Credit Risk Appetite - Part 1
Credit risk appetite is the level of risk that a bank is prepared to accept to achieve its objectives. It is important for banks to set risk appetite at an appropriate level to ensure credit risks are only accepted and managed within that appetite. Appetite must be reviewed and reset in light of changing market conditions and portfolio performance. This tutorial describes the importance of setting credit risk appetite, the various measures of risk appetite, and the impact of risk appetite on credit decisions.
The financial crisis highlighted the importance of understanding and managing concentration risks. Frameworks for identifying and managing concentration risks have been refocused due to the events of the financial crisis. This tutorial outlines the key concentration risks faced by banks.
On completion of this tutorial, you will be able to:
- Recognize the importance of credit risk appetite for banking organizations
- Determine how banks can identify and manage concentration risks
Topic 1: Overview of Credit Risk Appetite
Topic 2: Concentration Risk