Credit Risk Management

Teacher(s)

Nguyen Anh;

Language

French

Learning outcomes

At the end of this learning unit, the student is able to :

To enable students to understand best practices, challenges and trends in credit portfolio and balance-sheet management in various types of financial institutions within the European regulatory environment

Content

Part 1 / Theories of Credit Portfolio Risk Management
o Introduction :
- Megatrends and perspectives on risk and resilience in 2023
- Basics of risk, capital and economic value creation
- From shareholders economic value to to stakeholders sustainable value creation
- A comprehensive risk appetite on financial and sustainability objectives (economic, human, social and natural capital)
- Resilience to extreme risks: Grey Rhinos and Black Swans in 2023
o Loan portfolio management
- Transaction vs portfolio risk – the loss distribution
- Cost of risk vs cost of uncertainty or capital – RAROC
- Managing concentrations: event vs systemic risks, tolerances in CaR, EaR, LaR
- Balance-sheet (TTC) vs market (PIT) risk and value benchmarks
- Optimization of portfolio value: steps, benchmarks
- Instruments for risk transfer (CDS, credit insurance, cash and synthetic securitizations)
o ESG portfolio strategies
- Difference between sustainability and resilience
- ESG strategies and risk appetites
- Components of ESG scores and taxonomies
- Event vs transition risk and opportunities: the example of climate risk
- Scenario-based management of sustainability and resilience
o Counterparty risk in treasury and trading (derivatives, treasury and investment products)
- Credit risk in lending vs counterparty risk in capital markets: contractual differences
- Exposure measurement and mitigants (close-out netting, CSA, break clauses, Central Clearing Counterparties)
- Active exposure management and mitigation, real time management systems
o CPM mandate and governance
- Typical mandates up to integrated balance sheet management
- Organization alternatives
- Internal transfer prices and Chinese walls


Part 2 / Case study - The financial crisis of 2007-2008, comparison with COVID-19
o Analysis of root causes and consequences of each stage of the crisis
o Critical analysis of prudential remedies and cures effectiveness
o Implications for economic growth and role of banks and institutional investors
o Similitudes and differences between the GFC and the COVID-19 Great Lockdown/Great Transformation
o Drivers of short, medium and long-term scenarios after 2022


Part 3 / Regulations applicable to credit portfolios in banking, insurance and asset management
o Global and EU architectures for prudential regulations (Financial Stability and Capital Markets)
o Comparison of prudential regulations
- Basel 3 / CRD 4 (Banks): the three pillars principles, conditions for solvency and liquidity adequacy, illustrations on loan portfolios
- Solvency II (Insurers): principles and differences with Basel 3 for banks
- Funds (Mifid II) and investment firms
o The European Green Deal, European Capital markets Union and Sustainable Finance regulatory framework (CSRD, Taxonomy, SFDR)
o Trends in climate and ESG risk prudential regulations in the EU
o Impact on business model of financial institutions

Teaching methods

Physical and on-line teaching, multiple practical examples

Evaluation methods

Written examination (3h) in French, Dutch or English, on the main concepts and practices presented during the courses; sessions in June and in September.

Bibliography

Pas de bibliographie recommandée

Faculty or entity

ESPB