Methods used by banks to mitigate credit risk

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Reference no: EM133259790

Question: How can you explain this? Please explain in Taglish. Please give an example po na related sa topic para po mas lalong maintindihan.

Credit risk is also known as default risk. It is the risk that the borrower from a bank will default on the loan and/or the interest payable, i.e. that it will not perform in terms of the conditions under which the loan was granted.

Credit Risk Management

Methods used by banks to mitigate credit risk include:

Avoidance - This can be achieved by only providing loans to, or buying the bonds of, government, the best credit.

Diversification - Banks typically do not lend a major proportion of their funds to individual borrowers, Rather, they restrict the amount loaned to a percentage of their capital.

Reference no: EM133259790

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