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FINANCIAL MARKET COURSES

Credit Risk Mitigation

Courses In This Course

The global financial crisis highlighted many issues, not least of which was some extraordinary mismanagement of credit risk. Post-crisis reviews pointed to a major breakdown in loan underwriting standards and indicated that far too much lending prior to the crisis was either irresponsible or not very prudent. As events proved, banks and other financial institutions can lose billions, or even go out of business, due to their failure to manage credit risk properly.

 

This course, Credit Risk Mitigation, is part of a series of courses that are designed for financial market professionals looking to better understand and manage credit risk in a post-crisis world. Rather than focusing on how to perform credit analysis, the series adopts a “top-down” view of credit risk and its management, covering many areas that are not currently well articulated. While financial analysis has a role, well-trained bankers need to understand much more than financial statements and ratios in order to determine the ability of borrowers and counterparties to repay their obligations.

Learner Profile

This series of courses is aimed primarily at those working in a commercial/wholesale credit environment where risk assessment and credit approval is based on objective and subjective analysis and experience. However, much of the material is sufficiently generic to be relevant to retail/consumer/SME banking institutions as well.

  •    CREDIT RISK MITIGATION - AN INTRODUCTION

    Overview

    This course introduces the concept of credit risk mitigation and outlines the two broad categories of mitigation – funded and unfunded. The benefits of mitigation are described, and its impact on expected loss is demonstrated. The course also discusses the taking and management of mitigation, the different types of mitigant used, and the various risks associated with credit risk mitigation.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Credit Risk Measurement – An Introduction

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  •    CREDIT RISK MITIGATION - COLLATERALIZATION

    Overview

    This course discusses the use of collateral (or security) as a credit risk mitigant, describing the motivations for collateral usage from the point of view of collateral takers and providers. The course also examines the increasingly important and ever-evolving role of a bank’s collateral management function. Finally, the course describes the various types of collateral taken as security and the attractions/drawbacks of each as a credit risk mitigant.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Credit Risk Mitigation – An Introduction

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  •    CREDIT RISK MITIGATION - OTHER TYPES

       OF MITIGANT

    Overview

    While collateral remains a common form of credit risk mitigation (CRM), it is not always suitable in every situation. Lenders and regulatory authorities have come to recognize the usefulness of alternative mitigation techniques.

     

    This course examines other CRM tools and techniques that are used by banks and other lenders. It begins by describing the use of netting, which – like collateral – is a type of funded CRM technique. The course then describes the use of a number of unfunded credit risk mitigants, namely guarantees/standby letters of credit, credit insurance, and credit derivatives. Finally, the course looks at the eligibility of the various CRM techniques for lowering capital requirements under the Basel framework.

    Course Duration

    50 mins

    Prerequisite Knowledge

    Credit Risk Mitigation – Collateralization

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  •    CREDIT RISK MITIGATION - MANAGEMENT

       & REALIZATION

    Overview

    This course looks at the key stages involved in effectively managing mitigants taken in support of a loan or other credit facility. It begins by outlining the assessment and approval stages of proposed mitigation, and the differences between disclosed and undisclosed mitigation. The importance of legal certainty and enforceability of mitigation is explained, as are the capital eligibility requirements under the Basel framework. Subsequent topics describe the key requirements in relation to CRM both before and after drawdown of credit facilities, as well as the process of actually realizing mitigation when necessary to do so.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Credit Risk Mitigation – Other Types of Mitigant

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