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      Question

      Which of the following statements correctly describe

      credit risk assessment and credit risk management?
      A Credit risk management is a broader concept than credit risk assessment Correct Answer Incorrect Answer
      B Credit risk assessment focuses on evaluating and quantifying risk Correct Answer Incorrect Answer
      C Credit risk management involves controlling and minimizing credit risk throughout the loan’s life cycle Correct Answer Incorrect Answer
      D All of the above are correct Correct Answer Incorrect Answer
      E All of the above are incorrect Correct Answer Incorrect Answer

      Solution

      • Credit Risk Assessment → 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 → 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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