Credit Risk Training - Introduction

Session 1: Defining credit risk

• The Basel Accords
• What is credit risk?
• The different types of credit risk
  • Sovereign
  • Corporate
  • Retail
  • Systemic
• Counterparty
• Concentration risk
• The macro environment
• Expected and unexpected losses

Case study/ Example to illustrate the above

Session 2: Lending Refresher

• Definitions & basic lending principles
• Lending policies, lending strategies, lending systems
• Data/information collection
• Approvals, security, draw downs
• Management & monitoring systems

Case Study/Exercise: Several of each throughout the session

Session 3: The Credit Risk in Financial products

• Loans and overdrafts
• Project finance
• Construction finance
• Private public partnerships
• Government and corporate bonds
• Equity and mezzanine debt
• Credit derivatives
• Counterparty exposure from traded products
• Trade finance
• Mortgages
• Credit cards

Case study/ Example to illustrate the above

Session 4: The Basic Principles of Lending

• Appraisal techniques
• Credit assessment for personal clients
• Credit Assessment for retail clients
• Business clients
• Corporate Clients
• Private Wealth Clients
• Group credit appraisal
• Development finance
• Project finance

Case study/ Example to illustrate the above

Session 5: How Banks make money from Lending

• Price differentials
• Interest arbitrage
• Gap and duration management
• Opportunities
• Risk
• Maturity mismatches
• Key Performance Indicators

Case study/ Example to illustrate the above

Session 6: Introduction to Credit Scoring

• What does credit scoring measure
• SWOT analysis
• Basic principles
• Data collection, refining and perfection
• Measuring effectiveness
• The challenge of “refer”
• Evaluation – back testing
• Additional data
• Credit scoring in practice

Case Study/Exercise: Several of each throughout the session

Session 7: Introduction To Credit Risk Strategy

• Maximisation v optimisation strategies – enhancing risk adjusted returns
• Portfolio theory and correlation concepts
• Contagion risks
• Liquidity assumptions

Case study/ Example to illustrate the above

Session 8: Introduction to Mitigating and Managing Credit Risk

• The credit time line
• Migration risk – doubtful debt, default and bad debt
• Credit assessments and scoring
• Corporate credit scoring
• Retail credit scoring
• Diversification and portfolio management
• Securitisation
• Collateral
• Credit derivatives
• Netting
• Cash flow monitoring
• Recovery management

Case study/ Example to illustrate the above

Session 9: Introduction to Measuring Portfolio Risk

• Loss distributions and loss tails
• Quantifying expected and unexpected losses
• Credit v market risks
• Credit risk concepts
  • Probability of default
  • Loss given default
  • Exposure at default
  • Time to default

Case study/ Example to illustrate the above

Session 10: Introduction to Credit portfolio Models

• Modelling approaches
• Volatility, correlation, VaR and Monte Carlo simulation
• Default models
• Mark to market models etc
• Accounting asymmetry
• Advantages and disadvantages of models

Case study/ Example to illustrate the above

Session 11: Introduction To Sensitivity Analysis, Scenario Analysis and Stress Testing

• The approaches – quantitative and qualitative
• Why it is necessary
• Framework for stress testing
• Benefits of stress testing

Case study/ Example to illustrate the above

Session 12: Introduction to the Credit Regulatory Framework

• Risk-weights and risk-weighted assets
• Basel II and rating agencies
• The approaches for measuring credit risk capital – Standardised and IRB
• Different types of capital – economic, market, shareholder, regulatory

Case study/ Example to illustrate the above

Session 13: Introduction to Credit Portfolio Management

• Credit portfolio management – location within firm and role (advisory, decision makers, profit centre)
• Privileged information, price-sensitive information and Chinese Walls
• Public private partnerships

Case study/ Example to illustrate the above

Session 14: Lessons to be Learned From the Credit Crunch

• Reasons for the crunch
• Over expansion of assets
• Securitisation
• Complex loans and structures
• Liquidity issues

Case study/ Example to illustrate the above