Financial Products & Associated Risk Management

Credit Risk - Part 2



This eCourse consists of two modules. Module 1 describes the key mistakes made by banks and some other financial institutions, including too many concentration risks, a lack of understanding of products/risks, inadequate capital, funding and liquidity deficiencies, and issues with external credit ratings. The module also looks at the massive impact the crisis has had on banks’ business strategies, operating models, and credit risk appetite, in addition to the regulatory changes that have affected how banks manage credit risk.

Module 2 describes the three critical parameters in determining the level of credit risk – exposure at default (EAD), probability of default (PD), and loss given default (LGD) and how they are used to calculate the expected loss (EL) of a credit portfolio. EAD, PD, and LGD are also the main factors in determining regulatory capital requirements for credit risk under Basel III. The module outlines how capital requirements are based around the concept of unexpected loss (UL), which is a function of EL for a credit portfolio.


On completion of this course, you will be able to:
- Outline how both banks and regulators failed to understand or quantify the risks that were building up prior to the financial crisis
- Describe how banks’ business strategies and risk appetite have been refocused due to the events of the crisis and the introduction of tighter capital requirements under Basel III
- Describe the main inputs into the credit risk measurement process
- Explain why banks require capital to cover unexpected credit losses and the minimum regulatory requirements in this regard


Module 1: Credit Risk - Lessons from the Financial Crisis
Topic 1: Lessons from the Financial Crisis
Topic 2: impact of the Financial Crisis on Credit Risk Management

Module 2: Credit Risk - Measurement & Capital Requirements
Topic 1: Measuring Credit Risk
Topic 2: Capital Requirements


Relevant Subject
Type 1 - Dealing in securities
Type 2 - Dealing in futures contracts
Type 3 - Leveraged foreign exchange trading
Type 4 - Advising on securities
Type 5 - Advising on futures contracts
SFC:2.00, PWMA:2.00
Non-Member: HK$960
All Member: HK$640
Staff of Corporate Member: HK$640