Declaration

Chapter 1
Credit Risk Factors

Copyright © 2016 CapitaLogic Limited.
All rights reserved. No part of this presentation file may be reproduced, in any form or by any means, without written permission from CapitaLogic Limited.
Authored by Dr. LAM Yat-fai (林日辉),
林日辉
林日
Principal, Structured Products Analytics, CapitaLogic Limited,
Adjunct Professor of Finance, City University of Hong Kong,
Doctor of Business Administration (Finance),
CFA, CAIA, FRM, PRM.

This presentation file is prepared in accordance with
Chapter 1 of the text book
“Managing Credit Risk Under The Basel III Framework, 3rd ed”
Website : https://sites.google.com/site/crmbasel
E-mail : crmbasel@gmail.com

Copyright © 2016 CapitaLogic Limited

Copyright © 2016 CapitaLogic Limited

Outline

2

Banking activities

Introduction
Credit risk factors
Credit risk measures
A simple loan
Appendices

Deposits

3% - 20%
Shareholders’
equity

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Term loans, credit cards, mortgages, corporate bonds

< 1%

3

Bank
Dividend + equity price appreciation Copyright © 2016 CapitaLogic Limited

4

Funding source

Credit
Credit

Loan
Private lending placement

Bond

The idea that a borrower uses other people’s monies in pursuit of his financial needs
Spend today but pay tomorrow

DEBT

A loan transferable among lenders

Interest

Equity

To compensate a lender for supplying temporary funding to a borrower

Media focus in developed countries and China

Time value of money
Default of the borrower
Service charge

5

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Time value of money
My money in one year
CNY 100,000 + CNY 12,000

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6

Default
A borrower fails to pay to the lender the interest and/or principal in full on schedule
Debt collection efforts will then be initiated by the lender to recover the whole or part of the principal plus interest