Essay: What is credit?

First, we need to know what is going to loan and credit risk management, credit and one for the party and the first party to the second party in a way that the solution to another party (the emergence of a debt) to the self-confidence that allows you to provide the resources, but instead of (,. Sullivan et al 2003) later in the resources (or the equivalent value and other materials), or to return to the place of either the set. Given the resources (eg, consumer credit), both economic (eg, loans) can be, or can be goods or services. Therefore, in addition to bank credit, known as a debtor, known as extended by the borrower for a loan to cover the payment of any deferred in any way.
The promise of a loan to pay advances to the beneficiaries of a date in the future. Individuals, companies, institutions and other corporate credit and access to a variety of reasons. Therefore, the purpose and nature of the claim and the short-term, get into the medium and long-term loans. In short, no more loans (5) of five-year repayment period is extended to the short term (for example, personal loans) are advances. (Small design) and medium-term loans for five (5) to ten (10) years and has a maturity between. (Only the giant corporate institutions) and long-term loans, as the name suggests, the ten (10) has a repayment period of years. Most of the medium-term access to credit facilities within HDCC.
This balance is the key to the file of the heavy assets of the banks’ credit operations significantly. It has the potential to produce a profit, but there are almost as high risk. Banks and credit risks in connection with the loss of practice time, monthly shows.
Credit risk:
We have the credit, since the understanding of the credit for the next period is to know the relationship between the risk and assume most of the banks’ asset portfolios, constitute a large proportion of the promise of a loan to a borrower does not pay, as a result of the loss of an investor relative risk is high liquidity and credit risk (Koch and MacDonald, 2000) quality.
That is the theory of asymmetric information and adverse selection and moral problems, which can lead to accidents and bad borrowers (Auronen, 2003) story, and that it is impossible to separate the good for borrowers. Adverse selection and moral danger delinquent accounts with banks (; Bofondi and Gobbi, 2003 Bester, 1994) resulted in a significant accumulation.
Credit risk and the resources:
There are two main sources of credit risk factors. The risk of external and internal factors. The following external risk factors are discussed below:
Economic:
National income, unemployment, changes in the economic cycle and changes in the exchange rate, interest rate, credit availability and credit quality and credit risk will affect the way. Liquidity crisis will affect the ability of the loan or financial problems can not violate their duty. In addition, financial institutions, regulatory and legal changes may result in the ability to repay the debt levels, as well as to change the way of a transaction monitor.
Competition:
Growth, profitability and be a leader in the market to lower the level of competition between the desire of financial institutions in respect of financial institutions, or malfunctioning can lead to price their loan products. This is due to the high costs of rising NPLs.
Credit Risk Management:
The banking industry and credit risk management, risk identification, measurement, assessment, monitoring and control of the process continues. Measures to reduce the risk is to identify, prevent and control the activities enshrined this potential undesirable effects observed, and consider the consequences of its identification of the risk factors. In this process, the bank applies a strategic operational penguin
Most of the banks for the loans, the largest and most obvious source of credit risk; , And other sources of credit risk in banking and trading book and on the balance sheet of the bank’s activities, even though both of them.
Furthermore, the banks in the forex transactions, trade financing, foreign exchange transactions, financial futures, Swaps, bonds, equities, options, and commitment to, and guarantees for loans and acceptances, including the financial instruments, in addition to the extension of credit risk (default risk) is facing, settlement of transactions. Is to reduce the impact of different types of risks related to the level of the selected pre-approved for the purpose of the society is the domain of risk management. This is the environment, technology, people may refer to any kind of threat, due to a number of organizations and politics. Moreover, all of the available means, in particular, a risk management entity (person, staff, organization) is.
From the above discussion it hard for the customer sophistication, and general economic and increasingly tighter regulatory framework in a way that-a-way, deregulation, increasing competition, it is clear that there is a banking sector risks and uncertainties. This makes the adoption of the main drivers of an effective credit risk management strategies.
Credit Risk Exposure = ?? (1 minus the recovery rate) ?? default of the Assumption
The credit risk management process of the credit risk on the potential consequences of that control. The identification, assessment and management: normal process of risk management, that is a part of. That is, should be identified as the cause of the risk, and the size of the risk is assessed and decisions.
