Introduction

Credit risk analysis is a critical component of financial risk management, helping institutions identify, assess, and mitigate risks associated with lending and credit activities. This 5-day course provides a comprehensive understanding of credit risk, the methods used for assessing and quantifying credit risk, and the tools available for managing credit portfolios. Participants will gain hands-on experience with the credit risk evaluation process, using quantitative and qualitative methods, and learn how to apply these concepts in real-world banking and finance scenarios.

By the end of the course, participants will be proficient in conducting credit risk assessments, building credit risk models, and implementing effective strategies for credit risk management.

Course Objectives

• Understand the fundamentals of credit risk and its importance in financial institutions.
• Learn how to evaluate and measure credit risk using quantitative models and qualitative assessments.
• Gain insights into credit scoring, credit ratings, and risk-based pricing.
• Develop the skills to manage a credit portfolio and mitigate risk exposure.
• Learn about regulatory frameworks and risk management practices in credit risk analysis.

Who Should Attend?

• Credit risk analysts, loan officers, and credit managers in banks or financial institutions.
• Risk managers and compliance officers responsible for managing credit risk exposure.
• Financial analysts and professionals involved in credit rating, loan underwriting, or portfolio management.
• Students or professionals seeking to enter the field of credit risk analysis and management.

Day 1: Introduction to Credit Risk and Risk Assessment

• Session 1: What is Credit Risk?
  • Definition of credit risk: exposure to potential loss from a borrower’s inability or unwillingness to repay debt.
  • Types of credit risk: individual borrower risk, counterparty risk, systemic risk.
  • The importance of credit risk management in financial institutions: preventing defaults, ensuring liquidity, and preserving capital.
• Session 2: Credit Risk Components and Classification
  • Key components of credit risk: default risk, credit spread risk, concentration risk, and recovery risk.
  • Classifying credit risk: retail and corporate credit, sovereign risk, and counterparty risk.
  • Credit risk and the economy: macroeconomic factors influencing credit risk, including interest rates, inflation, and GDP growth.
• Session 3: The Credit Risk Management Process
  • Overview of the credit risk management process: identification, assessment, mitigation, and monitoring.
  • The role of credit risk assessment in loan underwriting, portfolio management, and credit ratings.
  • Credit risk management frameworks and best practices.

Day 2: Credit Risk Modeling and Quantitative Techniques

• Session 1: Credit Risk Models
  • Introduction to credit risk models: logistic regression, decision trees, and machine learning techniques.
  • Probability of Default (PD): calculating the likelihood of default for an individual borrower or credit portfolio.
  • Loss Given Default (LGD): estimating the potential loss in case of default.
• Session 2: Credit Scoring and Credit Ratings
  • Credit scoring models: FICO scores, VantageScore, and other credit scoring systems.
  • The role of credit ratings: how ratings agencies assess the creditworthiness of companies, governments, and financial products.
  • The relationship between credit scores, credit ratings, and credit risk assessment.
• Session 3: Credit Risk in Fixed-Income Securities
  • Measuring credit risk in bonds and other debt instruments.
  • Credit spreads and the relationship to credit risk.
  • Techniques for assessing the creditworthiness of issuers: financial ratios, credit spreads, and bond ratings.

Day 3: Credit Portfolio Management

• Session 1: Managing Credit Portfolios
  • Overview of credit portfolio management: risk-return trade-offs, diversification, and concentration risk.
  • Risk-adjusted return on capital (RAROC) and the role of economic capital in credit portfolio management.
  • Credit portfolio models: Markowitz portfolio theory, credit value at risk (CVaR), and portfolio optimization.
• Session 2: Credit Concentration Risk
  • What is concentration risk, and why does it matter? Managing exposure to specific borrowers, industries, or geographic regions.
  • Techniques for managing concentration risk: diversification, limits on exposure, and risk-based pricing.
  • The role of stress testing and scenario analysis in identifying concentration risk.
• Session 3: Credit Risk Hedging and Mitigation
  • Techniques for managing credit risk exposure: collateral, guarantees, and credit derivatives (CDS, CDOs).
  • Credit risk mitigation strategies: netting, diversification, and securitization.
  • Hedging credit risk: using credit derivatives for portfolio protection and risk transfer.

Day 4: Regulatory Frameworks and Credit Risk Compliance

• Session 1: Regulatory Environment for Credit Risk
  • Overview of global regulations: Basel III, Dodd-Frank Act, and other regulations affecting credit risk.
  • Capital adequacy and credit risk: the role of risk-weighted assets (RWA) and the capital charge.
  • The role of central banks and financial regulators in managing systemic risk and promoting financial stability.
• Session 2: Stress Testing and Scenario Analysis
  • The importance of stress testing in credit risk management: simulating adverse economic conditions.
  • Scenario analysis for assessing credit portfolio vulnerabilities: interest rate changes, economic shocks, and macroeconomic downturns.
  • Regulatory requirements for stress testing: CCAR (Comprehensive Capital Analysis and Review) and the EU’s stress testing framework.
• Session 3: Credit Risk Reporting and Compliance
  • Credit risk reporting requirements: internal and regulatory reporting.
  • The role of credit risk data in ensuring compliance with regulatory standards.
  • Best practices in credit risk reporting: transparency, timeliness, and data integrity.

Day 5: Advanced Credit Risk Management and Case Studies

• Session 1: Credit Risk Management in Practice
  • Advanced techniques in credit risk management: counterparty risk, credit portfolio optimization, and capital allocation.
  • Case studies of credit risk management during the financial crisis: lessons learned from the 2008 financial crisis.
  • The role of technology and data analytics in modern credit risk management: using AI and machine learning in credit assessment.
• Session 2: Credit Risk and Non-Performing Loans (NPLs)
  • Identifying and managing non-performing loans: causes, classification, and impact on financial institutions.
  • Strategies for reducing NPLs: loan restructuring, asset sales, and debt recovery.
  • The role of provisioning and impairment in managing credit risk from NPLs.
• Session 3: Final Case Study and Group Discussion
  • Participants will work on a real-world credit risk management case study.
  • Group discussion: strategies for improving credit risk management in a financial institution.
  • Key takeaways and closing remarks.

Course Conclusion

• Recap of Key Learnings
• Interactive Q&A Session
• Certification of Completion
• Networking Opportunity