• Post Graduate Program in Business Management with NMIMS
    Co-created with NMIMS
    4.8 out of 5 by 6071 learners
    4x Industry Demand
  • Post Graduate Program in Banking and Credit Underwriting
    4.7 out of 5 by 1376 learners
    12 X industry demand
  • Post Graduate Program In Finance And Accounting
    Co-created with Grant Thornton
    4.9 out of 5 by 238 learners
    14 X industry demand
  • Professional Certification in FinTech
    Co-created with SP Jain School of Global Management
    4.8 out of 5 by 534 learners
    6X industry demand
  • Credit Risk and Underwriting Prodegree
    Co-created with Moody’s Analytics
    4.5 out of 5 by 526 learners
    4X industry demand
  • Banking And Wealth Management Bootcamp
    4.7 out of 5 by 460 learners
    3X industry demand
  • Post Graduate Program In Capital Markets
    4.7 out of 5 by 807 learners
    3X industry demand
  • Certified Investment Banking Operations Professional
    4.8 out of 5 by 7600 learners
    8X industry demand
  • Post Graduate In New Age Banking
    4.6 out of 5 by 1726 learners
    4X industry demand
  • Financial Analysis Prodegree
    Co-created with KPMG
    4.7 out of 5 by 3311 learners
    4X industry demand

Breaking down credit risk

The banking and financial services industries are prone to market fluctuations; this causes various types of risk in day to day operations. There are many variables at play here that might cause the risk. One such type of risk faced by the fiancé and banking sector is known as the credit risk. What exactly is the credit risk?
Credit risk can be understood as the risk of default on loan obligations that might arise when the borrower fails to adhere to the terms and conditions of the loan put forth by the lending party. When the borrower fails to repay the amount, or parts of it within a given time frame it results in credit risk for the counterparty. Let’s dig deeper into the various types of credit risks that exist.

Different Types of Credit Risks

There are multiple ways of categorising the credit risks, mainly it is put under the below-mentioned types of credit risks.

  • Default risk: The default risk can be explained as the risk of loss that arises because the debtor is unable to repay the borrowed amount partially or completely with a given period as per the terms and conditions of the agreement. In general cases the period is 90 days, if the borrower fails to repay the amount after this period it is considered as a credit default risk. This type of risk has an impact overall the credit-based financial transactions like loans, derivatives, securities. Credit default risk plays an important role in credit ratings of the borrower to avail loans and credit cards from banking institutions.
  • Concentration risk: The name concentration risk is very suggestive of the type of risk it entails. When banks and financial institutions are focused on providing credit to a specific segment or industry they might face high concentration risk. In case of any downtrend in that specific industry, the core operations of the banks might be in danger given the high degree of concentration risk. For example, if a bank or a financial institution decides n lending to the real estate industry, any problems that might arise in the real-estate sector will directly impact the revenue and profitability of the banks.
  • Country & Institutional risk: Country risk is associated with the macroeconomic factors in a given country during a given period. This might result from a sudden payment freeze from a foreign country. Political instability can also result in high country risk and impact the performance of banking institutions. Institutional risk can result from a breakdown of the legal structure of the country.

Managing the Credit Risk

Mitigating the credit risks is one of the most important tasks carried out by banks and financial institutions to remain profitable and competitive in the market. Let’s look into some of the most common methods of reducing and mitigating credit risks. Diversification
The simple rule of not putting all your eggs in one basket is applicable everywhere. Credit risks can be mitigating by avoiding concentration to a specific group or industry in the market. Diversifying the portfolio is extremely important to avoid losses due to any specific industry downturns.

Credit insurance & derivatives
Credit insurance is a great way to limit the exposure of any downturn; the lender can easily transfer the risk to a third party in case of default by borrowers. The third parties can bear the risk for a nominal fee which has to be paid by the lender hedging the risk. Credit default swaps are one of the most common types of credit derivatives that protect the interest of the lenders by hedging the risk.

