BTL 902 - Key Credit Risk Metrics

 

The Banking Tutor’s Lessons

BTL 902                                                                                24-05-2026

Key Credit Risk Metrics

The following 5 Credit Risk Metrics are the building blocks of Credit Risk and they work together.

Probability of Default (PD) – The likelihood that a borrower will fail to repay the loan within the specified period. It tells un that “default may happen”.

Loss Given Default (LGD) - How much the lender expects to lose after a borrower defaults, once recoveries/collateral are considered. It tells us “How much we lose”.

Exposure at Default (EAD) – The total amount the Bank is to when default happens. It tells us “How big the exposure is”.

Expected Credit Loss (ECL) – The forward-looking estimate of potential losses from credit risk.  It combines all the three (PD, LGD and EAD) into expected loss.

Portfolio at Risk (PAR) – The percentage of the loan portfolio with overdue payments beyond a defined threshold (e.g. PAR30, PAR90). It shows current portfolio stress.

Sekhar Pariti

+91 9440641014

DBC 2444 - Risk-Adjusted Performance Measurement (RAPM)

 

The Banking Tutor 

               Daily Banking Concept -  2444 

Risk-Adjusted Performance Measurement (RAPM) 

Risk-adjusted performance measurement (RAPM) is an analytical framework used to evaluate the return of an investment, portfolio, or business unit by explicitly accounting for the amount of risk taken to achieve those returns.

DBC 2443 - Domino Effect

 

The Banking Tutor

Daily Banking Concept -  2443

                           Domino Effect

 

The domino effect in finance is a chain reaction where the failure or distress of one financial institution, sector, or asset class causes a rapid, cascading collapse of others due to high interconnectedness, similar to falling dominoes. It transforms isolated shocks into systemic crises, often driven by panic selling, liquidity shortages, and loss of investor confidence.

DBC 2442 - Credit Linked Note (CLN)

 

The Banking Tutor

Daily Banking Concept -  2442

                     Credit Linked Note (CLN)

 

A Credit Linked Note (CLN) is a structured financial product that functions like a bond but has its repayment tied to the creditworthiness of a third party, known as the reference entity.

BTL 901 - Orange Economy

 

The Banking Tutor’s Lessons

BTL 901                                                                                21-05-2026

Orange Economy

The Orange Economy (or creative economy) is an economic sector where ideas, creativity, cultural heritage, and intellectual property act as the primary inputs and value drivers.

Coined by former Colombian President Iván Duque Márquez, it covers industries like arts, media, film, music, design, fashion, and the AVGC (Animation, Visual Effects, Gaming, and Comics) sector.

Key Characteristics

Intellectual Property (IP): Value is generated primarily through copyrights, patents, and original ideas rather than physical manufacturing.

Cultural Wealth: It turns traditional arts, crafts, and heritage into modern, globally scalable business opportunities.

Digital Integration: The rise of digital platforms has allowed creators to bypass traditional gatekeepers and reach international markets directly.

Globally, the Orange Economy is one of the fastest-growing sectors. Governments and private entities recognize its immense potential to create jobs, drive exports, and boost tourism.

The "Orange" Name

The color orange was chosen because it is historically and religiously associated with culture, creativity, and transformation.

Sekhar Pariti

+91 9440641014

DBC 2441 - Synthetic Securitization (Significant Risk Transfer - SRT)

 

The Banking Tutor 

               Daily Banking Concept -  2441

                      Synthetic Securitization 

(Significant Risk Transfer - SRT):

 

Synthetic Securitization is a  mechanism where a bank uses credit derivatives or financial guarantees to transfer the credit risk of a portfolio to investors, without selling the actual loans, allowing for the retention of client relationships while optimizing capital.

DBC 2440 - Bermudian swaption

 

The Banking Tutor 

              Daily Banking Concept -  2440

                        Bermudian swaption

 

Bermudian swaption is a  swaption that can be exercised on several predetermined dates in between the origination and exercise dates.