Credit Risk Management

Lesson 1: Purpose of Analysis

Topic 1: The Basics
Lesson 1

• The basics of credit risk, credit risk exposures and financial products that involve
credit risk

• How credit analysis contributes to credit ratings, risk strategy, risk decisions and
credit structuring

• Analytic approaches to determine a credit rating

Credit Analysis

Borrower
Issuer
Counterparty
Client

Lender
Markets Investor

3
Credit Exposures and Credit Risk

Credit exposure arising Lender

Borrower
from the risk of non-
payment and non- Bank
Counterparty
performance
Debt investor
Client
Counterparty
Guarantor
• How does it arise?
• How is it analyzed, measured
and monitored?
• How is it managed?
• How is it reduced or
transferred?
Role of Credit Analysis
Present a logical credit argument for risk decisions
Industry,
business Credit and
model, Risk analysis financial
business analysis
environment
Risk experiences,
Insight,
history, lessons
judgment
learned
Overall risk assessment

Overall risk strategy

Risk decision

5
Risk Assessment: Strategy and Decision-Making

Risk assessment
• Financial analysis
• Financing proposal
Risk strategy and outlook
• Long-term exposure outlook
• Increase, maintain, decrease,
withdraw
Risk decisions
• Consistent with risk assessment
• Consistent with risk strategy
• Consistent with risk outlook