economic exposures.
ANALYTICAL TECHNIQUES
Response analysis Pricing strategies Loan amount determination Credit loss forecasting Portfolio management strategies Collection strategies
In addition to direct accounting loss, credit risk should also be viewed in the context of economic exposures. This encompasses opportunity costs, transaction costs and expenses associated. Credit risk does not necessarily occur in isolation.
Geographical Diversification
Risk Mitigation
Credit risk mitigation is the reduction of credit risk in an exposure by a safety net of tangible and realizable securities as collateral securitie assets. Financial institutions gener- ally require corporate and individual borrowers to commit their assets as security for loans. These securities serve as collateral for financial institutions in case of default.
Liquidity and market risks were not identified as iquidity high ones as in the other European countries and the U.S., it was critical to regularly monitor their development. Banks should also take into consideration the relationships between credit, n liquidity and interest rate risks.
REFERENCE:
1. mueller,p.h 1984. management of credit and behavioural factor.the journal of commercial bank lending 66:4-12. 66:4 mueller,p.h 1990. credit culture vital to risk management. the journal of commercial bank lending 72:4-10. 72:4 mueller,p.h 1993. risk management and the credit culture:a necessary interaction.the journal of commercial bank lending75(9):612. swarens,r.b 1990. managing risks in consumer loan portfolio.the journal of jo commercial bank lending 72(4):4-8. 72(4):4
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