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So...here we are.
l am very glad Lo see you here.
1oday, we can offlclally sLarL our "An lnLroducLlon Lo CredlL 8lsk ManagemenL" Mooc.
l really hope LhaL Lhls course wlll be an lnLeresLlng course for you.
8uL, mosL of all, l hope lL wlll be fun, because we wlll approach credlL rlsk ln very
unconvenLlonal ways.
8ecause - you know - Lhere ls no need of belng borlng.
AL leasL... noL always.
1oday we wlll sLarL our course wlLh Lhe mosL lmporLanL deflnlLlon of Lhe enLlre course, wlLh
Lhe ob[ecL of Lhe course, LhaL ls Lo say: whaL ls credlL rlsk?
And l wlll Lell you a secreL.
Many "experLs" ouL Lhere do noL really know Lhe rlghL deflnlLlon of credlL rlsk.
?ou wlll.
So, leL's sLarL!
CredlL rlsk ls one of Lhe fundamenLal rlsks for banks and companles, LogeLher wlLh markeL
rlsk and operaLlonal rlsk.
lmaglne we hold a porLfollo of loans or securlLles. A good deflnlLlon of credlL rlsk ls Lhe
followlng: "CredlL rlsk ls Lhe rlsk LhaL Lhe value of our porLfollo varles, because of Lhe
unexpecLed changes ln Lhe credlL quallLy of Lradlng parLners or lssuers. 1hls subsumes boLh
losses due Lo defaulLs, and losses caused by varlaLlons ln Lhe credlL quallLy of a counLerparLy,
ln an exLernal or lnLernal raLlng sysLem."
1herefore credlL rlsk can be dlvlded lnLo Lwo sub-rlsks. 8oLh of Lhem may lead Lo losses, and
we wlll see LogeLher how Lo deal wlLh LhaL.
lrom one slde, we have defaulL rlsk, from Lhe oLher, Lhe so-called credlL deLerloraLlon.
MosL people forgeL Lhls second source of rlsk, and Lhey Lyplcally reduce credlL rlsk Lo defaulL
rlsk. 1hls ls noL correcL.
CredlL rlsk lncludes boLh: defaulL rlsk and Lhe rlsk of credlL deLerloraLlon.
uefaulL rlsk ls easy Lo undersLand.
uefaulL rlsk ls Lhe rlsk of loslng money because of Lhe defaulL of our counLerparLy. As a
consequence, our credlL ls LoLally or parLlally losL.
lf you are a bank, Lhls may be glven by a corporaLe cllenL noL able Lo repay a loan, or a reLall
cusLomer noL repaylng a morLgage.
8uL lL can also be a bond defaulL, LhaL ls Lo say Lhe case ln whlch Lhe bond lssuer has run ouL
of cash Lo pay lLs bondholders.
ln all Lhese cases we may lose a loL of money. We wlll see how Lo esLlmaLe Lhe probablllLy of
defaulL of a counLerparLy.
CredlL deLerloraLlon ls a llLLle blL more subLle.
lL ls llnked Lo changes ln Lhe credlL quallLy of a counLerparLy. Pow ls Lhls quallLy compuLed?
We wlll see LhaL we can use dlfferenL meLhods, buL Lhe mosL used one are credlL raLlngs. We
wlll dlscover LhaL Lhese raLlngs can be exLernal or lnLernal, LhaL ls Lo say: we can rely on Lhe
raLlngs compuLed by Lhlrd parLles, namely raLlng agencles, or we can compuLe our own
raLlngs. !usL be paLlenL, and you wlll be an experL ln Lhls.
lor now, we can say LhaL a change ln Lhe credlL quallLy of a counLerparLy may have a dlrecL
and an lndlrecL lnfluence on credlL rlsk.
lf a AAA bond ls downgraded Lo 888, Lhls lmplles LhaL Lhe bond ls becomlng much rlskler,
and lL also have effecLs on a serles of quanLlLles and measures we may have Lo compuLe as
rlsk managers.
ln Lhls course we wlll deal wlLh boLh aspecLs of credlL rlsk. 8uL, ln order Lo do LhaL ln Lhe
rlghL way, we have Lo conLexLuallze credlL rlsk wlLhln Lhe framework of Lhe so-called 8asel
accords.
8asel accords are Lhe Loplcs of Lhls and nexL week.
See you nexL Llme.
8ye.