Credit Risk Management (FRM Part 2 – Book 2 – Credit Risk Measurement and Management – Ch 3)

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After completing this reading, you should be able to:
Describe key elements of an effective lending or financing policy.
Explain the importance and challenges of setting exposure and concentration limits.
Describe the scope and allocation processes of a bank’s credit facility and explain bank-specific policies and actions to reduce credit risk.
Discuss factors that should be considered during the credit asset classification process.
Describe and explain loan loss provisions and loan loss reserves.
Identify and explain the components of expected loss and distinguish between expected loss and unexpected loss.
Explain the requirements for estimating expected loss under IFRS 9.
Describe a workout procedure for loss assets and compare the following two approaches used to manage loss assets: retaining loss assets and writing off loss assets.
Explain the components of credit risk analysis.
Explain the components of credit risk management capacity, and outline key questions that the board of directors of a bank should ask.