Credit Portfolio Risk Management

Euromoney Learning Solutions

How long?

  • 4 days
  • in person

Euromoney Learning Solutions


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About the course

Educate yourself in credit portfolio modelling & management

This course is designed to help participants understand the significant components and features of credit portfolio modelling and management (CPM). The aim is to elucidate how a broad range of risk modelling and risk assessment approaches can be brought together to enable risk-based pricing and assessment—ultimately enabling portfolio managers to choose investments based upon fundamentals as well as market dynamics. During the course, the instructor—a former senior executive, board member and CRO of a large, emerging markets, publicly-listed banking group—will also endeavor to offer his experience in developing CPM techniques to fit the emerging markets landscape. This would include discussions of how the CPM framework can be developed in lieu of a complete systems architecture, when credit reference and credit rating bureaus are not available and when data and past history on customers is sparse. Primary focus is also given to best-practice and to quantitative methods that are actually demonstrated to work in practice across many of the 40 countries and 4 continents in which instructor has direct experience. In addition, participants will learn:

  • The elements necessary for internally developing and testing a ratings and scoring system that can be used with various exposure types—including privately listed, small to medium-sized enterprises (SMEs)
  • How to integrate a quantitative, credit scoring platform with a qualitative ratings system in Basel II/III-compliance fashion
  • How to develop the necessary CPM databases for estimating and validating scoring models and risk components, such as Probability of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD)
  • Portfolio-level measures of risk, including measures of concentration using Copulae, tail dependence and other advanced measures
  • How to use Monte Carlo simulation and basic programming to develop and test scoring models and to model portfolio dependence, persistence, dynamics and stress-testing
  • How to use this integrated system in both origination and portfolio management activities
  • How to assess Expected Loss (EL) for provisioning and Unexpected Loss (UL) for capital allocation—both on a standalone and portfolio basis
  • How to create a Risk-Adjusted-Performance-Measurement (RAPM, aka RAROC) system

As well as useful techniques related to specific topics, such as:

  • Strategies for extracting important information from problem accounts
  • How to explain quantitative model results to qualitative-oriented directors and shareholders


Day 1

Overview of Credit Portfolio Management

What Credit Portfolio Management boils down to

  • Applications, scorecards and credits
  • Flat pricing
  • Risk-based pricing
  • Portfolio management and the portfolio manager
  • Portfolio performance metrics
  • Capital allocation and provisioning
  • Basel II related issues
  • Some structural hurdles in the emerging, Small-to-Medium Enterprise (SME) market
  • Hurdles in emerging markets

Foundations of the Credit portfolio management system:

  • Metrics for managing a portfolio
  • Creating an internal scoring and rating system
  • Exemplary ratings systems
  • Establishing the number of grades
    • Excel exercises
  • Relevant rating criteria
  • In Class Exercises in developing a ratings system

Day 2

Setting up a CPRM Function

Risk Adjusted Performance Measurement (RAPM)

  • RAPM Components
  • RaROC vs. RaRORAC
  • Risk Contribution
  • How RAPM helps us select exposures
  • How RAPM helps us manage exposures
  • Developing a RAPM Model
  • RAPM Examples in Spreadsheets
  • Determining Economic Capital
  • Setting Internal Transfer Prices and External Prices
  • Using RAPM to et the risk appetite

Summary and Best-Practice on RAPM

Developing Analytics to Support RAPM Portfolio dynamics

  • Valuation
  • Migration
  • Value-at-Risk and default
  • Economic and Regulatory Capital
  • Risk Components
  • The Basel Back drop
  • Basel I, II and III compared
  • Numerical Examples
  • The Risk Components under Basel Rules
  • Dynamics of Risk components (in spreadsheets)
  • Basel at the Portfolio Level
  • Portfolio Dynamics PD estimation
  • Why we do not like statistical obligor PDs in retail
  • Segmentation
  • Vintage analysis
  • Delinquency status
  • Developing a PD model - Smoothing Loss given default measurement (LGD)
  • Various loss model techniques
  • Workout LGDs
  • Actuarial LGDs
  • Statistically based LGD
  • Portfolio level (risk pool) LGDs Exposure at default (EAD)
  • EAD modeling techniques
  • ASRF-based EAD
  • Statistically based EAD

Day 3

Risk Component Backtesting

  • Probability of Default (PD) backtesting - Hosmer/Lemeshow - Binomial Tests - Brier Score - Other tests - Problems with the Central Limit Theorem in practice
  • Loss Given Default (LGD) backtesting - Choosing a low operational risk LGD estimation method - Backtesting and confidence intervals Developing the Retail and SME scoring models• Public companies
  • Dealing with private, unaudited companies• Structural models: Black-Scholes-Merton - Public firm variants - Private firm variants - What will like work in African markets
  • Excel exercises
  • Statistical models
  • Actuarial Models
  • Excel exercises
  • Expected Loss (EL) and Unexpected Loss (UL) for Single exposures
  • Provisioning and Basel II-related issues
  • Economic capital allocation Using your risk model for capital allocation Developing a Risk-adjusted-performance measurement (RAPM) system
  • Using EL and UL
  • Excel Exercises

Day 4

EL and UL for Portfolios

  • Correlation and joint default estimation• Obtaining a Credit Value-at-Risk (CreditVaR)
  • Setting Economic Capital
  • Excel Exercises
  • Portfolio stress testing, provisioning and recapitalisation
  • Defining stress tests
  • Distinguishing scenarios and sensitivity analysis
  • Interpreting results
  • Articulating results internally and to investors and regulators
  • Incorporating in the Internal Capital Adequacy Assessment Process (ICAAP)
  • Concluding Remarks


Maurice Ewing

Maurice is a global management consultant, former banking executive and experienced, public company board member that has worked in over 60 countries. He has been an advisor and consultant to boards and executive teams with numerous, major banks, investment banks, central banks and investment fun...

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Credit Portfolio Risk Management at Euromoney Learning Solutions

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