Credit Risk Management KASNEB Notes

Download Credit Risk Management KASNEB Notes

CCP Foundation Level Notes

PAPER NO. 4 CREDIT RISK MANAGEMENT
UNIT DESCRIPTION

This paper is intended to equip the candidate with the knowledge, skills and attitudes to
effectively manage credit risk in an organisation.

LEARNING OUTCOMES
A candidate who passes this paper should be able to:

  • Identify credit risks posed by different customers’ borrowing proposals
  • Assess, analyse and measure risks in borrowing proposals in line with an entity’s risk
    profile, using appropriate models and methodologies
  • Mitigate credit risks posed by borrowing proposals, based on their driving factors, and
    minimise their impact on profitability
  • Undertake credit risk monitoring and evaluation and report results, probabilities and
    impact of risk
  • Understand the working of credit risk insurance
  • Evaluate the impact of credit risk management on stakeholders
    CONTENT
  1. Overview of Risk Management.
    1.1 Definition of risk
    1.2 Risks inherent in business organizations
    1.3 Risk management process
    1.4 Monitoring and evaluating risks
  2. Fundamentals of credit risk
    2.1 Meaning of credit risk
    2.2 Need for credit risk analysis/ why manage credit risk/Credit risk management
    objectives
    2.3 Causes of credit risk/Types of transactions that create credit risk
    2.4 Who is exposed to credit risk?
    2.5 Credit risk and return
    2.6 Historical progress of credit risk analysis
    2.7 Elements of credit risk analysis
    2.8 Challenges of credit risk analysis
  3. Assessing Credit Worthiness
    3.1 The Credit appraisal process
    3.2 Sources of information for credit appraisal
    3.3 Overview of quantitative and qualitative credit assessment
    3.4 Individual and corporate credit risk assessment
    3.5 Models used in credit assessment (Five C’s of credit, CAMPARI, CCCPARTS)
    3.6 Checklist for credit risk origination; Financial and non-financial firms
  4. Credit governance overview
    4.1 Credit guidelines/policies
    4.2 Setting Credit limits
    4.3 Skill s and oversight
    4.4 Strategic position of credit risk management

4.5 Management context of credit risk management
4.6 Credit risk management structure
4.7 Credit risk culture and credit risk appetite
4.8 Credit management process

  1. Measurement of credit risk
    5.1 The exposure
    5.2 Default Probability
    5.3 The recovery rate
    5.4 Obligation tenure/period
    5.5 Direct versus contingent exposure
    5.6 The expected loss

Download Credit Risk Management KASNEB Notes

  1. Firm (or Obligor) credit risk
    6.1 Business risks or operating risks
    6.2 Financial risks
    6.3 Risk matrix
    6.4 Different risk levels (Low, medium and high)
  2. External Risks
    7.1 Credit risk in the business cycle
    7.2 Economic conditions
    7.3 Fiscal and monetary policies, balance of payments & exchange rates
    7.4 Political risk
    7.5 Demographic factors
    7.6 Regulatory framework
    7.7 International developments
    7.8 Others (technology and environment issues)
    7.9 Monitoring external risks
  3. Overview of Industry risks
    8.1 Understanding obligor’s industry or market
    8.2 Types of industry risks, business cycles and industry life cycle
    8.3 Industry and factors of production
    8.4 Industry profitability (Existing firms’ competition, threat of new entrants, threat of
    substitute products and bargaining powers)
    8.5 Competitor/peer group analysis
  4. Entity level risks
    9.1 Understanding the activity
    9.2 Risk context and management
    9.3 Internal risk identification steps
    9.4 SWOT Analysis
    9.5 Business strategy analysis
    9.6 Management analysis
    9.7 Other internal risks
  5. Integrated view of firm-level risks
    10.1 Relevance if integrated view
    10.2 Identifying significant credit risks
    10.3 Risk Mitigations (Qualitative and quantitative)
    10.4 Principles of selecting risk mitigations
  6. 10.5 Planning and Monitoring of credit risk

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