This Credit Risk Modelling Training Course Will Change How You Think About Credit

Credit Risk Modelling Training Course

Are you looking to enhance your career in banking and finance? If so, this credit risk modelling training course is perfect for you. It is essential for anyone working in the banking and finance sector, as it helps to assess and manage the risks associated with lending money.

This training course will teach you everything you need to know about credit risk modelling, from the basics of probability theory to more advanced topics such as portfolio management. You’ll learn how to build models that can be used to identify and quantify the risks posed by potential borrowers, and how to use these models to make informed decisions about lending.

By the end of these credit risk modelling courses, you’ll have a deep understanding of credit risk and its role in the banking and finance industry. You’ll be able to confidently build your own models and use them to assess credit risk. So if you’re looking to boost your career in banking and finance, this course is essential.

The Three Pillars of Credit Risk Modelling

Credit risk modelling is a vital tool for any financial institution looking to manage its credit portfolio. This training course will introduce you to the three pillars of credit risk modelling: probability of default (PD), loss given default (LGD) and exposure at default (EAD).

Probability of Default (PD): The PD is a measure of the likelihood that a borrower will default on their loan within a given period of time. A variety of factors can affect a borrower’s PD, such as their credit history, current financial situation and the type of loan they have taken out.

Loss Given Default (LGD): The LGD is a measure of the expected losses incurred if a borrower defaults on their loan. This includes both the principal amount of the loan and any interest that would be accrued. LGD can be affected by a number of factors, such as the type of collateral used to secure the loan and the recovery rate in the event of default.

Exposure at Default (EAD): The EAD is a measure of the maximum amount that could be lost if a borrower defaults on their loan. This takes into account both the outstanding balance of the loan and any undrawn funds that are available under lines of credit or other facilities. EAD can be affected by many factors, such as changes in collateral value or unexpected drawdowns on lines of credit.

Probability of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD)

Credit risk is the probability of default (PD) on a loan or investment, multiplied by the loss given default (LGD). The exposure at default (EAD) is the maximum amount that could be lost if the borrower defaults.

Most people think of credit risk as the probability of default, but this ignores the fact that even if a borrower doesn’t default, there may still be some loss due to inflation or market conditions. Therefore, it’s important to consider both the probability of default and the loss given default when assessing credit risk.

The exposure at default is the maximum amount that could be lost if the borrower defaults. This is typically calculated by taking the original loan amount and subtracting any collateral value or other security deposits.

It’s important to note that EAD doesn’t take into account any potential losses from interest rate changes or other factors. Therefore, it’s usually used in conjunction with other measures such as VaR or stress testing.

When assessing credit risk, banks and other financial institutions will typically use a combination of PD, LGD and EAD measures. By considering all three factors, they can get a more accurate picture of the risks involved and make better-informed decisions about lending and investment decisions.

Estimating PD, LGD and EAD

In order to estimate PD, LGD and EAD, one must first understand what these acronyms stand for.PD stands for Probability of Default, LGD stands for Loss Given Default, and EAD stands for Exposure at Default. Each of these concepts is integral to credit risk modelling and the estimation thereof.

  1. The probability that a borrower will default on their loan. This can be estimated using historical data on defaults, as well as other variables such as credit score and loan amount.
  2. Loss given default is the expected loss should a borrower default on their loan. This can be estimated using historical data on losses incurred when borrowers have defaulted in the past.
  3. Exposure at default is the outstanding loan amount should a borrower default on their loan. This can be estimated using the same historical data used to estimate loss given default.

By understanding and estimating these three concepts, one can gain a better understanding of the overall risk involved in lending money to borrowers. This knowledge is essential in properly assessing and managing credit risk.

Internal Ratings Based (IRB) Approach to Credit Risk Modelling

The Internal Ratings Based (IRB) approach to credit risk modelling is a risk management tool that banks and financial institutions use to measure and manage the credit risk of their portfolios. The IRB approach allows banks to customize their own models to better reflect the unique characteristics of their portfolios and the underlying risks.

Introduction Of IRB 

The IRB approach was first introduced by the Basel Committee on Banking Supervision in 2001 and has since been adopted by many banks and financial institutions around the world. The IRB approach is recognised as being one of the most advanced methods for measuring and managing credit risk.


Under the IRB approach, banks are required to estimate their own probability of default (PD), loss given default (LGD) and exposure at default (EAD) for each exposure type in their portfolio. 

These estimates are then used to calculate an expected loss (EL) for each exposure type. Banks are also required to develop stress tests for their portfolios, which help them to identify potential problems with their models and make necessary adjustments.

Pros & Cons

The benefits of the IRB approach include improved risk management, increased transparency and improved capital efficiency. The main disadvantage of the IRB approach is that it can be complex and time-consuming to implement.

Wrap Up

When it comes to learning about credit risk modelling, this course is second to none. You’ll come away with a strong understanding of the key concepts and best practices, and you’ll be able to apply them in your own work. This credit risk analyst course is perfect for anyone who wants to learn more about credit risk modelling or improve their skills in this area.


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