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FINANCIAL MARKET COURSES

Credit Risk Management - Risk/Reward

Banks are in business in order to generate returns for their stakeholders. To achieve this, they must take risks and embed them in the products and services they provide. This course describes the various sources of revenue for banks, including both interest and noninterest income. It looks in detail at the factors influencing loan pricing, in addition to calculations for relationship earnings, risk-adjusted earnings, and return on capital employed (ROCE).

  • OBJECTIVES

    On completion of this course, you will be able to:

    Describe the various sources of income for banks and the main factors affecting loan pricing and revenue

    Explain the importance of measuring risk-adjusted returns and why they are more meaningful at a portfolio level than a customer level

  • COURSE OUTLINE

    Topic 1: Sources of Revenue

    Interest Income

    Noninterest Income

    Loan Pricing: Cost of Funds

    Loan Pricing: Other Factors

    o Availability of Long-Term Funding

    o Reference Rates

    o Currency

    o Interest Rate Expectations

    o Competition

    o Credit Risk Appetite

    Funds Transfer Pricing (FTP)

    Pricing in Practice

    o Variable, Fixed, & Combination Pricing

    o Pricing Structure, Reference Rates, & Margin

    Topic 2: Risk-Adjusted Returns

    Relationship Earnings, Risk-Adjusted Returns, & ROCE

    o Example

    Issues with Risk-Adjusted Returns

    Risk-Adjusted Return Calculators

    Customer vs. Portfolio Measures

    o Example

    Costs & Cost Allocations

    Actual vs. Projected Returns

    Monitoring & Managing Actual Returns

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

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