Your browser is out-of-date
4 stars based on
Complete Credit Risk Assessment can be performed by precise loan pricing, more accurate loss forecasting, better evaluation of investment and disinvestment options, optimal kostenloser demo-trading online ohne registrierung management.
Calculation of loan-loss provisioning using expected loss increases its accuracy, allowing it to be attributed to individual loans, borrowers or larger aggregations.
The banking industry needs to get away from the idea that this can be done by paying in the space between regulatory and true risk capital.
The correct way to do this is to put in place both the governance and tools necessary to kostenloser demo-trading online ohne registrierung, loan by loan, the MPL maximum probable loss and to drive capital allocation off an understanding of where the firm is taking risks. The correct metric banks should use to assess pricing, capital and profit is Economic Capital, that is the capital required to absorb losses at the implied credit rating of the firm-normally at about The calculation differs from different types of lending.
Where the loan is not secured against an asset the calculation of loss should be based on the default probability of the obligor. Where the loan is secured, normally by kostenloser demo-trading online ohne registrierung the loan to a special purpose vehicle in which the asset is placed thus giving the lender full recourse and the ability to legally repose the asset, it is possible to calculate the LGD Loss Given default and the EL expected loss and MPL.
The situations where the borrowers become distressed are likely to be the same circumstances when the market is also stressed and asset prices not only fall but take longer to sell. One of the errors of recent times has been the decoupling of credit risk from market risk. For example, the commercial real estate bubbles were and still are largely ignored by regulators and lenders who continue to focus on credit risk and have no kostenloser demo-trading online ohne registrierung or tools for incorporating these two interrelated factors.
They tend to make decisions about growth and risk concentration more from gut feeling than statistical grounding, and this is dangerous. As a matter of prudent practice, to effectively price loans reflective of all risks, banks should adopt dual rating systems for obligors and facilities.
If the other banks want to play along, kostenloser demo-trading online ohne registrierung least they will know how much they are subsidizing the borrower, or how much they need to cross-sell to achieve their target ROE.
Best practice is the ability to assess and quantify the separate risk elements and to use the knowledge to inform a whole host of risk management decisions from and pricing setting to portfolio management and economic capital requirements. Any particular rating system can be microscopic in nature.
All rating systems should address both the ability and the willingness of the obligor to repay and the support provided by structure and collateral. Such systems can assign a single rating or dual ratings. A decision of a risk kostenloser demo-trading online ohne registrierung be taken on an obligor can never be based on the security except for structured finance deals. A risk exposure against an obligor should always be based on the own merits of the obligor and not the security he might provide to improve the credit risk profile.
A facility rating system captures the rest of the story-the combination of secondary repayment sources from guarantors, collateral, covenants etc.
Arijit Bhowmick Complete Credit Risk Assessment can be performed by precise loan pricing, more accurate loss forecasting, better evaluation of investment and disinvestment options, optimal portfolio management. This article can be accessed https: