Part 1. Learning Objectives
1.Define credit risk and explain how it arises using examples.
Credit risk has been defined as the likelihood that a borrower will perform a financial obligation according to its terms; or conversely, the probability that it will default on that commitment.
2.Explain the components of credit risk evaluation.
①The Obligor's Capacity and Willingness to Repay: type of obligor, obligor’s corporate structure, critical ownership…
②The external conditions: sovereign risk, systemic risk, cyclical or secular changes
③The Attributes of Obligation from Which Credit Risk Arises: inherent risk characteristics of that obligation,legal risk specific to the product, tenor (maturity) of the product, priority (e.g., senior, subordinated, unsecured), contingent/derivative risk
④The Credit Risk Mitigants: collateral, secondary obligor,
3.Describe, compare and contrast various credit risk mitigants and their role in credit analysis.
①抵押品Collateral: assets that function to secure a loan
有抵押权债权人可以提前变卖抵押品，一旦启动破产程序，也比其他无担保债权人更有利。The secured creditor benefits from the right to sell the collateral without necessarily initiating bankruptcy proceedings and stands in a better position than unsecured creditors once such proceedings have commenced.
抵押品预期损失会激励债权人还债。The prospective loss of collateral also gives the obligor an incentive to repay its obligation.
使用抵押品能降低违约概率，发生违约时能减少债权人的损失。The use of collateral tends to lower the probability of default, reduce the severity of the creditor’s loss in the event of default.
"Will the collateral provided by the prospective borrower be sufficient to secure repayment?"
②保证人Guarantees: the promise by a third party to accept liability for the debts of another in the event that the primary obligor default.
保证人一般信用等级更高，或与债务人相似但更易分析。Typically, the guarantor will be an entity that either possesses greater creditworthiness than the primary obligor, or has a com parable level of creditworthiness but is easier to analyze.
保证人是否有能力和意愿来偿还债务？"Will the prospective guarantor be both willing to repay the obligation and have the capacity to repay it?"
Joint and several liability: 有多个债务人，债权人(债权人)有权要求任何和所有债务人(借款人)全额偿还全部未偿债务。is a legal concept, where there are multiple obligors, the obligee (creditor) is entitled to demand full repayment of the entire outstanding obligation from any and all of the obligors (borrowers).
4.Compare and contrast quantitative and qualitative techniques of credit risk evaluation.
①The limitations of quantitative methods:
-The historical character of financial data: financial statements are invariably historical in scope; past cannot be extrapolated into the future
-The difficulty of making reasonably accurate financial projections based upon such data.
-财报与财务现实情况的差距The inevitable gap between financial reporting and financial reality: First, the rules of financial accounting and reporting are shaped by people and institutions having differing perspectives and interests. Second, the difficulty of making rules to cover every conceivable situation means that, in practice, companies are frequently afforded a great deal of discretion in determining how various accounting items are treated. Finally, even the most accurate financial statements must be interpreted.
②Quantitative methods in credit analysis
信用风险分析需要将定量工具与定性判断相结合。Nearly all of the nominally quantitative techniques also have a significant qualitative element. To reach optimal effectiveness, credit analysis must therefore combine the effective use of quantitative tools with sound qualitative judgments.
5.Compare the credit analysis of consumers, corporations, financial institutions, and sovereigns.
-Individual credit analysis: through the use of credit-scoring models, coupled with a modest amount of manual input and review.
-Nonfinancial companies’ credit analysis tends to be more detailed and more hands-on than consumer credit analysis: 1) the company’s liquidity,2) its cash flow, 3) earnings capacity and profitability, 4) solvency or capital position.
-Financial institution credit analysis focus on: 1) Earnings capacity; 2) Liquidity; 3) Capital adequacy; 4) Asset quality.
Differences between the key criteria applied to corporate credit analysis:
-The importance of asset quality
- The omission of cash flow as a key indicator
-Sovereign/municipal credit analysis
6.Describe quantitative measurements and factors of credit risk, including probability of default, loss given default, exposure at default, expected loss, and time horizon.
① Probability of default (PD) ② Loss given default ③ Exposure at default
④ Expected loss: PD*LGD*EAD
⑤ Time horizon: PD, LGD, and EAD are all time dependent. The longer the tenor44 of the loan, the more likely it is that a default will occur.
On a portfolio basis, a fifth variable, correlation between credit exposures within a credit portfolio, will also affect expected loss.
7.Compare bank failure and bank insolvency.
bank insolvency is far more common, insolvent banks can keep going on and on so long as they have a source of liquidity.
Part 2: 原文中的一些观点和概念
偿付意愿取决于借款人的声誉和性格，主观判断为主。Willingness to pay is, of course, a subjective attribute that can be ascertained to a degree from the borrower's reputation and apparent character，is difficult to assess, are highly subjective in nature.
Capacity without willingness, can be overcome to a large degree through an effective legal system.
偿还意愿在法律框架不健全的市场显得尤为重要。Willingness to pay remains a more critical criterion in less-developed markets, where the quality of the legal framework may be lacking.
法律行为的成本及时间是另一个重要的考虑维度。A robust legal system is not necessarily a cost-effective one.While a modicum of efficiency may exist, the costs of legal actions, including the time spent pursuing them, may well exceed the benefits. It therefore may not pay to take legal action against a delinquent borrower.
信用分析师不是风险建模，是对风险模型评估以及提供模型的输入变量。It is important to recognize this distinction and to emphasize that the aim of the credit analyst is not to model credit risk, but instead to perform the evaluation that provides one of the requisite inputs to credit risk models.
（待补充。。。）