Rohit Lele on LinkedIn: Vasicek Model - CDP (2024)

Banks imply the risk that a borrower's situation will change (it'll fail) before they know about it. Cenerus' proprietary AIICR approach makes the information gathering, analyzing and presenting to decision makers an explicit risk that can be managed - creating substantial opportunities. Want to know more?

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Announcing the ASYMMETRIC INFORMATION AND INTELLIGENCE CREDIT RISK (AIICR - “a-ker”) Scoring SystemThe Cenerus AIICR System is a credit risk management approach attacking the impact of borrower risk changing faster than the bank can react. Information deteriorates over time.  Many loan, credit and portfolio reviews use mostly / all existing data in the file.  If the data used in the review is outdated or inaccurate, the review has no value.  Proactive management protects the balance sheet. If the risk management is proactive, credit pricing is tighter because risk is reduced.       Cenerushas built a model for Asymmetric Information and Intelligence Credit Risk to help helps banks get faster, earlier insight to their own data and take back control of their portfolios. The management of AIICR – reducing the asymmetry of information - enables banks to better protect their balance sheets, create a lending approach with more tightly managed credit and therefore pricing. Effective and consistent implementation of the AIICR methodology allows banks to maintain an active view of the credit portfolio to assess whether additional liquidity measures are necessary.Download the executive overview today and contact us at team@cenerus.com for access to the full AIICR white paper.

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Proactive Strategies for Effective Credit Risk Management: 1-Credit Analysis: A meticulous evaluation of a borrower's financial health, credit history, and ability to meet obligations is foundational for effective credit risk management.2-Establishing Credit Limits:Setting appropriate credit limits based on risk profiles ensures a balance between business growth and risk management.3-Diversification:Spreading credit exposure across various entities, industries, and regions reduces the impact of a single default, emphasizing the importance of a well-balanced credit portfolio.4-Stress Testing:Simulating adverse economic scenarios helps identify vulnerabilities in the credit portfolio, enabling the development of effective contingency plans.5-Collateral and Security Interests:Requiring collateral provides a safety net in case of default, allowing the lender to recover outstanding debts through seized assets.6-Credit Risk Models:Utilizing advanced models of data analytics and AI aids in assessing creditworthiness, enabling more lending decisions.7-Credit Insurance:Transfer credit risk to a third party through credit insurance, protecting against non-payment by customers or counterparties.8-Credit Monitoring:Ongoing monitoring of borrowers and counterparties is crucial for detecting early warning signs, facilitating timely intervention to prevent larger losses.9-Regular Review:Regularly reviewing and updating credit risk management policies and procedures to adapt to changing conditions is imperative.10-Credit Committees:Establishing credit committees enhances decision-making regarding credit risk, bringing together experts from various departments.11-External Credit Ratings:Considering external credit ratings provides valuable insights into the creditworthiness of potential borrowers or counterparties.12-Credit Scoring Systems:Implementing credit scoring systems streamlines the evaluation of creditworthiness, reducing subjectivity in lending decisions.13-Supplier and Customer Relationships:Strong relationships with suppliers and customers contribute to effective credit risk management.14-Contingency Planning:Developing contingency plans for various credit risk scenarios ensures an effective response to unexpected challenges.15-Training and Education:Investing in training for employees involved in credit risk management is crucial for informed decision-making. Conclusion: Navigating Credit Risk for Sustainable GrowthEffective credit risk management is a dynamic and multifaceted process. In a world of financial uncertainities, effective credit risk management is Unevitable. As with other financial risks, mastering credit risk is key to long-term financial resilience and success. By incorporating these strategies, businesses can enhance their financial stability, minimize losses, and position themselves for growth in an ever-changing economic Environment.#accaglobal #cia #riskmanagement

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Completion of Credit Risk Management: Frameworks and Strategies!!I'm able to :Understand conventional concepts related to risk management: unexpected loss, default probability, loss-given-default, risks vs rewards, and credit spread.Review default rates and trends in credit markets during normal periods, and periods of stress and trends in bankruptcies and insolvencies.Show how market indicators (from equity and debt markets) account for credit risks or show implied default probabilities; review how credit models attempt to measure default probabilities.Understand the distinction between credit default and credit deterioration and the use of a Credit “Value at Risk” metric.Review the primary concepts of portfolio risk management, including concentration and correlation risks.Review important methods and techniques to reduce credit risks and exposures, including credit derivatives.Review the primary purposes of credit analysis and the importance of presenting rational, updated assessments.Review the primary purposes of credit exposures (including funding corporate balance sheets and business operations).Understand how analysis leads to an overall credit rating of the borrower, a risk strategy and outlook, and approaches to structuring credit exposures (loans, e.g.).Identify and quantify the various categories and forms of credit exposure with corporate counterparties (loans, revolving credit commitments, counterparty-trading exposure, e.g.).Identify and summarize various types of credit structures based on tenor, collateral, ranking and amortization.#creditrisk #financialanalysis #creditanalysis