Sliver identification and implementation of treatment
Avoid high
Risks
The transfer is identified,
Controlled risk
All medium risk
Risks
Unknown
Well, the risk of a low risk
Assessments
Risk management is a continuous process and the different steps: identification, measurement, treatment and enforcement. Find all the dangers of the new cycle of successive government to improve the protection of existing systems
Credit risk assessment:
The assessment of the risk of a counterparty in whole or in part, of their obligations, for example the risk of credit default. We have the basic model in terms of credit risk management and the decision itself. To refuse to provide the reward of this credit, but which carries a risk of credit, or (b) a decision to either (a) indicates. The picture shows a decision in the context of the problem being faced by the Credit Manager 1.1. Credit risk is the equivalent of extending the requirement for credit against the loss of potential profit-taking. The decision is a reward, not a problem of any alternative to the declining credit
Risk management is a continuous process and the different steps: identification, measurement, treatment and enforcement. Find all the dangers of the new cycle of successive government to improve the protection of existing systems
Credit risk assessment:
The assessment of the risk of a counterparty in whole or in part, of their obligations, for example the risk of credit default. We have the basic model in terms of credit risk management and the decision itself. To refuse to provide the reward of this credit, but which carries a risk of credit, or (b) a decision to either (a) indicates. The picture shows a decision in the context of the problem being faced by the Credit Manager 1.1. Credit risk is the equivalent of extending the requirement for credit against the loss of potential profit-taking. The decision is a reward, not a problem of any alternative to the declining credit
1.1 The decision to issue the credit decision and resolution
Unlike the credit evaluation process and approach:
System approach
Methods trial
Assessor’s decision to extend credit to reject the case and apply the experience and knowledge
Expert systems (eg, credit committees)
Using a panel approach is to try the case in the way of loans or decisions that formalized system and procedures
Analytical models
The desire for a decision, usually quantitative information, a set of analytical methods for use
Statistical models (credit
Score)
Use statistical inference to derive the appropriate relationship with the decision.
Behavioral models
Monitor the behavior of the time to make a proper relationship
Reaching a decision
Different analytical approaches can be grouped:
Subjectivity is a degree of any knowledge models (eg, using the
According to an analyst and expert review) effects models (with some analysis of the components of the system analysis of the relationship between the subject of subjectivity in this category) approach to capital that can be considered more statistical models (models of this type has a credit rating). Credit is given to the analysis of the results, or the means to reach a decision, the decision to use the space.
The credit quality classification:
A qualify for the credit quality of the company
Assessments
Quantitative improvement compared to companies
Rating Rating
Assessment
The chances are the Class AAA credit AA, BB BCD
Credit Rating
Refuse to accept the auto-rickshaw
Auto reject. The decision to accept the self-Expert
Application Scoring systems:
The line has exceeded the threshold value or cutting a score) scoring systems for the fully automated application for the license application;
B) If the request is approved or rejected in a semi-automated systems and low score was high. Following the decision from the middle to score an extra man, an expert in the analysis.
Marco’s credit metrics
Due to the correlation of the value of the credit risk exposure
Credit rating:
Basel Capital Accord, the second external credit assessment institution is clearly (ECAI) recognizes the role of institutions.
The extremely strong credit quality of the loan is very low risk of Aaa AAA. It is highly unlikely that it will adversely affect the ability of the events that preceded the commitment to close the fi nancial. It is one of the credit rating.
Aa AA credit reflects the low credit risk is very powerful. There is a strong capacity to influence events in advance is unlikely to meet the commitment to fi nancial. The highest rating is limited to the difference.
A strong credit quality and low credit risk. Deemed a strong ability to pay, which is higher than the risk of changes in the economy.
Accreditation, Baa: fl ects currently has sufficient credit quality and credit risk moderate again.
However, the appropriate changes, and judged on the economic and financial commitment and the ability to close the credit rating of the taxonomy of myself and undermining the ability of the 123 to close the magazine. This is the lowest investment-grade rating.
BB Ba: the speculative credit quality, particularly in adverse circumstances, the credit risk that may develop. The meeting financial commitments is still a possibility, but there are uncertainties and speculative key elements for progress. It is one of the most speculative-grade ratings.
B: Highly speculative, reflecting the high credit quality and credit risk. Current is an important credit risk; It remains limited to a safety margin. Adverse economic and business conditions and the economy is likely to impair the ability to pay. This rating indicates that the risk is very high, back problems.
CCC Caa: a state of very high credit quality, the real credit for the events will be a possibility of credit risk. Favorable economic and business conditions may reduce. Adverse economic conditions make credit Hussey events. This rating has back problems and positive expectations.
Cc, CA: Too much weaker credit quality has become probable defect. This classification has a rating of medium and back problems.
C: an imminent threat to the very weak creditworthiness, credit events.
The recovery of a negative rating of the Party of the problems.
Reserve as a credit risk management:
‘ The amount of risk by credit score.
‘ Price risk – the prime lending interest rate risks fix.
‘ an effective monitoring system for the control of risk and loan portfolio management.
Credit Risk Management Objectives:
Goals:
‘ Many types of loans, a part of the graphics / category for developing and frame advance, credit quality and to determine the consequences on the risk.
‘ Strategic Business Units (divisions) and strategies for exposure to the issue of the suggested guidelines / quality level of corporate development at the appropriate levels to achieve.
‘ Benchmarks, etc. The recovery rate, the amount of idle, the volume of exposure, likely to be the case
‘ Check periodically the performance of displays.
‘ Design and Control Systems / adequate monitoring.
‘ Analytical tools to assess disease risk profiles and ensure the healthy development of the Cleansing of portfolio protection.