Advanced Credit Risk Analysis and Management ch4

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1、AdvancedCreditRiskAnalysisandManagement.CibyJoseph.©2013CibyJoseph.Published2013byJohnWiley&Sons,Ltd.4FundamentalFirm/Obligor-LevelRisksThenumberofrisksthatcanaffecttheperformanceofcompaniesisinfinite.Whiletakingacreditdecision,itisvitaltocoveratleas

2、tthemostimportantrisksthataffectthefortunesofanindividualbusinessfirm.Aswehaveseenearlier,creditrisksshouldbestudiedfromtwoangles–firmlevelorbusinessunitlevelandportfoliolevel.Obligorrisksarestudiedtounderstandtheprobabilityofcreditloss(viz.creditris

3、k)fromasinglecustomer.Portfolioriskanalysisattemptstoexaminecreditrisksonawiderscaleandstudiesthelikelihoodoflossemanatingfromtheexposuretoparticularclassesofcustomers.Firm-levelcreditriskisrelevantfromthepointofviewofportfolioriskaswell.Justasthecon

4、structionofaskyscraperrequirestheutmostcareinplacingeachbuildingblock,sotheconstructionofahealthycreditportfoliorequirescarefulselectionofobligorrisks.Portfoliocreditriskistheclusteroffirm-levelcreditrisks,althoughthestudyofthebehaviourofcreditrisksa

5、tportfoliolevelneedsadifferentapproach.Wewillcoverthecreditportfolioriskslater.Inthischapterwewillexaminethefirm-levelforcesimpactingcreditrisk.4.1FIRM(OR)OBLIGORRISKCLASSIFICATIONFirmcreditriskanalysisinvolvestwoparts–thestudyof(a)businessrisksorope

6、ratingrisksand(b)financialrisks.Thebifurcationofoverallcreditriskintotwoisimportantbecauseabusinessfirmcanfailordefaultoncreditduetopurelyfinancialreasonsevenwhennormalbusinessrisksremainatacceptablelevelsandviceversa.Increditparlanceallsucheventsimp

7、actingthecreditworthinessoftheobligor/borrower/counterpartyareknownas‘creditevents’.4.1.1BusinessRisksorOperatingRisks(OR)Crediteventsofanon-financialnatureareknownasoperatingrisks.Businessoroperatingriskoriginatesfromthedynamicoperatingenvironmentof

8、thebusiness.Itisusuallydefinedasthehazardthataneventorsituationwilladverselyimpactacompany’sabilitytoachieveitsbusinessobjectivesandexecuteitsstrategieseffectively.ORincludesallrisksthatarisebothinsideandoutsidethecompany.Failureofanorganizationtoopt