Part II Commercial Banking, 11 Netting, Collateral, and Credit Risk Mitigation

2018 ◽  
Author(s):  
Gleeson Simon
Keyword(s):  
Credit Risk ◽  
Risk Mitigation ◽  
Regulatory System ◽  
Commercial Banking ◽  
Third Parties ◽  
Loan Covenants ◽  
The Way

Credit risk mitigation is the umbrella term that covers the various different ways in which an exposure can be reduced for regulatory reporting purposes. This chapter discusses the three ways of doing this: netting against an existing exposure owed by the bank to the borrower; taking (certain types of) collateral; and obtaining cover from third parties in the form of guarantees or similar contracts. Banks use a several techniques to improve their position as lenders which are simply disregarded by the regulatory system, of which the most important are probably loan covenants. No matter how restrictive the undertakings which a borrower gives a bank as to the way in which it manages its business, or the way in which it will repay its loan, this protection will not be recognized for regulatory purposes.

Part II Commercial Banking, 8 The Standardized Approach

2018 ◽  
Author(s):  
Gleeson Simon
Keyword(s):  
High Risk ◽  
Credit Risk ◽  
Financial Institutions ◽  
Risk Mitigation ◽  
Balance Sheet ◽  
Commercial Banking ◽  
Short Term ◽  
Multilateral Development Banks ◽  
Rating Agencies

This chapter focuses on the standardized approach, which is the bedrock of the Basel system. Although many of the largest banks are internal ratings-based banks, there is probably no bank currently existing which does not use some elements of the standardized approach as part of its overall capital calculation. The discussions cover classification of exposures, credit conversion factors, and credit risk mitigation; ratings and rating agencies; exposures to sovereigns; multilateral development banks; exposures to banks and financial institutions; exposures to corporates; exposures to retail customers; commercial mortgage exposures; overdue undefaulted exposures; high-risk exposures; covered bonds; securitization exposures; short-term claims on financial institutions and corporates; fund exposures: and off-balance sheet items.

CREDIT RISK AND COMMERCIAL BANKS’ PERFORMANCE IN NIGERIA: A PANEL MODEL APPROACH

2012 ◽  
Vol 02 (02) ◽  
pp. 31-38 ◽  
Author(s):  
KOLAPO T. Funso ◽  
AYENI R. Kolade ◽  
OKE M. Ojo
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Commercial Banking ◽  
Loan Loss ◽  
Return On Assets ◽  
Cross Sectional ◽  
Loan Loss Provision ◽  
Panel Model ◽  
Percent Increase ◽  
Credit Analysis

The study carried out an empirical investigation into the quantitative effect of credit risk on the performance of commercial banks in Nigeria over the period of 11 years (2000-2010). Five commercial banking firms were selected on a cross sectional basis for eleven years. The traditional profit theory was employed to formulate profit, measured by Return on Asset (ROA), as a function of the ratio of Non-performing loan to loan & Advances (NPL/LA), ratio of Total loan & Advances to Total deposit (LA/TD) and the ratio of loan loss provision to classified loans (LLP/CL) as measures of credit risk. Panel model analysis was used to estimate the determinants of the profit function. The results showed that the effect of credit risk on bank performance measured by the Return on Assets of banks is cross-sectional invariant. That is the effect is similar across banks in Nigeria, though the degree to which individual banks are affected is not captured by the method of analysis employed in the study. A 100 percent increase in non-performing loan reduces profitability (ROA) by about 6.2 percent, a 100 percent increase in loan loss provision also reduces profitability by about 0.65percent while a 100 percent increase in total loan and advances increase profitability by about 9.6 percent. Based on our findings, it is recommended that banks in Nigeria should enhance their capacity in credit analysis and loan administration while the regulatory authority should pay more attention to banks’ compliance to relevant provisions of the Bank and other Financial Institutions Act (1999) and prudential guidelines.

scholarly journals The impact of risk factors on the financial performance of the commercial banking sector in Barbados

2018 ◽  
Vol 7 (1) ◽  
pp. 76-93 ◽  
Author(s):  
Anthony Wood ◽  
Shanise McConney
Keyword(s):  
Risk Factors ◽  
Credit Risk ◽  
Financial Performance ◽  
Banking Sector ◽  
Negative Impact ◽  
Interest Rate Risk ◽  
Commercial Banking ◽  
Country Risk ◽  
Risk Variable ◽  
The Impact

The objective of this paper is to determine the impact of risk factors on the financial performance of the commercial banking sector in Barbados using quarterly data for the period 2000 to 2015. The empirical results indicate that Capital Risk, Credit Risk, Liquidity Risk, Interest Rate Risk and Operational Risk have statistically significant impacts on financial performance. The only risk variable which does not derive this result is Country Risk. In addition, of those variables which proxy external factors, only GDP Growth has a statistically insignificant influence on financial performance. Credit risk exerted a negative impact on the banks’ financial performance, thus the banks must ensure they adopt appropriate measures to minimise the impact of this risk. Higher levels of capital impacted positively on the banking sector’s profitability. This paper is the first effort employing such an extensive dataset based on Barbados’ commercial banking sector and shows the main factors that influence commercial banks’ financial performance in this developing economy.

