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Credit Risk for Financial Firms

Credit risk is a form of financial risk. For most financial firms, loans - including mortgages, credit cards, personal loans and corporate loans - are the primary source of credit risk. 

Some credit risk takes the form of counterparty credit risk. This is the risk that arises from the possibility that the counterparty defaulting on amounts owed 

In our Credit Risk for Financial Firms course, you'll learn about default risk, credit risk, its key components and how to manage it.

Start your trial Course details
  • 40 Minutes
  • For all staff
  • Based on best-practice risk management frameworks and suitable for global audiences.

Learning objectives

  • Understand what credit risk is, including its sub-types
  • Quantify and calculate credit risk
  • Recognise who manages credit risk within a company
  • Learn how to manage credit risk by identifying, assessing, treating, monitoring and reporting it
  • Recognise the importance of continual improvement for credit risk management

    What can you expect your employees to learn?

Welcome

  • Learning objectives
  • How to complete this course

What is credit risk?

  • Types of credit risk
  • You decide: True or false?
  • What is default risk?
  • Calculate the default risk
  • The relationship between interest rates & credit risk
  • Credit derivatives
  • You decide: True or false?

Who manages credit risk in a company?

  • You decide: Who manages credit risk?


What kinds of rules do financial services regulators write about credit risk?

  • In the news: Credit risk

The Management of Risk (MoR) framework
Identifying credit risk

  • Scenario: The business loan

Assessing Credit Risk

Short-term solvency ratios

  • Scenario: Background checks using short-term solvency ratios

Capitalisation ratios

  • Scenario: Background checks using capitalisation ratios

Coverage ratios

  • Scenario: Background checks using coverage ratios

Assessing the ability to service debt

  • Scenario: Assessing the ability to service debt

Determining credit risk appetite

  • You decide: Engaging with credit risk appetite

Treating credit risk

  • Credit risk controls
  • You decide: Credit risk controls

Credit risk monitoring

  • Scenario: Credit risk monitoring

Credit risk reporting

  • Deeper dive: Credit risk reports
  • You decide: Credit risk reporting

Continual improvement of credit risk

  • Scenario 1: Rising inflation
  • Scenario 2: The bankruptcy

Your responsibility

Summary
Affirmation
Assessment


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Your questions, answered

Risk Management

How does conduct risk differ from compliance risk?

Conduct risk focuses on behaviour and outcomes, how actions affect customers and markets -  while compliance risk relates to failing to meet legal or regulatory requirements. Conduct risk is broader and more subjective, often tied to culture and ethics.

Who is responsible for managing conduct risk within a firm?

While senior leadership sets the tone, managing conduct risk is a shared responsibility across all levels, from front-line staff to compliance teams. Everyone plays a role in identifying and mitigating risky behaviour.

Can conduct risk exist in non-financial sectors?

Yes. Although the FCA regulates financial services, conduct risk principles apply across industries. Any business that interacts with customers or influences markets can face conduct-related challenges.

How can technology help reduce conduct risk?

Tools like automated monitoring systems, AI-driven analytics, and e-learning platforms can help detect risky patterns, reinforce ethical behaviour, and ensure consistent training across teams.

How often should proliferation financing risk assessments be updated?

Best practice suggests reviewing risk assessments annually or whenever there are significant changes in business operations, customer profiles, or geopolitical developments.

Why is risk scoring important for my business?

Identifying potential risks around your business is not enough. Tracking how your company manages them helps you implement policies to prevent them. The best way to get started is with a risk scoring matrix.

What is a risk scoring matrix?

A risk scoring matrix helps identify the level of risk for specific activities, such as personal data. By measuring the likelihood of something happening against how serious the consequences would be, it helps you see which areas to focus on. And what policies or procedures to put in place.

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