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CREDIT RATING SYSTEM
What is a Credit Rating System in the context of banking?
A Credit Rating System is a structured framework used by banks to assess the creditworthiness of borrowers by assigning ratings based on their ability and willingness to repay debt obligations.
What is the Herfindahl-Hirschman Index used for in credit portfolio analysis?
Measures concentration risk in a credit portfolio.
What is the primary purpose of an internal credit rating system in banks?
The primary purpose is to differentiate credit risk across borrowers, enabling banks to make informed lending decisions, price loans appropriately, and allocate capital in line with Basel III requirements.
What is the minimum number of rating grades required under Basel II IRB approach?
At least seven grades for non-defaulted borrowers.
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