Credit Portfolio versus Loan Portfolio
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Credit Portfolio versus Loan Portfolio
The two terms are used some time interchangeably but more accuracy is required when the types of Lending products involved in a portfolio varies. A loan portfolio is best understood as a subset of the broader credit portfolio class that only involves loans.
Differences
- The primary distinction between a Credit Portfolio and a Loan Portfolio stems from the fact that a wide array of Financial Products, involve Credit Risk. Such products and/or contracts that may carry substantial credit risk are credit cards, derivatives, bonds, Securitisation etc.
- The different markets and nature of the financial product involved means that there are also differences in how portfolios are managed, for example:
- Risk Assessment (e.g. based on market information or client information)
- Risk Management (tools available for risk mitigation)
- Possible trading strategies for the purchase or sale of credit exposure
- The Accounting Framework
- The applicable Regulatory Regime (including required Risk Capital)
Similarities
- Despite the potentially significant differences, a unifying feature of all credit portfolios is that the core underlying risk is the credit risk of borrowers
- The machinery for the quantitative analysis of credit portfolio risk is broadly similar