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Free online training series
Credit Risk Concepts
Explore the fundamentals of Credit Risk Concepts in this comprehensive video series. Designed for professionals in financial institutions, risk management, and credit analysis, this training provides essential insights into calculating and managing credit risk.
What You’ll Learn:
- Key metrics: Probability of Default (PD), Loss Given Default (LGD), Exposure at Default (EAD).
- How to calculate Expected Loss and Unexpected Loss.
- The role of Monte Carlo Simulations in risk modeling.
- Basel regulatory frameworks and risk-adjusted capital requirements.
- Practical applications: Pricing loans, managing portfolios, and optimizing RAROC (Risk-Adjusted Return on Capital).
Whether you’re a seasoned risk manager or just starting your career in finance, this series offers practical knowledge to enhance your skills and steer your institution effectively.
1. Introduction
In this lesson, we explore the fundamental concepts of credit risk—a critical area for lending-focused financial institutions. Learn how understanding and managing credit risk impacts the overall performance and stability of a financial institution.
This lesson sets the stage for a deeper dive into quantifying credit risk, calculating capital requirements, and leveraging risk management insights for strategic decision-making.
2. Quantify Credit Risk
In this lesson, we dive into the foundational metrics for quantifying credit risk: Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD). These three variables are essential for understanding risk and return in lending-focused financial institutions.
Learn which factors interact to estimate the Expected Loss of loans and portfolios, and why they are crucial for steering portfolio profitability.
3. Expected Loss
In this video, we bring together the key metrics—PD (Probability of Default), LGD (Loss Given Default), and EAD (Exposure at Default)—to calculate the Expected Loss (EL) for loans and portfolios. Discover how EL serves as the “cost of doing business” in lending and its critical role in risk management and pricing.
This lesson provides a practical, step-by-step approach to mastering EL calculations, empowering you to quantify and manage credit risk effectively.
4. Unexpected Loss
In this lesson, we take a step beyond Expected Loss and explore the concept of Unexpected Loss (UL)—a key measure used to determine the equity capital required to safeguard against higher-than-expected defaults. Using practical examples and simulations, we break down the complexities of credit risk modeling.
This lesson equips you with the tools to model risk effectively and calculate the capital cushion needed to protect your financial institution from unexpected losses.
5. Capital Requirements
In this lesson, we build on the concept of Unexpected Loss (UL) and explore how to quantify UL for individual loans. Learn about industry-standard regulatory frameworks, such as Basel guidelines, and the methodologies used to calculate capital requirements.
This lesson is critical for anyone looking to deepen their understanding of capital requirements and enhance their ability to assess credit risk at the loan level.
6. Pricing & RAROC
IIn this final session, we apply all the concepts covered so far to calculate Risk-Adjusted Return on Capital (RAROC) and explore its role in steering financial institutions effectively. Discover how to combine Expected Loss, Unexpected Loss, and profitability metrics to optimize decision-making and improve loan portfolio management.
Summary
Congratulations for completing this comprehensive training series on Credit Risk Concepts! Reach out to us for additional resources and tools to advance your organization’s knowledge.