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Credit Risk Measurement - Coggle Diagram
Credit Risk Measurement
Benefit
- Removing the subjectivity from credit assessment
- Adding a scientific basis to the credit assessment process
- Rating loans that have no credit ratings or providing a system of grading
Altman's Z Score
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The use of accounting ratios in this type of analysis is a logical extension of the original credit analysis, generating and using ratios
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Credit Portfolio
It uses the assumption that lending decisions are related to economic conditions, the business cycle.
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Securitization
- Pass Through Structures
- Pay Through Structures
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Pass Through Structures
- Loan assets are fully sold in the statement of financial position
- These structures are favored by financial institutions that use securitization for capital management purposes
Pay Through Structure
- Asset such as Car Lease Receivables from Non-Bank Lenders and Credit Card Receivables from Retailer
- Lenders do not sell off-balance sheet assets, but pack cash flows into specialized vehicles
Functions
- Capital Management
- Liquidity Management
- Interest Rate Risk Management
It is a method of packaging the cash flow of an asset into investment (non-collateralized) securities and selling them to investors
- Car Loan and Leases
- Royalties
- Utility Bills
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Loan Pricing
Factors
- Non-Credit Risk Costs
- The Statement of Financial Position Costs
Non-Credit Risk Costs
- Interest Rate Risk
- Founding Cost
- Pre-Payment Risk
The Statement of Financial Position Costs
- Capital Cost
- Liquidity Cost
- The Cost of Funds