CM-1.1 CM-1.1 Overview
CM-1.1.1
Credit risk is the likelihood that a
counterparty of the bank will not meet its obligations in accordance with the agreed terms. The magnitude of the credit risk depends on the likelihood ofdefault by thecounterparty , and on the potential value of the bank's contracts with the customer at the time ofdefault . Credit risk largely arises in assets shown on the balance sheet, but it can also show up off the balance sheet in a variety of contingent obligations.October 07CM-1.1.2
Exposure to credit risk, notably in the form of traditional bank lending, has historically been the most frequent source of bank problems. The assessment of credit risk is a challenging task where bankers are often faced with making decisions based on outdated or partial information.October 07CM-1.1.3
The lack of continuous loan supervision and effective internal controls, or the failure to identify abuse and fraud are also sources of risk. The overall lending policy of the bank should be monitored by a Credit Committee composed of officers with adequate seniority and experience.
October 07
