Credit Risk Management

Key Concepts and Current Developments

Agenda Program Online
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Prague, NH Hotel Prague
Hybrid Training
Both classroom and online training available
Price for online training
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Attend this training seminar and learn to:

Understand in depth what is credit risk
Discover its multiple dimensions
Uncover how and why the regulatory and the economic approaches differ
Identify, measure and manage credit risk
Model credit risk for retail and non-retail customers
Trace the life of a loan, from the granting process to its servicing and closure
Get insights on current issues and concerns
The purpose of this seminar is to give you a clear understanding of how banks address credit risk in the light of recent evolutions, IFRS 9, ESG and Covid. The regulatory view of credit risk is central to banking supervision; but we will see that taking an economic approach is needed to gain an edge in a competitive environment. This means mastering modelling and management of credit risk and, of course, adapting the requirements to specific issues like IFRS 9, which is pushing banks to new levels in assessing and steering credit risk, including capturing it up until maturity and making it sensitive to macro-economic forecasts. The seminar consists of six study sessions.

The six sessions are articulated as follows: We start by clarifying the nature of credit risk and why it is the main risk of banks. Then we look at the regulatory and economic views of credit risk, with their respective benefits and challenges. We finish by clarifying how to price credit risk in order to create value, and current issues. More specifically:

Session 1 defines and explores the nature of credit risk and its main components, exposure, default and recovery. We introduce capital as the metric for measuring credit risk and the IFRS 9 accounting standard for its provisioning.

Session 2 explains the regulatory approach to credit risk. We discover how regulators define and measure it. Pros and cons of their approach are uncovered, and also the consequences.

Session 3 is dedicated to the economic approach to credit risk. We find why it is more sophisticated than the regulatory approach and why it is key to creating value. Also, how it is aligned with IFRS 9, the accounting standard.

Session 4 looks at the various credit risk models used to assess credit parameters for retail and non-retail customers, from scorecards to migration matrices, and integrating ESG in a post-Covid world.

Session 5 follows the life of a loan. We look at the granting process, how the loan is priced, and what happens during its life, its provisioning, servicing, up to a possible recovery process.

Session 6 looks at the future of credit risk: how and why is the reporting of credit risk evolving? What are the impacts of IFRS9, ESG and the Covid crisis? How to turn these inevitable evolutions into competitive benefits?

By the end of the seminar, you have a thorough understanding of the conceptual and practical issues related to credit risk today. And you are ready to professionally contribute on most issues related to credit risk, provisioning and pricing.

Program of the seminar: Credit Risk Management

The seminar timetable follows Central European Time (CET).

Session One – Nature of Credit Risk

09.00 - 09.15 Welcome and Introduction

09.15 - 10.40 The Nature of Credit Risk

  • The role of credit for financing the economy
  • The role of banks as economic actors
  • Overview of the actors in need of credit
  • What is credit risk?
  • Credit risk main parameters, exposure, default and recovery

10.40 - 11.00 Break

11.00 - 12.15 Towards Measuring Credit Risk

  • Review of risk basics
  • The difference between credit risk and credit provision
  • Provisioning with IFRS9
  • Measuring credit risk with capital
  • Articulating credit risk capital and provisions

12.15 - 13.15 Lunch break

Session Two – The Regulatory Approach

13.15 - 14.45 Regulatory Approach to Credit Risk

  • Review of the supervisory architecture
  • EAD, PD and LGD, the regulatory risk parameters
  • Risk Weighted Assets, RWA
  • Credit risk from Basel 1 to Basel 3 accord
  • Regulatory capital requirements

14.45 - 15.00 Break

15.00 - 16.30 Regulatory Assessment of Credit Risk

  • Supervisors self-imposed goals and constraints
  • The regulatory assessment of credit risk
  • Consequences of underlying hypotheses
  • Retail, corporate and public exposures
  • Portfolio concerns

Session Three – The Economic Approach

09.00 - 09.15 Recap and Warm up

09.15 - 10.40 The Economic Approach to Credit Risk

  • Credit loss as a negative change in value
  • The three risks within credit risk
  • Credit risk parameters
  • Credit risk parameters interactions
  • Portfolio effects

10.40 - 11.00 Break

11.00 - 12.15 Credit Provisioning with IFRS 9

  • The new accounting standard for Financial Instruments
  • Why is IFRS 9 revolutionary?
  • Credit risk with all its dimensions
  • Explaining the forward-looking stance
  • Consequences on credit risk oversight

12.15 - 13.15 Lunch break

Session Four – Credit Risk Modelling

13.15 - 14.45 Credit Risk Modelling for Retail Portfolios

  • Typical characteristics of retail portfolios
  • Credit risk profile of mortgages and consumer loans
  • Scorecards and Days Past Due approaches
  • Cohorts and statistical approaches
  • The right data for the right model

14.45 - 15.00 Break

15.00 - 16.30 Credit Risk Modelling for Non-retail Portfolios

  • Understanding the loss distribution curve
  • The empirical and the structural approaches
  • Intrinsic characteristics of PD curves
  • Corporate migration matrices
  • The case of sovereigns and quasi-sovereigns

Session Five – The Life of a Loan

09.00 - 09.15 Recap and Warm up

09.15 - 10.40 The Granting Process

  • Customer segmentation; KYC
  • Credit risk assessment, guarantees and collateral
  • Internal refinancing; FTP
  • Assessing the profitability of transactions; RAROC
  • Qualitative criteria and final approval process

10.40 - 11.00 Break

11.00 - 12.15 The Maturing of the Loan

  • Provisioning under IFRS9
  • Loans servicing
  • Non-performing loans and the recovery process
  • Portfolio management
  • Securitization and portfolio insurance

12.15 - 13.15 Lunch break

Session Six – The Future of Credit Risk

13.15 - 14.45 Reporting and Disclosures

  • The main goals of reporting
  • Regulatory reporting; pillar 3
  • Accounting and financial disclosures
  • Stress testing and management reporting
  • IT considerations

14.45 - 15.00 Break

15.00 - 16.15 Current Issues and Concerns

  • Macro-prudential regulation
  • The public debt and sovereign risk
  • Is Fintech competition a real issue?

16.15 – 16.30 Final Game

Training catalogue in PDF
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