Credit Risk Training – Introduction

Course Overview

A three day introductory aimed at bankers, analysts, product and client servicing and support teams wanting to gain an understanding of how credit assessment and management is developed, models created, risks assessed and mitigation techniques implemented. Participants are not expected to be modellers or quantitative analysts but a basic understanding of banking products would be helpful. 

Learning Objectives

Participants will gain an understanding of how to: 

• Identify the key elements of credit risk
• Measure, quantify and evaluate the correlation of credit risk exposures within a portfolio
• Review modelling and sensitisation techniques over the main drivers of credit risk
• Apply credit portfolio management within the overall internal risk management and external regulatory environment

Methodology

Classroom style lectures featuring use of relevant case studies. Highly interactive with delegate participation actively encouraged 

Course Outline

Session 1: Defining credit risk

• The Basel Accords
• What is credit risk?
• The different types of credit risk
  • Sovereign
  • Corporate
  • Retail
  • Systemic
• Counterparty
• Concentration risk
• The macro environment
• Expected and unexpected losses

Case study/ Example to illustrate the above

Session 2:  Lending Refresher

• Definitions & basic lending principles
• Lending policies, lending strategies, lending systems
• Data/information collection
• Approvals, security, draw downs
• Management & monitoring systems

Case Study/Exercise: Several of each throughout the session

Session 3: The Credit Risk in Financial products

• Loans and overdrafts
• Project finance
• Construction finance
• Private public partnerships
• Government and corporate bonds
• Equity and mezzanine debt
• Credit derivatives
• Counterparty exposure from traded products
• Trade finance
• Mortgages
• Credit cards

Case study/ Example to illustrate the above

Session 4: The Basic Principles of Lending

• Appraisal techniques
• Credit assessment for personal clients
• Credit Assessment for retail clients
• Business clients
• Corporate Clients
• Private Wealth Clients
• Group credit appraisal
• Development finance
• Project finance

Case study/ Example to illustrate the above

Session 5: How Banks make money from Lending

• Price differentials
• Interest arbitrage
• Gap and duration management
• Opportunities
• Risk
• Maturity mismatches
• Key Performance Indicators

Case study/ Example to illustrate the above

Session 6: Introduction to Credit Scoring

• What does credit scoring measure
• SWOT analysis
• Basic principles
• Data collection, refining and perfection
• Measuring effectiveness
• The challenge of “refer”
• Evaluation – back testing
• Additional data
• Credit scoring in practice

Case Study/Exercise:  Several of each throughout the session

Session 7: Introduction To Credit Risk Strategy

• Maximisation v optimisation strategies – enhancing risk adjusted returns
• Portfolio theory and correlation concepts
• Contagion risks
• Liquidity assumptions

Case study/ Example to illustrate the above

Session 8: Introduction to Mitigating and Managing Credit Risk

• The credit time line
• Migration risk – doubtful debt, default and bad debt
• Credit assessments and scoring
• Corporate credit scoring
• Retail credit scoring
• Diversification and portfolio management
• Securitisation
• Collateral
• Credit derivatives
• Netting
• Cash flow monitoring
• Recovery management

Case study/ Example to illustrate the above

 Session 9: Introduction to Measuring Portfolio Risk

• Loss distributions and loss tails
• Quantifying expected and unexpected losses
• Credit v market risks
• Credit risk concepts
  • Probability of default
  • Loss given default
  • Exposure at default
  • Time to default

Case study/ Example to illustrate the above

Session 10: Introduction to Credit portfolio Models

• Modelling approaches
• Volatility, correlation, VaR and Monte Carlo simulation
• Default models
• Mark to market models etc
• Accounting asymmetry
• Advantages and disadvantages of models

Case study/ Example to illustrate the above 

Session 11: Introduction To Sensitivity Analysis, Scenario Analysis and Stress Testing

• The approaches – quantitative and qualitative
• Why it is necessary
• Framework for stress testing
• Benefits of stress testing

Case study/ Example to illustrate the above 

Session 12: Introduction to the Credit Regulatory Framework

• Risk-weights and risk-weighted assets
• Basel II and rating agencies
• The approaches for measuring credit risk capital – Standardised and IRB
• Different types of capital – economic, market, shareholder, regulatory

Case study/ Example to illustrate the above 

Session 13: Introduction to Credit Portfolio Management

• Credit portfolio management – location within firm and role (advisory, decision makers, profit centre)
• Privileged information, price-sensitive information and Chinese Walls
• Public private partnerships

Case study/ Example to illustrate the above 

Session 14: Lessons to be Learned From the Credit Crunch

• Reasons for the crunch
• Over expansion of assets
• Securitisation
• Complex loans and structures
• Liquidity issues

Case study/ Example to illustrate the above

Delivering this course in-house for you to a number of participants could be very cost effective. Please call us on 020 7387 4484 to discuss this further.

If you have any questions about this seminar please write to us at post@redcliffetraining.co.uk.