Credit Risk Management Process l Banking Activities at Pre- & Post- Sanction Stages | Ep-20
Channel: BL Academy
Date: 01/03/2024

What is Credit Risk?
Credit risk is the probability that a borrower will not be able to pay accrued interest and/or repay principal amount of a loan according to terms specified in the credit agreement. In other words, it is the probability of default on the part of the borrower to act as per the agreement. Credit risk comes from a bank's dealing with individual, corporate, bank, NBFI or a sovereign 
It may arise due to inability or unwillingness to perform. It may stem from on-balance sheet & off-balance sheet activities. Credit risk not only includes default risk but also downgrade risk . As a result of excessive credit risk, bank's profitability, capital adequacy and cash flows are adversely affected .

Causes of  Credit Risk
Improper or weak need assessment 
Credit concentration 
Economic downturn 
Absence of in depth portfolio review
Wrong structuring 
Insufficient cash flow generation 
Failure to understand forex risk 
Lack of monitoring of approval condition 
Lack of Second Line (ready succession) 
Insufficient security/guarantee and Incomplete documentation 
Scarcity of utilities and input 
Lack of Good Governance (corruption, failure to stand in pressure)