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#riskmanagement Credit risk management is the controls of potential credit or lending default by counterparties. It is not the risk of you owing counterparties.There are 3 levels of credit contract life cycle, namely:1. Onboarding of credit facility to the counterparties2. The conduct of servicing the loans or facilities3. The end of the credit cycle life either fully repay or facilities turn sour.At the onboarding process, most lenders or bonds subscribers will resort to credit rating or assessment to agree to provide the credit facilities. As such, information from reputable rating agencies becomes very crucial. This is also the point when the lenders will decide the amount of exposure, tenure of repayment or even the need for guarantee or collateral. The decision of interest or profit rates are decided here.Credit risk measures such as single counterparty limitation, rating level, ability to pre-settle upon call are assessed here.For the second phase, this is largely about tracking and monitoring of the exposure. Models of behavioural repayments, build up of sinking funds are closely tracked. Even rating migration or rating changed are closely observed. Sophisticated tools such as Value at Risk, Expected Credit Defaults are also used to gauge the health of the credit exposures.The last phase, this is a standard end of credit contract. Failure to honour could but not necessarily lead to legal action for failing to repay on time of the preagreed amount.That's a minute from me.

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Understanding Credit Risk Management: A Key to Financial Stability 🌟In today's dynamic financial landscape, mastering credit risk management is crucial for individuals and businesses alike. 📈 Whether you're a seasoned investor, a small business owner, or someone simply navigating personal finances, comprehending and effectively managing credit risk can make all the difference. Let's delve into what credit risk management entails and why it matters.What is Credit Risk? Credit risk refers to the potential loss that may occur when a borrower fails to repay a debt or meet their financial obligations. 📉 It's a fundamental aspect of lending and investing, as every financial transaction involves some degree of risk.Key Components of Credit Risk Management:Credit Assessment: Thoroughly evaluate the creditworthiness of borrowers before extending credit or making investments. This involves analyzing financial statements, credit reports, and other relevant data to gauge the likelihood of repayment.Risk Identification: Recognize and understand the various types of credit risks, including default risk, concentration risk, and market risk. By identifying potential threats, proactive measures can be taken to mitigate them.Risk Mitigation Strategies: Implement strategies to minimize credit risk exposure. This may include diversifying investment portfolios, setting credit limits, requiring collateral, or purchasing credit insurance.Monitoring and Review: Continuously monitor the creditworthiness of borrowers and the overall health of the credit portfolio. Regular reviews enable timely adjustments to risk management strategies and ensure alignment with changing market conditions.Benefits of Effective Credit Risk Management:Enhanced Financial Performance: By minimizing credit losses and optimizing risk-return trade-offs, effective credit risk management contributes to improved financial performance and profitability.Strengthened Reputation: Demonstrating a commitment to prudent risk management practices enhances credibility and trust among stakeholders, fostering long-term relationships and attracting potential investors.Resilience Against Economic Downturns: A robust credit risk management framework enables individuals and organizations to weather economic downturns and turbulent market conditions more effectively.Regulatory Compliance: Adhering to sound credit risk management practices ensures compliance with regulatory requirements and helps avoid penalties or legal consequences.In conclusion, mastering credit risk management is essential for achieving financial success and stability. Whether you're an investor seeking profitable opportunities or a business owner managing cash flow, understanding and effectively managing credit risk can help you navigate the complexities of the financial world with confidence.#CreditRisk #RiskManagement #FinancialStability #Investing #FinanceManagement

