Credit Spread Risk: Credit spread risk is typically caused by the changeability between interest rates and the risk-free return rate. Default Risk: When borrowers are unable to make contractual payments, default risk can occur. Downgrade Risk: Risk ratings of issuers can be downgraded, thus resulting in downgrade risk.... read more ›
Credit risk is the possibility of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations. Traditionally, it refers to the risk that a lender may not receive the owed principal and interest, which results in an interruption of cash flows and increased costs for collection.... see more ›
Credit risk is a measure of the creditworthiness of a borrower. In calculating credit risk, lenders are gauging the likelihood they will recover all of their principal and interest when making a loan. Borrowers considered to be a low credit risk are charged lower interest rates.... see details ›
Types of Risks
Widely, risks can be classified into three types: Business Risk, Non-Business Risk, and Financial Risk.... see details ›
One way to do this is by checking what's called the five C's of credit: character, capacity, capital, collateral and conditions.... view details ›
Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms. The goal of credit risk management is to maximise a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters.... see more ›
The three largest risks banks take are credit risk, market risk and operational risk.... continue reading ›
The main cause of credit risk lies in the inappropriate assessment of such risk by the lender. Most of the lenders prefer to give loans to specific borrowers only. This causes credit concentration including lending to a single borrower, a group of related borrowers, a specific industry, or sector.... see more ›
Risks Associated With International Activities
3 The OCC has defined eight categories of risk for bank supervision purposes: credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation. These categories are not mutually exclusive.... see details ›
To sum up, the expected loss is calculated as follows: EL = PD × LGD × EAD = PD × (1 − RR) × EAD, where : PD = probability of default LGD = loss given default EAD = exposure at default RR = recovery rate (RR = 1 − LGD).... read more ›
We first introduce the key components of credit risk—default probability and loss severity— along with such credit-related risks as spread risk, credit migration risk, and liquidity risk.... see more ›
Types of Risk
Broadly speaking, there are two main categories of risk: systematic and unsystematic.... continue reading ›
There are many ways to categorize a company's financial risks. One approach for this is provided by separating financial risk into four broad categories: market risk, credit risk, liquidity risk, and operational risk.... read more ›
- Risk acceptance.
- Risk transference.
- Risk avoidance.
- Risk reduction.
What Are the Different Types of Credit? There are three main types of credit: installment credit, revolving credit, and open credit. Each of these is borrowed and repaid with a different structure.... view details ›
The five C's, or characteristics, of credit — character, capacity, capital, conditions and collateral — are a framework used by many traditional lenders to evaluate potential small-business borrowers. How Much Do You Need? See your loan options.... continue reading ›
The 5 Cs of credit is a system used by lenders to gauge the creditworthiness of potential borrowers. The system weighs five characteristics of the borrower and conditions of the loan, attempting to estimate the chance of default and, consequently, the risk of a financial loss for the lender.... read more ›
Definition: Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.... view details ›
- Determining creditworthiness. Accurately judging the creditworthiness of potential borrowers is far more effective than chasing late payment after the fact. ...
- Know Your Customer. ...
- Conducting due diligence. ...
- Leveraging expertise. ...
- Setting accurate credit limits.
Credit risk, liquidity risk, asset-backed risk, foreign investment risk, equity risk, and currency risk are all common forms of financial risk.... see more ›
Risk classification is the practice of grouping people together according to the risks they present, including similarities in costs for potential losses or damages, how frequently the risks occur, and whether steps are taken to reduce or eliminate the risks.... read more ›
Risk is the probability that an accidental phenomenon produces in a given point of the effects of a given potential gravity, during one given period.... continue reading ›
Customer Risk Categorisation
For categorizing a customer as Low Risk, Medium Risk and High Risk, the parameters considered are customer's identity, social/financial status, nature of business activity, mode of payments, volume of turnover, information about the clients' business and their location etc.... view details ›
Calculating risk-weighted assets
Banks calculate risk-weighted assets by multiplying the exposure amount by the relevant risk weight for the type of loan or asset. A bank repeats this calculation for all of its loans and assets, and adds them together to calculate total credit risk-weighted assets.... see more ›
Different factors are used to quantify credit risk, and three are considered to have the strongest relationship: probability of default, loss given default, and exposure at default.... see more ›
- Security and fraud risk. ...
- Compliance risk. ...
- Operational risk. ...
- Financial or economic risk. ...
- Reputational risk.
- Decision/Indecision: Taking or not taking a decision at the right time is generally the first cause of risk. ...
- Business Cycles/Seasonality: ADVERTISEMENTS: ...
- Economic/Fiscal Changes: ...
- Market Preferences: ...
- Political Compulsions: ...
- Regulations: ...
- Competition: ...
The major risks faced by banks include credit, operational, market, and liquidity risks.... read more ›