Good morning distinguished ladies and gentlemen. I remain @jenniferjulius and as usual I will be sharing an important content with you all. My topic of discussion will be on financial risk management, credit risk to be precised.
Credit risk the potential that a counter party will fail to meet its agreed terms.
Key characteristics of credit risk.
1 Exposure: changes that occurs which leads to counter operation.
2 Probability of default: the likelihood that payment would not be possible.
3 Recovery rate: here, if a person defaults what we are likely to recover in the process.
What is Credit risk management.
This is the process of controlling the potential consequence of credit risk. The process is the same as standard risk processing which include:
Identification of risk.
Evaluation of risk.
Reasons or events that could lead to Credit risk.
1 Bankruptcy or insolvency under cooperate law. A company can dissolve insolvency by pulling out of the business.
2 Credit upon a merger. A negative effect may lead to a credit risk.
3 Cross acceleration.
4 Down-grade. This has to do with a loss of value in the market.
5 Failure to pay. Failure to pay a credit will lead to credit risk.
6 Government actions. A decision made by Government may lead to credit risk occurring in a firm.
7 Restructuring. Changes know the organization leads to a credit risk.
8 Moratorum on debt. A company may declare a stand still in its loan repayments or interest i.enjoy debt been on hold for a specific time.
9 Repudiation.
10 Default acceleration.
11 Obligation to default.
12 Obligation to acceleration.
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