CREDIT RISK
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Bank Financial Management — CAIIB.
One-liners from this chapter
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What is credit risk in the context of banking?
Credit risk is the risk of loss arising from a borrower's failure to repay a loan or meet contractual obligations. It is the most significant risk faced by banks in their lending activities.
What is settlement risk in credit risk management?
Risk that counterparty fails to deliver after payment is made.
How does RBI define credit risk for Indian banks?
RBI defines credit risk as the possibility of loss associated with diminution in credit quality of borrowers or counterparties. It includes both default risk and credit deterioration risk.
What is country risk and how does it affect credit risk?
Risk of loss due to political or economic instability in a country.
What is the difference between default risk and credit spread risk?
Default risk is the risk that a borrower will fail to meet payment obligations, while credit spread risk is the risk that the credit spread (premium over risk-free rate) will widen, reducing the market value of the credit exposure.
What is the Basel II definition of default for credit risk purposes?
Borrower is 90 days past due or unlikely to pay obligations.
What is counterparty credit risk?
Counterparty credit risk is the risk that the counterparty in a financial transaction (such as a derivative or securities transaction) will default before settlement of the transaction. It differs from lending risk as exposure can vary over time.
What is the Through-the-Cycle (TTC) approach to PD estimation?
PD estimated across full economic cycle, not just current conditions.
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