Credit Risk Flashcards
1
Q
Credit Risk factors
A
Default
Increased probability of default
More severe loss than expected (higher exposure or lower recovery)
Default on payment of goods already rendered
2
Q
Credit Risk evaluation
A
- Willingness and capacity to repay
- Effect of the external conditions on ability to repay
- Inherent characteristics of the instrument and impact on ability to repay
- Quality and adequacy of risk mitigants such as collateral and guarantees
3
Q
Qualitative techniques
A
Primarily to assess the borrowers willingness to pay
4
Q
Four types of borrowers
A
Consumers
Corporations
Financial Instiutions
Government or government related entities
5
Q
Quantitative measures
A
Probability of Default
Loss given default
Exposure at default
Expected loss (PD * LGD * EAD)
Time horizon
6
Q
Leverage ratio
A
Tier 1 capital divided by Gross exposure
7
Q
Minimum leverage ratio
A
3%
8
Q
A
