Credit Risk Management

Duration: 2 Days

Location: TBC

Full Fee: €900

Network Members Fee: €650

Programme overview

This two-day Credit Risk Management training course takes into consideration the impact of the global credit crisis, this state-of-the-art credit risk course is essential for every risk management professional.

Starting with an analysis of the credit risk of a single counterparty and transaction-based models, during the second part of the course, credit rating systems are explained, followed by the models used in the context of portfolios of counterparties and portfolio optimisation and performance.

The course also provides an in-depth insight into the credit risk mitigation tools and the implementation of Basel II.  A practical guide to the latest developments within credit risk, this course will provide you with structured presentations, practitioners’ expertise and market examples.

Learning Outcomes

  • The techniques to effectively manage credit risk in portfolios, loans and instruments
  • The most commonly used models for assessing the credit risk exposure of a single counterparty or of a multiple portfolio
  • An in-depth analysis of portfolio performance and portfolio optimisation
  • Securitisation techniques, CDO products and credit derivative instruments and how they are used to mitigate credit exposure and minimise regulatory capital
  • The new regulatory requirements for credit risk and the techniques to successfully implement Basel II
  • Real-life case studies and hands-on exercises for practical credit risk assessment

Who Should Attend

This course will be of benefit to dealers, investors, risk managers, auditors and support staff with a good basic knowledge of the financial markets who need to develop their understanding of the risk management aspects.

Course Content

Introduction to Fundamental Credit Risk and Analysis

  • What is credit risk and how does it arise?
  • The credit crunch and its origins – how has this affected our approach to credit risk?
  • Definitions of default, failure to pay and other events
  • Simple models of corporate structure and default processes
  • Credit risk as default probability, recovery rates and exposure
  • Relationship to balance sheet and cash flow statements
  • Relationships to debt and equity prices
  • Ratings agents approach to credit risk – has it failed?
  • Lessons to be learned from the credit crunch and sub-prime debacle
  • How did Lehman’s collapse?

Portfolio Credit Risk

  • Probability of default, loss given default and correlation of default
  • Credit risk of portfolios compared with single positions
  • Loss distributions and relationship to expected loss, worst credit loss, economic and regulatory capital
  • Introduction to portfolio credit risk models
    – CreditRisk+
    – CreditMetrics
    – McKinsey
  • Optimising portfolios for best risk/return

Modelling Credit Exposure of OTC Derivative Products

  • Loans and derivatives
  • Transaction-based models
  • Foreign exchange transactions
  • Interest rate swap transactions
  • CEF calculations
  • Effect of CMTM
  • Market factor-based models
  • Counterparty exposure simulation models
  • Handling credit exposure limits
  • Integration of netting
  • Integration of margin/collateral
  • Integration of liquidity risk
  • Stress testing
    – Incremental transactions
    – Market discontinuities
  • What lessons have we learned from the credit crunch with regard to stress testing?

Evaluating the Credit Risk of Derivatives

  • Expected and unexpected credit loss
  • Default only versus economic loss
  • Credit loss profile
  • Simulation approach to economic capital
  • Risk rating model
  • Rating migration matrix
  • Loss given default

Managing Credit Risk: Securitisation and Risk Transformation

  • Concepts of regulatory capital for credit risk and return on assets
  • Techniques for moving risk off balance sheet
    – Securitisation and synthetic securitisation
    – CDOs and other tranche products
  • Pros and cons of securitisation for origination firms and investors
  • The role of rating agents
  • The roots and effects of sub-prime meltdown
  • How has the model broken down in the credit crunch?
  • What is going to replace it?

Managing Credit Risk: Credit Derivatives and Risk Transfer

  • What are credit derivatives and why are they used?
  • Single name credit derivatives (unfunded and funded structures)
    – Credit Default Swap (CDS)
    – Total return swap
    – First-to-default basket note
  • Pricing and risk of single obligor credit derivatives
  • Basket and Tranche CDS
  • Regulatory capital impacts of credit derivatives
  • Documentation and legal issues

Regulatory Capital – Requirements for Credit Risk

  • Regulatory capital under Basel I
  • Regulatory capital under Basel II
  • Proposals under Basel III
  • Standardised approach
  • Foundation internal ratings based approach
  • Advanced internal ratings based approach
  • Basel II risk weight functions
  • Basel trading book issues
    – Counterparty credit exposure
    – Double default effects
    – Short-term maturity adjustment
    – Unsettled trades
  • Wrong way risk
  • CVA, FVA and DVA
  • What changes can we expect in the future as a result of the credit crunch?

Trainer Profile

Neueda’s instructor has over thirty-five years experience in Banking and the Financial Markets, involved in areas from the sterling money market through to derivatives trading, structured derivatives, Eurobond new issuance, structured products, financial engineering and risk management.

As a money broker he led a corporate money market sales team, and then joined the futures markets, working at the IMM in Chicago and on the trading floor of LIFFE.

Subsequently moving to Bankers Trust in London initially he served as an interest rate swap trader and progressed to head up the financial derivatives sales and financial institutions origination teams as part of the bank’s Eurobond and MTN capital markets activities.

On joining HSBC he assumed the role of Head of European Derivatives Sales at HSBC plc, London Branch and when HSBC took over Midland Bank he headed up the newly formed Midland Global Markets derivative sales group (All Midland subsidiaries eventually reverting  to HSBC)

He has developed a further career in training and consultancy specifically focussing on, “The markets” and “Risk and Regulations” and is an accredited trainer, covering a wide variety of subject including capital markets, risk management, treasury management and trading activities including derivatives and hedge funds.

Recent examples of training assignments, for governments, major banks and bank institutes include:

  • Developing, for a major UK bank, courses on treasury and the practical issues surrounding liquidity and capital concerns.
  • Working in Russia, Armenia, Tajikistan and Azerbaijan on issues of risk and regulation and the implementation of Basel II and Basel III regulations
  • Working with a hedge fund in Switzerland to develop their market trading operation
  • Working with the Egyptian Banking Institute on regulation, Basel II, Market, Credit and Operational risk issues.
  • Running courses for the Central Bank of Nigeria, Bank Examiners, on Basel II & Risk Management,
  • He has also been involved with courses in Baku, sponsored by the Central Bank of Azerbaijan, on Basel II Risk and Regulation.
  • For a bank in Abu Dhabi he recently ran an advanced credit risk analysis course for their credit risk department.
  • For banks in Amsterdam and Belgium developed and ran Assets and Liability Management workshops.
  • A regular guest lecturer on Risk and Regulation at the Asian Development Bank in the Philippines lecturing on risk management, Basel II, bank capital, market risk and credit risk.
  • He is also a regular “Treasury Risk Management” lecturer running a number of courses in London BBA, Dubai, Singapore and Hong Kong for both corporate and banking delegates.