Back مخاطر الائتمان Arabic Kredit riski Azerbaijani Кредитен риск Bulgarian Risc creditici Catalan Kreditní riziko Czech Kreditrisiko Danish Kreditrisiko German Kreditrisko Esperanto Riesgo de crédito Spanish Krediidirisk Estonian
| Categories of |
| Financial risk |
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 |
| Credit risk |
| Market risk |
| Liquidity risk |
| Investment risk |
| Business risk |
| Profit risk |
| Non-financial risk |
| Basel Framework International regulatory standards for banks |
|---|
| Background |
| Pillar 1: Regulatory capital |
| Pillar 2: Supervisory review |
| Pillar 3: Market disclosure |
| Business and Economics Portal |
Credit risk is the chance that a borrower does not repay a loan or fulfill a loan obligation.[1] For lenders the risk includes late or lost interest and principal payment, leading to disrupted cash flows and increased collection costs. The loss may be complete or partial. In an efficient market, higher levels of credit risk will be associated with higher borrowing costs. Because of this, measures of borrowing costs such as yield spreads can be used to infer credit risk levels based on assessments by market participants.
Losses can arise in a number of circumstances,[2] for example:
- A consumer may fail to make a payment due on a mortgage loan, credit card, line of credit, or other loan.
- A company is unable to repay asset-secured fixed or floating charge debt.
- A business or consumer does not pay a trade invoice when due.
- A business does not pay an employee's earned wages when due.
- A business or government bond issuer does not make a payment on a coupon or principal payment when due.
- An insolvent insurance company does not pay a policy obligation.
- An insolvent bank will not return funds to a depositor.
- A government grants bankruptcy protection to an insolvent consumer or business.
To reduce the lender's credit risk, the lender may perform a credit check on the prospective borrower, may require the borrower to take out appropriate insurance, such as mortgage insurance, or seek security over some assets of the borrower or a guarantee from a third party. The lender can also take out insurance against the risk or on-sell the debt to another company. In general, the higher the risk, the higher will be the interest rate that the debtor will be asked to pay on the debt. Credit risk mainly arises when borrowers are unable or unwilling to pay.
- ^ "Principles for the Management of Credit Risk – final document". Basel Committee on Banking Supervision. BIS. September 2000. Retrieved 13 December 2013.
Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms.
- ^ Risk Glossary: Credit Risk