Credit Risk Management

From Open Risk Manual

Definition

Credit Risk Management denotes a broad collection of principles, tools, processes and management roles that aim to underpin the management of Credit Risk, most typically (but not necessarily) in the context a Credit Portfolio.

Credit Risk Management is a superset of Credit Portfolio Management, with the later term being used when intending to place emphasis on portfolio aspects.

Components

A decomposition of credit risk management into elements has been provided in the Loan Portfolio Management handbook[1]

  • Assessment of the Credit Culture,
  • Portfolio objectives and risk tolerance limits,
  • Management information systems,
  • Portfolio segmentation and risk diversification objectives,
  • Analysis of loans originated by other lenders,
  • Aggregate policy and underwriting exception systems,
  • Stress testing portfolios,
  • Independent and effective control functions,
  • Analysis of portfolio risk/reward tradeoffs.

References

  1. Loan Portfolio Management Comptroller’s Handbook, April 1998 (Updated June 26, 2017, for Non-accrual Status)

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