Essence, Causes and Classification of the Bank’s Credit Risk

Abstract

The interpretation of the concept of «credit risk» in the regulations and in the scientific works of economists is researched, the authors’ own definition of this category is provided. Credit risk is defined as the objectively existing possibility of financial losses because of the client’s failure to fulfill his obligations to the bank (risk of credit losses). The factors of external and internal environment of bank, which influence credit risks, are analyzed. Approaches to the classification of credit risk by individual scholars are explored. The types of credit risk are provided, depending on the source of its origin, in particular: external risks arising at the macro-level (economic, political, regulatory, unpredictable) and meso-level (financial, risk of liability, security risks) as well as the internal risks that arise at the micro-level (management risks). It is proposed to allocate certain subtypes of credit risk, such as concentration risk and remaining (residual) risk.

Keywords

• bank
• banking system
• credit risk
• bank credit
• problem credit