CROWDTHERMAL – A vision for citizens’ empowerment in geothermal projects

2021 ◽  
Author(s):  
Gauthier Quinonez ◽  
Isabel Fernandez ◽  
Jan Hildebrand ◽  
Georgie Friederichs ◽  
Christina Baisch ◽  
...  
Keyword(s):  
Social Media ◽  
Renewable Energy ◽  
Public Engagement ◽  
Geothermal Energy ◽  
Risk Mitigation ◽  
Third Parties ◽  
Mitigation Measures ◽  
European Federation ◽  
Energy Projects ◽  
Alternative Finance

<p>CROWDTHERMAL is an EU Horizon 2020 project, developing alternative funding schemes for geothermal energy. CROWDTHERMAL supports the European Green Deal aiming at reaching carbon neutrality by 2050. To reach this goal the involvement of society is needed. In 2017, renewable energy accounted for 17.5% of the European gross energy consumption, of which only 3% were geothermal energy – despite its upsides and positive impact regarding decarbonization and heating and cooling in Europe. Geothermal is green, available 24 hours a day. CROWTHERMAL contributes to decrease dependency on fossil fuels in Europe by empowering local communities to directly participate in the development of geothermal projects via alternative financing schemes and engaging communication strategies.</p><p> </p><p>To support the participation in geothermal projects, CROWDTHERMAL is analysing the perception of geothermal energy and will develop a public engagement approach making extensive use of social media. Since our project started in September 2019, the CROWDTHERMAL team has developed a set of reports, addressing social, environmental and financial aspects of community financed geothermal projects.</p><p> </p><p>With regards to finance, CROWDTHERMAL formulates new financing models for community funding at national and international levels covering Member States and the EU alike. Community funding will enable citizens to collectively finance geothermal projects that will not only benefit them but also the society as a whole. The positive effect of citizens’ participation in energy projects was showcased by a report on renewable energy projects in Europe using alternative financing methods at different stages of their development published in 2020. Furthermore, an alternative finance risk inventory and potential mitigation tools have been developed. The deliverables compile the advantages, potential risks and possible risk mitigation measures for different alternative finance methods, each from a project developer’s and from a community investor’s perspective. The financial models are currently being developed and will be validated with the help of three geothermal Case Studies in Iceland, Hungary and Spain and through an European survey conducted by European Federation of Geologists’ (EFG) Third Parties.</p><p> </p><p>For the remaining 1.5 years of its funded period, CROWDTHERMAL will create Core Services and a social media powered platform that will support the deployment of integrated development schemes for geothermal energy utilising alternative finance and community engagement tools. It is targeted at project developers and citizens with an interest in energy empowerment. The aim is to connect the new approaches brought forwardhighlighted by CROWDTHERMAL with conventional financing, public engagement and risk mitigation schemes. It is also planned to launch a European mobilisation campaign via social media and conferences and workshops and by mobilising EFG Third Parties and the Altfinator Network. The CROWDTHERMAL Core Services will be designed to be operated after the EC-funded period helping geothermal projects tapping into alternative finance during the years to come.</p><p> </p><p> </p><p>Finally, CROWDTHERMAL started to strengthen ties with the Cost Action Geothermal-DHC and lately organised two joint meetings to identify synergies and potential opportunities for cooperation. The goal is to further expand the CROWTHERMAL network to provide opportunities to test CROWDTHERMAL concepts in a growing European geothermal energy market.</p><p> </p><p> </p>

Credit Risk Management of Commercial Banks in Nepal

2019 ◽  
Vol 4 (1) ◽  
pp. 27-37
Author(s):  
Shreya Pradhan ◽  
Ajay K. Shah
Keyword(s):  
Risk Assessment ◽  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Management Practices ◽  
Risk Mitigation ◽  
Mitigation Measures ◽  
Credit Risk Management ◽  
Loan Repayment ◽  
Credit Risk Assessment

The study is primarily focused on credit risk assessment practices in commercial banks on the basis of their internal efficiency, assessment of assets and borrower. The model of the study is based on the analysis of relationship between credit risk management practices, credit risk mitigation measures and obstacles and loan repayment. Based on a descriptive research approach the study has used survey-based primary data and performed a correlation analysis on them. It discovered that credit risk management practices and credit risk mitigation measures have a positive relationship with loan repayment, while obstacles faced by borrowers have no significant relationship with loan repayment. The study findings can provide good insights to commercial bank managers in analysing their model of credit risk management system, policies and practices, and in establishing a profitable and sustainable model for credit risk assessment, by setting a risk tolerance level and managing credit risks vis-a-vis the prevailing market competition.

Part II Commercial Banking, 7 Credit Risk

2018 ◽  
Author(s):  
Gleeson Simon
Keyword(s):  
Credit Risk ◽  
Commercial Banking ◽  
Expected Loss ◽  
Financial Transactions

This chapter discusses the concept of credit risk. Of all the risks that banks are exposed to, credit risk is the most important and the most intuitively obvious. It is important to remember that credit means more than simply loans. At the heart of financial transactions are credit exposures. For an economist, the function of a bank is maturity transformation and intertemporal transfers of resources. But in a world where debts were always repaid, these functions would be as mechanical as the transmission of water or electricity. It is the unpredictability of credit that differentiates banking from other businesses. The remainder of the chapter covers risk weighting of assets, valuation of exposures, and provisioning and expected loss.

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