Question
Which of the following statements correctly describe
credit risk assessment and credit risk management?Solution
⢠Credit Risk Assessment â This is the initial stage, where lenders evaluate the probability of borrower default. It includes: o Reviewing financial statements o Checking repayment history and credit score o Assessing collateral and repayment capacity ⢠Credit Risk Management â A broader and ongoing process that follows assessment. It includes: o Setting exposure limits and risk thresholds o Monitoring borrower performance over time o Taking preventive or corrective measures to reduce losses o Developing recovery strategies for stressed or defaulted loans Thus: ⢠Assessment = Evaluation & Quantification ⢠Management = Continuous control & mitigation Together, these processes ensure sound lending practices and protect banks from undue exposure to default risk.
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