Credit Risk Management Credit Portfolio Management

Question 1

What is the primary goal of credit portfolio management?

Accepted Answer

Optimizing risk-return trade-offs across the entire loan portfolio

Answer

Maximizing loan origination volume

Answer

Minimizing the number of borrowers in default

Answer

Eliminating all credit concentration risk

Question 2

Credit concentration risk arises from what?

Accepted Answer

Overexposure to a single borrower, sector, or geography

Answer

High portfolio diversity across sectors

Answer

Excessive use of collateral

Answer

Low default correlations between obligors

Question 3

Which metric measures portfolio credit risk at a given confidence level over a specified horizon?

Accepted Answer

Credit VaR (Value at Risk)

Answer

Expected Loss (EL)

Answer

Net Interest Margin

Answer

Return on Equity

Question 4

In credit portfolio models, asset correlation refers to what?

Accepted Answer

The tendency of borrowers' assets to move together, affecting joint default probability

Answer

The similarity of loan maturities across borrowers

Answer

The relationship between credit spreads and interest rates

Answer

The proportion of secured loans in a portfolio

Question 5

What does 'economic capital' represent in credit portfolio management?

Accepted Answer

The capital a bank internally determines is needed to cover unexpected losses at a target solvency level

Answer

The minimum regulatory capital mandated by Basel

Answer

The total loan loss reserves held against expected losses

Answer

The market capitalization of the bank

Question 6

What is 'name concentration' in a credit portfolio?

Accepted Answer

Excessive exposure to a single borrower relative to total portfolio

Answer

A large number of small borrowers in the same industry

Answer

A portfolio with many loans in the same geographic area

Answer

Overweighting of investment-grade names