credit risk

credit risk
The risk to earnings or capital from the potential that a borrower or counterparty will fail to perform on an obligation. Usually, but not always, the obligation in question is a requirement to make interest or principal payments.
Sometimes called default risk, the failure to make required payments reduces the value of equity securities, debt securities, and loans.
In the extreme, credit defaults eliminate all or almost all of the value in loans or securities. Adverse consequences from credit risk are not restricted to default, the ultimate manifestation of credit risk. In addition, asset owners can suffer from reductions in value resulting from either real or perceived declines in the obligor's financial strength.
Both the Office of the Comptroller of the Currency ( OCC) and the Federal Reserve list credit risk as one of their defined risk types for risk-based examinations. Credit risk exposure is found in all activities in which success depends on the performance of a counterparty, issuer, or borrower. Credit risk arises any time a financial institution extends, commits, invests, or otherwise exposes its funds through actual or implied contractual agreements, whether reflected on or off the balance sheet. American Banker Glossary
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The risk that an issuer of debt securities or a borrower may default on its obligations, or that the payment may not be made on a negotiable instrument. Related: default risk. Bloomberg Financial Dictionary

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credit risk credit risk ➔ risk1

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   The risk that an issuer might default on a payment or go into liquidation. Also known as counter party risk.

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credit risk UK US noun FINANCE
► [C or U] the degree to which it is possible that a person, company, or government will not be able to pay back borrowed money: »

Race, gender, and religion will not be considered in assessing credit risk.

 high/increased/low credit risk »

Analysts say 30% of the bank's loans have a high credit risk.

► [C] a person, company, or government considered according to how likely they are to pay back borrowed money: bad/good/poor credit risk »

Lenders say that women are good credit risks, and are often better at budgeting.

► [C] a person, company, or government that is unlikely to pay back borrowed money: »

Four years ago, I was refused a store card because I was considered a credit risk.


Financial and business terms. 2012.

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