 

Also Read: What is Credit Risk Underwriting

For Online Course Enquiries
About Imarticus
Imarticus Learning is India’s leading professional education institute that offers training in Financial Services, Data Analytics & Technology. We’ve successfully transformed careers of over 35,000+ individuals globally through our Certification, Prodegree, and Post Graduate programs offered in association with leading and renowned global organisations in the Financial Services, Data Analytics & Technology domain.
Related course
  • Placement Program
    Post Graduate Program in Business Management with NMIMS
    Co-created with NMIMS
    Course duration(Months)
    24
    Upcoming batches
    1
    Organizations enrolled
    20
    4.8 out of 5 by 6071 learners
    4x Industry Demand
    Upcoming Batches
    Date Location Schedule
    ONLINE Online
    Date Location Schedule
  • Post Graduate
    Post Graduate Program in Banking and Credit Underwriting
    Course duration(6)
    Upcoming batches
    1
    Organizations enrolled
    20
    4.7 out of 5 by 1376 learners
    12 X industry demand
    Upcoming Batches
    Date Location Schedule
    Not Available MUMBAI Online
    Date Location Schedule
  • Post Graduate
    Post Graduate Program In Finance And Accounting
    Co-created with Grant Thornton
    Course duration(months)
    4
    Upcoming batches
    1
    Organizations enrolled
    20
    4.9 out of 5 by 238 learners
    14 X industry demand
    Upcoming Batches
    Date Location Schedule
    None DELHI Online
    Date Location Schedule
  • Certification
    Professional Certification in FinTech
    Co-created with SP Jain School of Global Management
    Course duration(Months)
    3
    Upcoming batches
    1
    Organizations enrolled
    20
    4.8 out of 5 by 534 learners
    6X industry demand
    Upcoming Batches
    Date Location Schedule
    ONLINE Online
    Date Location Schedule
  • PRODEGREE
    Credit Risk and Underwriting Prodegree
    Co-created with Moody’s Analytics
    Course duration(Months)
    3
    Upcoming batches
    1
    Organizations enrolled
    20
    4.5 out of 5 by 526 learners
    4X industry demand
    Upcoming Batches
    Date Location Schedule
    13th February ONLINE Weekend
    Date Location Schedule
  • Certification
    Banking And Wealth Management Bootcamp
    Course duration(Months)
    2-3
    Upcoming batches
    1
    Organizations enrolled
    20
    4.7 out of 5 by 460 learners
    3X industry demand
    Upcoming Batches
    Date Location Schedule
    30th January LUCKNOW Weekend
    Date Location Schedule
  • Post Graduation
    Post Graduate Program In Capital Markets
    Course duration(months)
    4
    Upcoming batches
    1
    Organizations enrolled
    20
    4.7 out of 5 by 807 learners
    3X industry demand
    Upcoming Batches
    Date Location Schedule
    Not Available ONLINE Online
    Date Location Schedule
  • Certification
    Certified Investment Banking Operations Professional
    Course duration(Months)
    2-3
    Upcoming batches
    10
    Organizations enrolled
    20
    4.8 out of 5 by 7600 learners
    8X industry demand
    Upcoming Batches
    Date Location Schedule
    17th January PUNE Weekend
    23rd January MUMBAI Weekday
    30th January LUCKNOW Weekend
    13th February PUNE Weekend
    5th March BANGALORE-KORAMANGALA Weekday
    Date Location Schedule
    5th January BANGALORE-KORAMANGALA Weekday
    23rd January MUMBAI Weekend
    4th February BANGALORE-KORAMANGALA Weekday
    20th February BANGALORE-KORAMANGALA Weekend
    13th March ONLINE Weekend
  • Post Graduation
    Post Graduate In New Age Banking
    Course duration(months)
    4
    Upcoming batches
    1
    Organizations enrolled
    20
    4.6 out of 5 by 1726 learners
    4X industry demand
    Upcoming Batches
    Date Location Schedule
    None ONLINE Online
    Date Location Schedule
  • Prodegree
    Financial Analysis Prodegree
    Co-created with KPMG
    Course duration(Months)
    3
    Upcoming batches
    5
    Organizations enrolled
    20
    4.7 out of 5 by 3311 learners
    4X industry demand
    Upcoming Batches
    Date Location Schedule
    23rd January ONLINE Weekend
    20th February BANGALORE-KORAMANGALA Weekend
    13th March ONLINE Weekend
    Date Location Schedule
    23rd January MUMBAI Weekend
    27th February DELHI Weekend