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Follow Up, Supervision, Monitoring Credit Risk Management bytes by – AmitThe post-sanction credit process can be broadly classified into three stages viz., Follow-up, Supervision and Monitoring (FSM). These stages are essential for efficient credit management and maintaining a high level of standard assets.FSM is the soul of credit risk management. As the old age adage goes, “Prevention is better than cure”, FSM process ensures that the funds granted by Banks does not turn sub standard and is used only for the purpose for which it was granted (end use of funds). Though it is an extremely vast subject, we will try to cover few aspects of itFollow -up, Supervision and Monitoring– DefinedFollow -up, Supervision and Monitoring refers to the continuous oversight of a credit facility granted by the Bank or financial institution. It starts right after the loan has been sanctioned and loan disbursed after proper due diligence and documentation. Following are some of the areas covered under FSM.Follow upEnsure funds are utilized for intended purposes through diligent monitoring.Continuously align outstanding balances with asset levels.Verify activity levels against projected figures during credit facility renewals.Detect any deviations from the terms of sanction promptly.Periodically assess advance health using key indicators such as profitability, activity level, and unit management. Ensure assets are utilized productively and maintained effectively.Monitor and ensure timely recovery of principal and interest payments for term loans.Identify early warning signals, conduct SMA/SAR reviews, and initiate remedial measures to prevent incipient sicknessEnsure compliance with internal and external reporting requirements for the credit area.Supervision functionImplement robust follow-up procedures for advances to maintain good asset quality.Proactively identify early warning signals and address potential issues of incipient sickness.Initiate remedial measures promptly to mitigate risks and maintain the health of the asset portfolio.Monitoring function Ensure effective supervision of loans/advances, promptly responding to early warning signals. Continuously monitor the asset portfolio, tracking changes regularly.Implement specific actions to maintain a high percentage of 'Standard Assets'.Follow-up, Supervision, and Monitoring serves as an essential risk management practices for lenders (Banks & Financial Institutions) enabling them to identify, assess, and mitigate risks linked with loans and credit facilities. This approach safeguards their interests and bolsters the stability of their loans and credit portfolio.#crm #fsm #followup #supervision #monitoring #banks

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Exposure monitoring and limit systems are critical to the effective management of Counterparty credit risk. An effective exposure monitoring system consists of establishing meaningful limits on the risk exposures an institution is willing to take independent ongoing monitoring of exposure against such limits and adequate controls to ensure that meaningful risk controlling actions takes place when limits are exceeded. This limit process depends upon meaningfull exposure measurement methodologies. Meaningfull risk controlling actions includes, capping of current exposures, curtailment of new business, assigning transactions to another Counterparty, etc. And this could only possibly happen when an institution has a robust internal credit risk rating system.

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Here are some critical credit risk management strategies: 1. Thorough Credit Assessment: Conduct comprehensive credit assessments before extending credit to customers, including analyzing their financial statements, credit history, and industry trends. 2. Credit Scoring Models: Utilize sophisticated credit scoring models to evaluate the creditworthiness of potential borrowers and assign appropriate credit limits. 3. Diversification: Diversify your credit portfolio across different industries, geographic regions, and customer types to spread risk. 4. Monitoring and Review: Regularly monitor the creditworthiness of customers and review credit limits based on their financial performance and market conditions. 5. Establish Clear Credit Policies: Develop clear credit policies outlining criteria for credit approval, terms of payment, and actions to be taken in case of default. 6. Collateral and Guarantees: Obtain collateral or guarantees from borrowers to mitigate credit risk and provide additional security. 7. Risk Mitigation Tools: Use financial instruments such as credit derivatives, credit insurance, and letters of credit to hedge against credit risk. 8. Stress Testing: Conduct stress tests to assess the impact of adverse economic scenarios on the credit portfolio and ensure adequate capital reserves. 9. Early Warning Systems: Implement early warning systems to identify potential credit problems and take proactive measures to address them before they escalate. 10. Continuous Training and Education: Provide regular training to staff involved in credit risk management to keep them updated on best practices and emerging risks. Implementing a combination of these strategies can help organizations effectively manage credit risk and protect their financial stability.

The ECB report on “Sound practices in counterparty credit risk governance and management” (Oct. 2023) is an interesting read.The ECB has put together a collection of sound practices in CCR governance and management, observed during a review carried out in Q4-2022, with respect to 23 institutions active in derivatives and securities financing transactions (SFTs) with non-banking counterparties. According to the report, the targeted banks held on aggregate ca. €1,245 billion of CCR exposure value (of which, 59% was derivatives and 41% SFTs) and €278 billion of CCR risk-weighted exposure amount (RWEA) (of which, 82% was derivatives and 18% SFTs), at the reference date for the exercise, i.e., 31 March 2022. In addition to identifying a number of good industry practices already in use by institutions, the review showed areas for improvement. Supervisors’ expectations cover, among others, (i) customer due diligence (procedures to obtain information from non-banking counterparties should be improved, and the DD outcome should be reflected on credit decisions and contractual conditions), (ii) definition of risk appetite (institutions with material CCR exposures should explicitly specify their willingness to accept this risk in their risk appetite statement), (iii) default management processes (banks are expected to regularly stress test their CCR exposures) and stress testing frameworks (stress testing results should have an impact on risk mitigation strategies). https://lnkd.in/dQsrHJrJ

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