Credit Risk Management - Literature Review
In 2002, Italian researchers Alexandere Kurth, Hadley Taylor and Armin Wagner presented “An Extended analytical approach to Credit risk Management”. Some of the key factors in credit risk modeling are very influential in the implementation of the models. ‘Reduced form models' for the measurement of credit risk provide closed-form solution for calculating portfolio loss distribution. The limitations of this model do exist but often misinterpreted. An analytical approach allows us to dismantle the mathematical components of the models for its modification and extension in numerous ways. The orthogonally of background factors is the main hindrance to real-world macroeconomics indexes or industrial sectors and geographical areas which is one of the most repellent features of this model. The amendments in the original model, includes consideration of correlation among default risk sectors and severity of risk segments. The application of this is based on real-life data such as mortality rate data as give by Italian Central Bank. In 2002 a comprehensive study was conducted by Edward I. Altman named as “Managing Credit Risk: A Challenge for the New Millennium” .The research emphasized the importance of credit-risk management in the present era. The high default rates and bankruptcies are now more important factors in credit risk management. The interest rate was very high in that scenario. In 1999 banks, regulators and financial market practitioners were considering the credit risk management inevitable because of various reasons: The sophisticated risk management techniques in a regulatory environment were needed to be emphasized. The refinements in credit-scoring techniques were required. The establishment of databases on defaults, recoveries and credit migrations were immensely desired. Credit risk mitigation techniques such as securitizations, credit derivatives and credit insurance products were to be developed. Portfolio management techniques for credit assets should be established. Evelyn Richard,Marcellina Chijoriga,Erasmus Kaijage from faculty of commerce and Management, University of Dar es SalamTanzania,Christer Peterson Lulea University of Technology Sweden and Hakan Bohman,Umea School of business Sweden proposed a study on” Credit risk management system of commercial bank in Tanzania” in the year 2004.The paper was developed to present a conceptual model for understanding credit risk management system of commercial banks in an economy with less developed financial sector. According to the paper the literature which exists on this topic is particularly focused on developed economies. So it aimed to develop a model which fitted Tanzania's environment. The primary and secondary information was gathered from commercial banks through various relevant documents and interview of the key management officials dealing with credit risk management. The commercial bank selected was operating nationally and internationally and was very active in lending for a long time. It focused on the key findings that the components of Credit Risk Management system in less developed economies slightly differs from developed economies. The environment in which the bank operates is to be considered as one of the key factors in successful Credit Risk Management system. Tanzania is the best example for of the economy having less developed financial sector for Credit Risk Management so the commercial banks operating in Tanzania were taken as a case study. Recently in 2009 a study from Turkey on “Credit Risk Market and the Recent Loan Profile in the Turkish Banking Sector” was anticipated by Erk Hacihasanoglu and Ozlem Ozdemir.The research on financial stability implications of credit risk transfer markets is very rare. The work, considering the interactions between the various credit risk transfer markets or instruments, is insufficient. There is a small number of existing studies on credit risk...
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