The credit risk (also credit loss risk) designates the risk of the loss, if an applicant for the credit, for example by insolvency, cannot fulfill its obligations in the context of a credit agreement opposite the creditor. If the creditor is Kreditinstitut, an individual value correction must be formed. One speaks in this case of address loss risk (rare address risk or address risk). The Kreditrisko covers completion and payment in advance risks. The credit risk is the volume-moderately most meaning kind of risk.

The credit risk is measured by characteristic numbers in credit Ratings: The more badly the Rating precipitates, the more highly is the probability of a loss. By risk-oriented Bepreisung applicants for the credit with bad Rating impacts must pay on the credit interest as risk premium.

Credit risk is adjusted according to principle 1 and the extensions by Basel II, particularly the minimum own capital funds requirements for credit risks.

Land risk

In the sense of the foreign trade one speaks of credit risk, if by political events (ex.s: Strike; political unrests; new social order; staatl. angeordnetet prohibitions; non-uniform iurisdiction, etc."…) and economic conditioned risks (for example lacking by foreign exchange shortage) the achievement for the creditor, with risk is afflicted. This risk is called land risk.

Expected loss

The expected loss computes itself from the product of

• expected height of the demand at the time of the loss
• Probability of failure
• Loss ratio in case of failure

Only the failure occurrence is actually uncertain.

Expected height of the demand at the time of the loss

Exposure RK default (EAD) designates the expected pending Foderungsbetrag at the time the loss. That is that amount, which is potenziell loss-endangered in the case of insolvency. The Exposure RK default corresponds to the amount of credit with the credit. The EAD umdasst current accounts receivable as well as prospective future demand obligations in the form of promised credits, which the bank was received.

With option dealings it must be noted for the height of the EAD's that during the Laufziet no payment in advance risk exists. Instead it comes to a new roofing risk in case of failure, if with purchase (sales) the current Kassapreis is larger (smaller) than the Terminpreis. In case of an option business the right, thus the value of the option, is worthless. Here likewise a reroofing risk exists.

Loss ratio

The loss ratio indicates, which portion of the demand is lost in the case of insolvency. The English designation is Loss Given default (LGD), i.e. the loss in the case of insolvency. The counterpart in addition is the rebringing in ratio (Recovery rate).

Measured variables on the loss ratio are:

• the kind of the demand title and its rank position
• the Kapitalstrukur of the enterprise
• the industry affiliation
• and macro-economic measured variables

The definition of credit loss (default) has effects on the height of Recovery Rates.Ein Severe default designates enterprise insolvency, conversion of debts or Forderungsverzicht of the credit givers. Mildly a default can be present however with a delay of payment, with the Basler committee this as given is regarded if a substantial commitment is than 90 days overdue more.

Evaluation of credit loss risks

• Option price theory
• Reduction models: Kreditausfallrisikien are evaluated by means of prices by enterprise loans acted at the market. The consideration is appropriate for that to reason that in these prices an evaluation of the loss risk is contained. A loan is loss-threatened visibly therefore if their course is appropriate for run timeequivalent, safe loan below the course contribution and.

Credit risk management

The management of credit risk becomes difficult, since credit risks are only limited tradable. To consider not only the risk of the individual credit, but its risk contribution is to the entire Kreditportfolio.

Credit risk reduction

In the standard beginning of Basel II

• Collateral
• Nettingvereinbarungen
• Warranties and credit derivatives

A pure transmission of the loss risks has following pro and cons:

 to carry + expected loss from the risk buyer to - risk buyer receives + sinking of the own resources supporting to risk premium + lowering of the insolvency risk of the bank - complex contracts necessarily - information asymmetry 

Credit collateral

• Credit collateral is suitable for differentiating between good from bad debtors to (assortment effect).
• Credit collateral can cause debtors to it, itself after conclusion of a contract not creditor-damaging too with restraint (incentive effect).

There is a negative connection between firm risk and the height of collateral (best ones).

Collateral can hold applicants for the credit from aggravation of risk.

See also

• Soil quality
• Bank operating teachings

Articles in category "Credit risk"

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