The principal sources of credit risk within the Group arise from loans and advances, contingent liabilities, commitments, debt securities and derivatives to customers, financial institutions and sovereigns..
Credit Risk
An example is when borrowers default on a principal or interest payment of a loan.
Defaults can occur on mortgages, credit cards, and fixed income securities.
Failure to meet obligational contracts can also occur in areas such as derivatives and guarantees provided..
However, credit risk may be estimated by some market participants on an individual transaction basis, whereas other market participants may evaluate credit risk on multiple contracts involving a single counterparty on a “net” basis if the contracts are covered under one master netting agreement.
Credit risk is measured by lenders using proprietary risk rating tools, which differ by firm or jurisdiction and are based on whether the debtor is a personal or a business borrower.
In personal lending, creditors will want to know the borrower’s financial situation – do they have other assets, other liabilities, what is their income (relative to a.
