Credit Risk Measurement and Management

Who should attend this seminar?

This course is intended those either new to risk management, credit operations, or who wish to gain an understanding of risk-based regulation and how they are applied to credit risk. It will be of use to:

• risk managers and analysts
• business managers and team leaders
• middle and back office personnel
• internal and external auditors
• it and operations professionals
• regulators and supervisory professionals
• anyone new to risk management within financial services
• anyone new to credit risk within financial services
• new entrants to the finance industry who wish to gain a more in depth understanding of credit risk
• suppliers and consultants to banks and the risk management industry.

Pre-requisites

No prior experience of risk-based management, of the Basel II Accord, or of credit risk is required as this course first covers the basics before moving on to more advanced topics. However it is assumed that all delegates are familiar with common financial terms and have a basic understanding of banking and the functions of a financial institution. 

Content

Day 1 – Understanding credit risk and its management

Defining credit risk     

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

Financial products

• Loans and overdrafts
• Government and corporate bonds
• Equity and mezzanine debt
• Credit derivatives
• Counterparty exposure from traded products
• Trade finance
• Mortgages
• Credit cards
• Examples

Mitigating and managing credit risk

• The credit time line
• Bad debt, doubtful debt and default
• Credit assessments and scoring
  • Corporate credit scoring
  • Retail credit scoring
• Diversification and portfolio management
• Securitization
• Collateral
• Credit derivatives
• Netting
• Cash flow monitoring
• Recovery management
• Case study

Day 2 – The treatment of credit risk under Basel

Calculating credit risk capital under Basel

• Risk-weights and risk-weighted assets
• Credit risk and Basel I
• Ratings and rating agencies
• Basel II and rating agencies
• The approaches for measuring credit risk capital
• Obtaining approval for using a measurement approach
• Data requirements and issues
• Examples

The Standardised Approach

• The nature of the Standardised Approach
• The Standardised Approach’s asset classes and risk-weights
• Off-balance sheet items
• Difference between Basel I and Basel II
• Examples

The Internal Ratings-Based approaches               

• The nature of the IRB Approaches
• The IRB approaches and asset classes
• The IRB parameters
• Foundation based IRB Approach
• The Advanced IRB approach
• Backtesting
• The usage test

Day 3 – Securitisation, collateral, supervision and disclosure

Securitization and credit derivatives

• The nature of securitization
• True sale
• The role of banks
• Securitization under Basel II
  • The Standardised Approach
  • The Rating-Based Approach
  • The Supervisory Formula
  • Internal Assessment Approach
• Examples
• The treatment of credit derivatives

Collateral

• Haircuts
• Collateral under Basel II
• The effect of collateral on credit risk capital
  • The Simple Approach
  • The Comprehensive Approach
  • The Advanced Comprehensive Approach
• Examples

Credit risk under pillars 2 and 3              

• What is supervision and disclosure
• Home/host supervisory co-operation
• Credit risk under Pillar 2
• Counter party credit risk supervision
• The role of internal and external audit
• Pillar 3 and the external reporting requirements for credit risk