CREDIT RATING SYSTEM
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Risk Management (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
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.
How does Basel II classify the approaches available for credit risk measurement?
Basel II prescribes three approaches: the Standardised Approach (SA), the Foundation Internal Ratings-Based (F-IRB) approach, and the Advanced Internal Ratings-Based (A-IRB) approach.
What does the term 'obligor rating' refer to in credit risk systems?
Rating assigned to the borrower's overall creditworthiness.
What does PD stand for in credit risk modelling, and what does it represent?
PD stands for Probability of Default, representing the likelihood that a borrower will default on its credit obligations within a specified time horizon, typically one year.
What is the 'facility rating' as distinct from obligor rating in credit assessment?
Rating specific to a loan facility considering collateral and seniority.
Video classes for this chapter
More chapters in Module B - Credit Risk Management
Master the full RM syllabus
Every chapter of Risk Management (Elective) — videos, tests, notes and one-liner decks in one place.