Part 1

Question 1

What are the key Basel principles?

Answer 1

Appropriate credit risk processes
Reliable system to classify loans
Validation of models to ensure they’re fit for purpose
Loan loss methodology to identify problems
Provisions should absorb expected losses
Expert and experienced judgment should be exercised
Tools procedures and Data capable of assessment and capital req

Question 2

What does supervisory evaluation include?

Answer 2

Periodic evaluation of credit risk processes
Satisfied that provision levels are reasonable, prudent and recognised
Policies and procedures should influence capital management

Question 3

What do credit risk management teams do?

Answer 3

Carry out a number of functions over the roc
Design and implement a credit scoring model
Assess credit risk
Recommend credit limits
Analyse and manage credit risk exposures
Regularly review limits etc
Escalate credit issues to senior management
Recommend and implement credit risk management techniques
Work with external rating agencies

Question 4

How is risk managed and over viewed?

Answer 4

Credit scoring
Credit limits 
Due diligence 
Stress testing 
Regular review of processes and policy 
Diversification
Segmentation 
Risk reporting kpis and kris

Question 5

What is credit risk?

Answer 5

The risk that a counterparty fails to perform a financial obligation

Question 6

Avoiding issues with credit risk includes pre application…

Answer 6

Due diligence (5 ps)
Review regularly

Question 7

How can credit risk be mitigated?

Answer 7

Security
Credit limits
Due diligence 
Guarantees 
Netting (set off debit positions against credit balances)
Diversification

Question 8

What is LGD?

Answer 8

Loss given default
Size of loss that actually occurs at default
Measured on percentage of the exposure

Question 9

What are the Basel principles based on?

Answer 9

Supervisory expectations

Supervisory evaluation