Credit Risk
“CREDIT RISK”
STUDENTS * LUQUE CHUQUIMBALQUI, ALEXANDRA * ALARCON CASTAÑEDA, KRISLEY
LIMA
2013
Index
Introduction……………………………………………………………….………………..4
Executive summary…………………………………………………………………………5
1.-Management of credit risk……………………………………………………………….6
1.1.-Definition of credit risk………………………………………………………...6
1.2.-Elements of credit risk………………………………………………………….7
1.3.- Importance of credit risk………………………………………….……………9
1.4.- Credit Risk Committe……………………………………………………...…10
1.5. - Process of management credit risk…………………………………………...10
2. - Qualitative analysis of credit risk…………………………………………………...…11
2.1.-The credit process……………………………………………………………..11
2.2.-The process of analyzing creditworthiness…………………………………...13
2.3.-Approach of 5C of credit……………………………………………………...14
2.4.-Investment Management………………………………………………..…….16
2.5.-Credit risk and Basilea Accord……………………………………………….17
3. - Quantitative analysis of credit risk………………………………………………...…..19
3.1. - Estimating and Cash Flow Analysis………………………………..………..19
3.2. - Analysis of Financial Ratios………………………………………………....20
3.3. - Discriminant Model of Altman Z-score……………………………………...20
4. - Portfolio Grading Methods……………………………………………..……………..22
4.1.-Merton Model…………………………………………………………….…...22
4.2.-Expected loss model…………………………………………………………..23
4.3.-Design rating system…………………………………………………………..25
4.4.-Logit regression and probit.…………………………………………………...28
4.5.-Model CreditMetrics………………………...…………………………….…..29
5. - Coverage of Credit risk with derivatives………………………………………………29
5.1. - Credit Default Swaps - CDS……………………………………….….……..30
5.2. - Total Return Swaps - TRS………………………………………...…………33
5.3. - Collateralized debt obligations - CDOs………………………………...……33
Conclusions ………………………………………………………………………………..35
References…………………………………………………………………………..…….. 37
Introduction
The loans in Peru are financial instruments widely used both by individuals and by companies of any size, as there are different
STUDENTS * LUQUE CHUQUIMBALQUI, ALEXANDRA * ALARCON CASTAÑEDA, KRISLEY
LIMA
2013
Index
Introduction……………………………………………………………….………………..4
Executive summary…………………………………………………………………………5
1.-Management of credit risk……………………………………………………………….6
1.1.-Definition of credit risk………………………………………………………...6
1.2.-Elements of credit risk………………………………………………………….7
1.3.- Importance of credit risk………………………………………….……………9
1.4.- Credit Risk Committe……………………………………………………...…10
1.5. - Process of management credit risk…………………………………………...10
2. - Qualitative analysis of credit risk…………………………………………………...…11
2.1.-The credit process……………………………………………………………..11
2.2.-The process of analyzing creditworthiness…………………………………...13
2.3.-Approach of 5C of credit……………………………………………………...14
2.4.-Investment Management………………………………………………..…….16
2.5.-Credit risk and Basilea Accord……………………………………………….17
3. - Quantitative analysis of credit risk………………………………………………...…..19
3.1. - Estimating and Cash Flow Analysis………………………………..………..19
3.2. - Analysis of Financial Ratios………………………………………………....20
3.3. - Discriminant Model of Altman Z-score……………………………………...20
4. - Portfolio Grading Methods……………………………………………..……………..22
4.1.-Merton Model…………………………………………………………….…...22
4.2.-Expected loss model…………………………………………………………..23
4.3.-Design rating system…………………………………………………………..25
4.4.-Logit regression and probit.…………………………………………………...28
4.5.-Model CreditMetrics………………………...…………………………….…..29
5. - Coverage of Credit risk with derivatives………………………………………………29
5.1. - Credit Default Swaps - CDS……………………………………….….……..30
5.2. - Total Return Swaps - TRS………………………………………...…………33
5.3. - Collateralized debt obligations - CDOs………………………………...……33
Conclusions ………………………………………………………………………………..35
References…………………………………………………………………………..…….. 37
Introduction
The loans in Peru are financial instruments widely used both by individuals and by companies of any size, as there are different
References: * Belaunde, G. (January 28, 2012). El proceso crediticio: una mirada panorámica. Gestión. Recovered of http://blogs.gestion.pe/riesgosfinancieros/2012/01/el-proceso-crediticio-una-mira.html * Análisis del riesgo crediticio * Belaunde G. (January, 2012). El riesgo de crédito, ¿ese desconocido? Recovered of http://blogs.gestion.pe/riesgosfinancieros/2012/01/el-riesgo-de-credito-ese-desco.html * SBS (March, 2011) * Recovered of http://ferrari.dmat.fct.unl.pt/personal/mle/GestaoRisco/CreditMetrics/crmx4pg.pdf * Calderón, V (July, 2012)