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Credit Risk From the Regulator's Perspective - Coggle Diagram
Credit Risk From the Regulator's Perspective
Capital Adequacy
Fail due to Poor Credit Decisions
Capital Adequacy Ratio (CAR) Formula
(Tier 1 Capital + Tier 2 Capital)/ Risk Weighted Asets
CAR is the ratio of capital to its risk-weighted assets and current liabilities ratio of bank capital to its risk-weighted assets and current liabilities
Which was decided by the Central Bank and Bank Regulators
Large Credit Exposures
Risk under prudent supervision usually refers to the potential loss under the provided financing instruments.
Issue
When an authorized depository institution (ADIs) provides a large loan into an enterprise, if the enterprise defaults, it will be exposed to the enterprise.
Securitization
A Good Credit Risk Management Tool in Certain Circumstances
Revolving Facilities
Credit Cards are the Most Common for Revolving Facilities
The lending Assets can be Redraw
Condition
The Right, Details, Obligations, and Cashflow must be specified
Liquidity Shortfall for Financial Institutions can't share exceed interest.
Normal Loan Securitization, Financial Institutions must have no Obligation to Repurchase Assets that have Defaulted.
Clean Sales Supply of Assets
No beneficial Interest from Selling Asset
No Cost and Obligation toward Lending Institution to Repurchase the Lending Assets.
Credit Derivatives
Can Significantly change the Credit Status of Financial Statements of Financial Institutions.
Developments in Regulation
Credit Rating
Short-term
Long-term
Short-term
A-1
A-2
A-3
B
C
D
Business Risk
Industry Characteristics
Management Evaluation
Industry-specific Factors - Market, Competitiveness
Long-term
AAA
AA
A
BBB
BB
B
CCC
CC
C
D
Financial Risk