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Risk Management & Credit Rating Part 1
What is the primary objective of risk management in credit operations of a bank?
The primary objective is to identify, measure, monitor, and control credit risk to minimize potential losses while optimizing risk-adjusted returns on the loan portfolio.
What is the definition of 'risk' in the context of bank credit management?
Possibility of loss due to uncertain future events in lending.
How does Basel II define credit risk?
Basel II defines credit risk as the risk of loss arising from a borrower's failure to repay a loan or meet contractual obligations, encompassing default risk, migration risk, and spread risk.
What is a 'risk appetite' in the context of a bank's credit policy?
Maximum level of risk a bank is willing to accept for returns.
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