Credit risk is defined as the potential loss arising from a bank borrower or counterparty failing to meet its obligations in accordance with the agreed terms.
The Bank is exposed to credit risk in itslending and treasury activities, as borrowers and treasury counterparties coulddefault on their contractual obligations, or the value of the Bank’sinvestments could become impaired.
Credit risk may also materialise in the formof a rating downgrade. Credit risk also covers settlement and pre-settlementrisk. Similarly, collateral risk is considered as part of credit risk(collateral is essentially a credit risk mitigation technique). Overall, creditrisk is a function of the amount of credit exposure and the credit quality ofthe borrower or transaction.
To address credit risk, theFinancial Risk Division performs qualitative and quantitative assessment ofrisk factors and potential scenarios that may lead to a default situationthrough internal credit rating assessment of counterparties and defined creditlimits that are regularly reviewed. Credit risk considerations are assessedright from the outset of project appraisal.
