Credit Risk Management

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Module 1: Principles and Concepts

Module 2: Default Trends and Market Indicators

Module 3: Portfolio Management

Course Objectives
• Understand conventional concepts related to risk management: unexpected loss, default
probability, loss-given-default, risks vs rewards, and credit spreads

• Review default rates and trends in credit markets during normal periods, and periods of
stress and trends in bankruptcies and insolvencies

• Show how market indicators (from equity and debt markets) account for credit risks or
show implied default probabilities; review how credit models attempt to measure default
probabilities

• Understand the distinction between credit default and credit deterioration and the use of
a Credit “Value at Risk” metric

• Review the primary concepts of portfolio risk management, including concentration and
correlation risks

• Review important methods and techniques to reduce credit risks and exposures,
including credit derivatives

2
Course Objectives
• Review the primary purposes of credit analysis and the importance of presenting
rational, updated assessments.

• Review the primary purposes of credit exposures (including funding corporate balance
sheets and business operations).

• Understand how analysis leads to an overall credit rating of the borrower, a risk strategy
and outlook, and approaches to structuring credit exposures (loans, e.g.)

• Identify and quantify the various categories and forms of credit exposure with corporate
counterparties (loans, revolving credit commitments, counterparty-trading exposure,
e.g.)

• Identify and summarize various types of credit structures based on tenor, collateral,
ranking and amortization

3
Course Outline
Module 1
Concepts and principles
• Credit analysis: Purpose, benefit, analytical approaches
• The integrated financial story, conclusions, and risk decision-making
• Corporate balance sheets: Capital structure, exposures, liabilities, debt
• Credit exposures to be analyzed: categories, products, types (loan, settlement, pre-
settlement, issuer, contingent, etc.)
• Credit exposure: structures, tenor, collateral, rankings
• Credit risk outlook and strategy
• Expected loss: default frequency, default probability, loss-given-default, recovery
rates
• Risks vs. rewards: credit pricing, credit spreads
• Debt investors and debt and funding products: bank lending, bond issues, other
exposures

4
Course Objectives
Module 2
Default trends and market indicators
• Credit markets: trends, recent activity
• Credit spreads, default rates, default frequencies and default probability
• Market indicators, bond spreads, credit-default-swap markets, credit models
• Credit markets and analysis during the pandemic, defaults, bankruptcies
Module 3
Credit portfolio management
• Principles,
• Concentration risks, correlation risks
• Credit deterioration vs. credit default: Credit Value at Risk (“VaR”)
• Credit-risk mitigation: methods and techniques
• Credit derivatives
• Lessons learned from past crises