Credit Risk is the potential for loss arising from a borrower's failure to repay a loan or meet contractual obligations. This risk is a critical concern for lenders and investors, as it can result in financial losses and affect cash flow. Credit risk can arise from various sources, including individual borrowers, corporate entities, or sovereign nations. Key factors influencing credit risk include the borrower’s creditworthiness, economic conditions, and the nature of the loan agreement. Financial institutions manage credit risk through credit assessments, risk-based pricing, and diversifying their loan portfolios to mitigate potential defaults.

Basel scope:

• Pillar 1
• Pillar 2

Capital requirements:

Mitigated by Capital

Related Links:

•       Basel Framework
•                 BCBS 347 - Revisions to the Standardised Approach for credit risk
•                 The Basel framework
•                 BCBS 424 - Basel III: Finalising post-crisis reforms

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Taxonomy subtypes:

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Principal Risk
Consumer Credit
Coporate Credit
Wholesale
Credit Card Risk

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Concentration Risk
Counterparty Risk
Collateral Risk
Securitisations
CCP