Credit Portfolio Management: A Practitioner’s Guide to the by Michael Hünseler

By Michael Hünseler

Credits Portfolio administration is a topical textual content on methods to the lively administration of credits dangers. The publication is a useful, brand new consultant for portfolio administration practitioners. Its content material contains of 3 major elements: The framework for coping with credits dangers, lively credits Portfolio administration in perform and Hedging innovations and toolkits.

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Additional resources for Credit Portfolio Management: A Practitioner’s Guide to the Active Management of Credit Risks

Sample text

The interests of bondholders, which are in favour of low risk given their limited participation in the upside but significant downside potential of their corporate bond investments, conflicts to a certain extent with the mantra of shareholders calling for a higher return on equity and dividend payments – but both of them actually prefer predictable, stable and solid growth. The focus of regulators on financial strength and capital adequacy makes them prime addressees of the risk appetite settings.

By contrast, a well diversified portfolio can help to withstand even adverse economic conditions since the impact of certain factors will be not equally severe across the portfolio. Concentration risks arise from different kinds of imperfect diversification. In general, credit concentration risks exist on single name, but also on industry, country and other levels. For instance, industry and country concentration risk denotes the risk resulting from the sensitivity of the credit quality of borrowers to economic conditions of a particular sector or country.

Doing so requires skills in a range of different dimensions in order to develop optimal solutions for defined objectives. Notwithstanding the increase in risk management sophistication which will ultimately add value for all stakeholders, a prime incentive for banks to adopt Basel II relates to the prospects of lower regulatory capital requirements. As banks are reluctant to increase their capital when their stocks are trading at or close to historical lows, balance sheet optimization is seen as a suitable alternative.

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