This document discusses the importance of credit risk in banking, factors influencing it, and how guarantees impact risk assessment.
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[...] To refine this assessment, some coefficients of weighting are established. For example, a collateralized loan allows for reduce the risk by which remains relatively modest due to the risk of insolvency linked to the collateral. On the other hand, the mortgage guarantees are much more solid. The systems of mutual caution, commonly used for real estate loans, offer a mechanism similar to insurance: each borrower pays a sum integrated into the loan installments, thus feeding a mutual guarantee fund that repays the bank in case of borrower default. [...]
[...] Risk Assessment in a Bank is not done by analyzing the entire portfolio. Instead, we evaluate specific theoretical and notional risks, in in function of each type of asset. The The internal valuation model is therefore more precise than the standard model, because the integrates elements of a finer detail that those of the standard approach. This model allows, for example, to take into account the nature of guarantees, the term of loans, the specificity of credits, and many other factors. [...]
[...] Credit Risk I. Credit Structure Credit risk is at the forefront, not necessarily in terms of volume, but by its importance historical and in connection with the activity of credit institutions. The implementation of its management is quite complex, car the calculation of the risk rate, whether it is predictable or probable, is based on certain standard estimates. These calculations are performed by financial mathematicians recruited by banks from institutions such as Centrale and Polytechnique. The mechanics of this risk are however relatively simple to grasp : between a guaranteed loan and an unguaranteed loan, the weighting varies significantly. [...]
[...] When the coverage is made by [...]
[...] In fact, if the loan is secured, the risk is mitigated, although this also depends on the type of guarantee. Certain guarantees, such as a pledge of business assets, may lose their value if the company is close to judicial liquidation, as the business assets then become worthless. It is the same for the mortgage, here, in the event of liquidation under French law, is subordinate to general and special privileges. Furthermore, it is advisable to whether the guarantee covers the entire loan, including the interests and any potential penalties. [...]
