Credit Risk: Introduction to Key Concepts

Target Audience
The workshop is designed for non-credit analysts, such as support and administrative staff or sales and trading professionals within financial services companies. The content is also appropriate for a broader audience, e.g. law, insurance and broking professionals, who wish to understand better the impact and management of credit risk on their clients

The majority of FitchTraining programmes are offered at an intermediate level and advanced level of continuing education. Although no prerequisite courses or experience is required to participate in this programme, working knowledge of financial statement analysis is required, as well as prior knowledge of the programme topic.

Course Objectives
The aim of this one-day introductory workshop is to enable participants to understand the key concepts of credit risk and credit risk management. Specifically, participants will be equipped to:

Identify the different types of credit risk and how they arise in different activities
Understand how credit risk can be quantified, monitored and controlled and the role of credit portfolio management tools, such as collateral, documentation and credit derivatives
Appreciate how capital is allocated against risk under Basel II capital adequacy and internal economic capital models.
Content
OVERVIEW OF CREDIT RISK
Role of credit risk in differing business lines
Categories of credit risk - lending, contingent, issuer, pre-settlement, settlement, country/transfer, other
Impact of credit risk on performance and financial standing of different types of company
Quantifying credit risk - default, recovery and migration statistics
Capital adequacy - economic capital - the need for adequate capital to meet unexpected losses;
Basel II - measuring regulatory capital for credit risk under standardized and advanced measurement approaches
CREDIT ANALYSIS
Overview of debt ratings - understanding the types of rating and the criteria applied by the rating agencies
Structured approach to credit analysis - Purpose, Payback, Risks and Structure
Types of counterparty - corporates, financial companies, special purpose entities and holding companies
Perspectives on analysis - debt and equity market indicators of credit risk
CREDIT RISK MITIGATION
Structuring credit exposures a four step approach - exposure profile, ranking, safeguards and pricing
Exposure profile - key features of the main credit products offered or traded by the bank: loans, leases, derivatives, bonds etc
Ranking - senior, pari passu and junior positions – the role of collateral and structural subordination
Safeguards - key issues to look out for in credit documentation
Pricing - the need to be compensated for expected loss
Portfolio management and techniques to spread risk - syndication, sub-participation, whole loan sales, credit derivatives, securitization