credit risk management
DESCRIPTION
TRANSCRIPT
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INTRODUCTION
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Risk is the potential that a chosen action or activity will lead to an undesirable outcome.
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SO SHOULD WE TAKE A RISK???
A Ship is Safe in harbor, however that is not what ship are for
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Types of Risks for an organizationBusiness Risks
Capital RisksCredit RisksMarket RisksLiquidity RiskEnvironmental Risks Operational risks
Control RisksInternal Control RisksManagement Risks (Corporate Governance)Compliance RisksOrganizational Risks
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RISKS & TIME LINE
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RISK MATRIX
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Basic steps of risk management
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Principles in risk managementClose involvement of top managementRisks varies depending upon the nature of
organizationProbability and Magnitude of identified risks
need to be documentedProper segregation of dutiesAccountability Internal risk auditIntegrationRisk Tolerance limits
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In risk management, the organizational setup must have following elements;
Clarity in the job roles
Inter departmental relationship
Flexibility in terms of inter-connectivity
Control linkages and control rationale
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Organizational setup of Risk ManagementBoard of directors
Risk Management Committee
Sub committees - Credit risk management committee (CRMC) - Market risk management Committee (MRMC) - Operational risk management Committee
(ORMC)
Each Committee has following cell - Identification cell - Measurement Cell - Monitoring Cell - Control Cell
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WHAT IS CREDIT
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately, but instead arrange either to repay or return those resources at a later date
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What is Credit Risk
The potential that a borrower or counterparty will fail to meet its
obligations in accordance with agreed term
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Difference between Credit Management and Credit risk ManagementFocus (3 Ps in CM and Risks philosophy in CRM)
Approach (Backward in CM and Forward in CRM)
Concern (Repayment in CM and Default in CRM)
Exit Feature (CM does not have Exit plan and CRM always have Exit plan)
Tools (FS, ratios etc in CM and CVaR, Simulation etc in CRM)