The source of portfolio credit risk

The source of portfolio credit risk is the aggregate debt of the bank's operations, which is inherent in the credit risk - the credit portfolio, securities portfolio, a portfolio of accounts receivable, etc. The emergence of the aggregate credit risk (the risk of the loan portfolio of the banking institution) arises from the reasons for the concentration, that is providing large amounts of credit to one borrower, sending them to a single industry. Also is negative and over-diversification of credit for industries that require highly skilled personnel with expertise in many fields of activity. Considerable influence on the increase in the riskiness of the loan portfolio is currency risk if the portfolio is formed only on the basis of the needs and interests of clients and do not include the bank's interests, as well as the availability of qualified personnel in the bank. To decrease the amount of credit risk in banks used their assessment, which should take into account the sources of such risks. Some sources credit risk of specific agreement and for all portfolios have already been considered in the preceding paragraph to paragraph, but there are other sources related to the classification of credit risk. General characteristics of the sources of credit risk associated with borrowers of the collateral, changes in the economic system, force majeure etc. shown in Table 1.2. It should be noted that most commercial banks in Ukraine, until recently, when assessing the credit risk of specific agreement took into account only one of its possible sources - financial capacity of borrower (objective risk of the borrower). Practice shows that a significant number of borrowers do not return the loans, not because were in a difficult financial situation, but because they simply do not want to do it. Topic: Risks in Banking