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Advanced credit risk analysis and management

Author: Ciby Joseph
Publisher: Chichester, West Sussex : Wiley, [2013]
Series: Wiley finance series.
Edition/Format:   Print book : EnglishView all editions and formats


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Additional Physical Format: Online version:
Joseph, Ciby, 1969-
Advanced credit risk analysis and management
Chichester, West Sussex : John Wiley & Sons Inc., [2013]
(DLC) 2013013400
Document Type: Book
All Authors / Contributors: Ciby Joseph
ISBN: 9781118604915 1118604911
OCLC Number: 835112673
Description: xix, 427 pages ; 25 cm
Contents: Preface xvii <p>PART I INTRODUCTION <p>1 Credit Basics 3 <p>1.1 Meaning of Credit 4 <p>1.2 Role of Credit 6 <p>1.3 Credit Market 6 <p>1.4 Credit Advantages and Disadvantages 7 <p>1.5 Suppliers of Credit 11 <p>1.6 Credit Risk Study 12 <p>Appendix: Credit Creation 13 <p>Questions/Exercises 14 <p>2 Essentials of Credit Risk Analysis 15 <p>2.1 Meaning of Credit Risk 15 <p>2.2 Causes of Credit Risk 16 <p>2.3 Credit Risk and Return 17 <p>2.4 Credit Risk Analysis 17 <p>2.5 Historical Progress of Credit Risk Analysis 19 <p>2.6 Need for Credit Risk Analysis 19 <p>2.7 Challenges of Credit Risk Analysis 22 <p>2.8 Elements of Credit Risk Analysis 24 <p>Questions/Exercises 25 <p>3 Credit Risk Management 27 <p>3.1 Strategic Position of Credit Risk Management 27 <p>3.2 Credit Risk Management Context 28 <p>3.3 Credit Risk Management Objectives 28 <p>3.4 Credit Risk Management Structure 29 <p>3.5 Credit Risk Culture 29 <p>3.6 Credit Risk Appetite 30 <p>3.7 Credit Risk Management in Non-Financial Firms 31 <p>3.8 Credit Risk Management in Financial Intermediaries 31 <p>Questions/Exercises 34 <p>PART II FIRM (OR) OBLIGOR CREDIT RISK <p>4 Fundamental Firm/Obligor-Level Risks 37 <p>4.1 Firm (or) Obligor Risk Classification 37 <p>4.2 Risk Matrix 39 <p>4.3 Different Risk Levels 39 <p>Questions/Exercises 42 <p>5 External Risks 43 <p>5.1 Business Cycle 43 <p>5.2 Economic Conditions 46 <p>5.3 Inflation and Deflation 50 <p>5.4 Balance of Payments and Exchange Rates 51 <p>5.5 Political 52 <p>5.6 Fiscal Policy 53 <p>5.7 Monetary Policy 53 <p>5.8 Demographic Factors 54 <p>5.9 Regulatory Framework 55 <p>5.10 Technology 55 <p>5.11 Environment Issues 55 <p>5.12 International Developments 56 <p>5.13 Others 56 <p>5.14 Monitoring External Risks 57 <p>Questions/Exercises 58 <p>6 Industry Risks 61 <p>6.1 Understanding Obligor s Industry or Market 61 <p>6.2 Types of Industry Risks 63 <p>6.3 Industry Life Cycle 64 <p>6.4 Permanence of Industry 65 <p>6.5 Government Support 65 <p>6.6 Industry and Factors of Production 66 <p>6.7 Industry and Business Cycles 66 <p>6.8 Industry Profitability 67 <p>6.9 Competitor/Peer Group Analysis 71 <p>Questions/Exercises 77 <p>7 Entity-Level Risks 79 <p>7.1 Understanding the Activity 80 <p>7.2 Risk Context and Management 81 <p>7.3 Internal Risk Identification Steps 82 <p>7.4 SWOT Analysis 83 <p>7.5 Business Strategy Analysis 84 <p>7.6 Pitfalls in