By Ciby Joseph
Credits is vital within the smooth global and creates wealth, supplied it's used correctly. the worldwide credits problem in the course of 2008/2009 has proven that sound knowing of underlying credits possibility is important. If credits freezes, virtually each task within the financial system is affected. how you can make the most of credits and get effects is to appreciate credits probability. complicated credits chance research and administration is helping the reader to comprehend some of the nuances of credits possibility. It discusses quite a few thoughts to degree, learn and deal with credits threat for either creditors and debtors. The booklet begins Read more...
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Extra info for Advanced credit risk analysis and management
5 CREDIT RISK CULTURE The CEO and Board of Directors are responsible for a fundamental and critical element of credit risk management – an effective and strong credit culture. Unless an organization has a carefully defined and disciplined credit culture, supported by its Board, protecting it against imprudent credit and pricing decisions, it may not survive the macroeconomic challenges emanating from the dynamic business environment. Credit culture is a set of values and beliefs shared by people in credit risk management.
A single borrower/obligor exposure is generally known as Firm Credit Risk or Obligor Credit Risk while the credit exposure to a group of borrowers, is called Portfolio Credit Risk. This bifurcation is important for the proper understanding and management of credit risk, inasmuch as the ultimate reasons for failure to pay can be traced to the economic, industry or customer specific factors. As we will see in later chapters, while obligor risk decides the fate of the overall portfolio, portfolio risk has different dynamics and plays a crucial role in determining the quantum of economic capital required, which is a function of expected credit loss.
We will cover this in Chapter 8. 2. Profitability/Business Considerations: Banks and financial institutions are also commercial establishments and often profits are a key driving factor. The management team is also usually incentivized to aim at higher profits that will result in bonuses for key executives (decision takers) and dividends for the shareholders (owners). Sometimes, the over-riding focus on profitability blinds the decisions on risk taking with disastrous consequences. 3. Unpredictable Future: Historical analysis of the borrower is done with an underlying assumption that the past track record provides a ‘rough guide’ to the future.
Advanced credit risk analysis and management by Ciby Joseph