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Credit Risk

Author

Listed:
  • Erika Spuchľáková
  • Juraj Cúg

Abstract

Credit risk or default risk involves inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions. The Credit Risk is generally made up of transaction risk or default risk and portfolio risk. The portfolio risk in turn comprises intrinsic and concentration risk. The credit risk of a bank’s portfolio depends on both external and internal factors. The external factors are the state of the economy, wide swings in commodity/equity prices, foreign exchange rates and interest rates, trade restrictions, economic sanctions, Government policies, etc. The internal factors are deficiencies in loan policies/administration, absence of prudential credit concentration limits, inadequately defined lending limits for Loan Officers/Credit Committees, deficiencies in appraisal of borrowers’ financial position, excessive dependence on collaterals and inadequate risk pricing, absence of loan review mechanism and post sanction surveillance, etc. This paper points out the measurement, hedging and monitoring of the credit risk.

Suggested Citation

  • Erika Spuchľáková & Juraj Cúg, 2014. "Credit Risk," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 8(1), pages 1006-1013.
    • Handle: RePEc:isp:journl:v:8:y:2014:i:1:p:1006-1013
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    References listed on IDEAS

    as
    1. Crouhy, Michel & Galai, Dan & Mark, Robert, 2000. "A comparative analysis of current credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 59-117, January.
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    More about this item

    Keywords

    credit risk; credit risk measurement; credit risk hedging and credit risk monitoring;
    All these keywords.

    JEL classification:

    • A - General Economics and Teaching

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