Strategy 89 <p>7.7 Management Analysis 90 <p>7.8 Other Internal Risks 94 <p>Questions/Exercises 97 <p>8 Financial Risks 99 <p>8.1 Importance of Financial Statements 99 <p>8.2 Quality and Quantity of Financial Statements 101 <p>8.3 Role of Historical Financial Statements 102 <p>8.4 Financial Analysis 103 <p>8.5 Analytical Tools 105 <p>8.6 Solvency Ratios 115 <p>8.7 Operational Ratios 123 <p>8.8 Encapsulated Ratios 134 <p>Questions/Exercises 143 <p>9 Integrated View of Firm-Level Risks 147 <p>9.1 Relevance of an Integrated View 147 <p>9.2 Judgement 147 <p>9.3 Identifying Significant Credit Risks 148 <p>9.4 Risk Mitigants 150 <p>9.5 Types of Mitigants 150 <p>9.6 Principles to be Borne in Mind While Selecting Mitigants 153 <p>9.7 Monitoring of Credit Risk 154 <p>Appendix: Credit Risks and Possible Mitigants 155 <p>Questions/Exercises 158 <p>10 Credit Rating and Probability of Default 161 <p>10.1 Credit Risk Grading 161 <p>10.2 Probability of Default 163 <p>10.3 External vs. Internal Rating 166 <p>10.4 PD in Credit Structural Models 169 <p>Questions/Exercises 172 <p>PART III CREDIT RISKS PROJECT AND WORKING CAPITAL <p>11 Credit Risks in Project Finance 177 <p>11.1 Distinctive Features of Project Finance 177 <p>11.2 Types of Project Finance 178 <p>11.3 Reasons for Project Finance 179 <p>11.4 Parties Involved in Project Finance 180 <p>11.5 Phases of Project and Risks 182 <p>11.6 Project Credit Risks 183 <p>11.7 Financial Study 187 <p>11.8 Project Credit Risk Mitigants 192 <p>Questions/Exercises 202 <p>12 Credit Risks inWorking Capital 207 <p>12.1 Definition of Working Capital 207 <p>12.2 Assessing Working Capital through the Balance Sheet 208 <p>12.3 Working Capital Ratios 210 <p>12.4 Working Capital Cycle 212 <p>12.5 Working Capital vs. Fixed Capital 216 <p>12.6 Working Capital Behaviour 216 <p>12.7 Working Capital, Profitability and Cash Flows 223 <p>12.8 Working Capital Risks 225 <p>12.9 Impact of Working Capital Risks 229 <p>12.10 Working Capital Risk Mitigants 230 <p>12.11 Working Capital Financing 232 <p>Questions/Exercises 236 <p>PART IV CREDIT PORTFOLIO RISKS <p>13 Credit Portfolio Fundamentals 241 <p>13.1 Credit Portfolio vs. Equity Portfolio 241 <p>13.2 Criticality of Portfolio Credit Risks 242 <p>13.3 Benefits of Credit Portfolio Study 242 <p>13.4 Portfolio Analysis 247 <p>13.5 Credit Portfolio Risk vs. Return 249 <p>Appendix: Organizational Conflict in Credit Risk Management 249 <p>Questions/Exercises 251 <p>14 Major Portfolio Risks 253 <p>14.1 Systematic Risk 253 <p>14.2 Diversifiable Risk 255 <p>14.3 Concentration 258 <p>14.4 Credit Portfolio Beta 263 <p>Questions/Exercises 263 <p>15 Firm Risks to Portfolio Risks and Capital Adequacy 265 <p>15.1 Obligor PD and Portfolio PD 265 <p>15.2 Migration Risk 266 <p>15.3 Default Risk 269 <p>15.4 Loss Given Default (LGD) 270 <p>15.5 Expected Loss (EL) 271 <p>15.6 Provisioning 272 <p>15.7 Credit Loss Distribution 274 <p>15.8 Economic Capital 276 <p>Questions/Exercises 282 <p>16 Credit Risk and The Basel Accords 285 <p>16.1 Basel Accords 285 <p>16.2 Basel I (1988) First Basel Accord 286 <p>16.3 Basel Accord II (2006) 288 <p>16.4 Basel III 296 <p>Appendix 300 <p>Questions/Exercises 302 <p>PART V PORTFOLIO RISK MITIGANTS <p>17 Credit Risk Diversification 305 <p>17.1 Traditional Diversification 305 <p>17.2 Modern Diversification of Credit Portfolio 309 <p>17.3 Correlations in Credit Risk Models 315 <p>Questions/Exercises 315 <p>18 Trading of Credit Assets 317 <p>18.1 Syndicated Loans/Credit Assets 317 <p>18.2 Securitization 318 <p>18.3 Distressed Debt 321 <p>18.4 Factoring 322 <p>18.5 Distressed Receivables 322 <p>Questions/Exercises 322 <p>19 Credit Derivatives 323 <p>19.1 Meaning of a Credit Derivative 323 <p>19.2 Credit Default Swap (CDS) 324 <p>19.3 Total Return Swap 330 <p>19.4 Credit Option (CO) 332 <p>19.5 Credit Spread Options (CSO) 333 <p>19.6 Credit Derivative Linked Structures 333 <p>19.7 Future of Credit Derivatives 334 <p>19.8 Credit Derivatives and Over-the-Counter (OTC) Markets 334 <p>Questions/Exercises 334 <p>PART VI CREDIT RISK PRICING <p>20 Pricing Basics 337 <p>20.1 Credit Pricing Factors 337 <p>20.2 Pricing Structure 342 <p>20.3 Credit Risk Pricing Model 344 <p>20.4 Prime Lending Rate 345 <p>Questions/Exercises 348 <p>21 Pricing Methods 349 <p>21.1 RORAC (Return on Risk-Adjusted Capital) Based Pricing 349 <p>21.2 Market Determined 351 <p>21.3 Economic Profit Based Pricing 351 <p>21.4 Cost Plus 353 <p>21.5 Structured Pricing 353 <p>21.6 Grid Pricing 354 <p>21.7 Net Present Value (NPV) Pricing 354 <p>21.8 RANPV (Risk-Adjusted NPV) Pricing 355 <p>Questions/Exercises 355 <p>PART VII THE LAST LINE OF DEFENCE SECURITY <p>22 Security Basics 359 <p>22.1 Need for Security 359 <p>22.2 Merits and Demerits of a Security 360 <p>22.3 Attributes of a Good Security 362 <p>22.4 Security and Pricing 362 <p>22.5 Impact of Systematic Risks on Security 364 <p>22.6 Facility Grades 364 <p>Questions/Exercises 366 <p>23 Collaterals and Covenants 367 <p>23.1 Tangible Security 367 <p>23.2 Intangible Security 369 <p>23.3 Methods of Taking Security 371 <p>23.4 Realizing Security 372 <p>23.5 Covenants A Trigger to Seek Additional Security 373 <p>Questions/Exercises 377 <p>PART VIII CREDIT CRISIS <p>24 Road to Credit Crisis 381 <p>24.1 Credit and Growth 381 <p>24.2 Role of Banks 382 <p>24.3 Formation of Credit Bubbles 385 <p>24.4 Types of Credit Bubble 386 <p>24.5 Credit Bubble Explosion 387 <p>Questions/Exercises 390 <p>25 2008 Credit Crisis 393 <p>25.1 Credit Asset Prime vs. Sub-Prime 393 <p>25.2 Securitization 394 <p>25.3 US Housing Bubble 396 <p>25.4 Role of OTC Derivatives 398 <p>25.5 Role of Rating Agencies 400 <p>25.6 Why Did the Bubble Burst? 401 <p>25.7 Consequences 402 <p>25.8 Impact of the Lehman Collapse 403 <p>25.9 Housing Crisis to Credit Crisis to Economic Crisis 404 <p>25.10 Common Factors 1929 vs. 2009 406 <p>25.11 Lessons of the 2008 Credit Crisis 407 <p>Questions/Exercises 410 <p>Bibliography 411 <p>Index 415
Series Title: Wiley finance series.
Responsibility: Ciby Joseph.
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