Credit risk as an integral part of banking activities

Credit risk describes the economic and legal relations arising between the lender and the borrower on the redistribution of financial assets. In broad terms, the credit risk - the uncertainty regarding the full and timely implementation of the borrower's obligations under the terms of the loan agreement, ie no return (in whole or in part) the principal amount and interest thereon of the provision. In the "Guidelines on the organization and operation of risk management in banks of Ukraine» Credit risk is defined as existing or potential risk to earnings and capital, which arises from the inability of the parties, pledged to fulfill the terms of any financial agreement with a bank or some other way to fulfill its obligations. Credit risk is present in all the activities of the bank, where the result depends on the counterparty, the issuer or borrower. It occurs every time the bank provides funds, accepts the obligation to provide them, invest or otherwise runs the risk of them under the terms of the real or conceptual agreements, regardless of where the transaction is reflected - in the balance sheet or off balance sheet. In other words, we are talking about the uncertainty of the bank that the borrower will be able to keep going and to meet its obligations under the terms of the transaction, resulting in there is the possibility of losses on lending operations. In particular, the nature of credit risk strategy is that every time a bank is seeking to acquire a profitable asset (in the form of loans), he assumes the risk that the borrower may become bankrupt, that is, Can not (not will) promptly pay the principal and interest, and thus the bank can not use a secured loan. Topic: Risks in Banking | Tags: Credit risk