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Credit Risk
Define credit risk in banking context.
Risk that counterparty fails to honour contractual obligation in full or part when due.
Name four sources where credit risk arises in banks.
Direct lending, guarantees/LCs, treasury derivatives, cross-border exposures.
What are the four pillars of credit risk management?
Identification, Measurement, Monitoring & Control, Mitigation.
Explain Default Risk and Loss Given Default (LGD).
Default Risk: borrower fails to pay promised amount. LGD = 1 − Recovery Rate.
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