Archive for the ‘Credit risk’ Category

Credit risk

Sunday, November 29th, 2009

The bank must also determine the likelihood of default and level of losses as a result. Banks do not generally make loans where they expect the borrower to default but experience shows that a proportion will do so. These risks must be recognized and priced in. Specific loans can add to a bank’s overall risks by increasing the concentration of loans to companies in particular industries or locations.