Designed for Finance Professionals
The Credit Risk Management (CRM) Program is an advanced training program designed to equip professionals with in-depth knowledge, hands-on expertise, and quantitative techniques essential for managing credit risks effectively. This program bridges the gap between theoretical risk frameworks and practical risk modeling.​ Each module is carefully curated to build a deep, layered understanding, from core financial concepts to advanced risk measurement metrics and management tactics, ensuring that you develop both the analytical precision and practical expertise required in financial markets.
What You'll Learn
This opening module lays the foundation by introducing essential concepts and terminology in credit risk. You will learn what “credit” and “credit risk” mean, and explore the common triggers of default and delinquency. We discuss why borrowers fail to repay debts – examining factors like inability to pay (financial distress or bankruptcy), unwillingness to pay (strategic default or fraud), poor timing (liquidity crunch), and external influences (economic downturns, regulatory changes). Key components of credit risk assessment are introduced, including the core trio of Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD).
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You’ll discover how banks estimate the chance of a loan defaulting (PD) and the expected loss if it does, and how these figures drive lending decisions and interest rates. We also cover the concept of risk exposure – how much is at stake if a default occurs – and basic qualitative vs. quantitative approaches to evaluating credit risk. The real-world application of these basics is demonstrated through examples of how banks set aside capital and reserves based on calculated risk, ensuring they remain solvent even if some borrowers default.
In Module 2, we turn to Counterparty Credit Risk (CCR) – the risk that the other party in a financial contract (like a derivative or loan) defaults. You will learn why CCR became a focal point after the 2008 crisis and how global banking regulations (Basel II/III) evolved to manage it. We delve into the Basel Accords, exploring concepts such as risk-weighted assets and capital charges specific to counterparty risk. Key regulatory concepts like Expected Credit Loss (ECL) provisioning and the formulas for PD, EAD, LGD in the context of trading counterparties are explained. Importantly, this module teaches how to calculate counterparty exposure using methods like Mark-to-Market (MTM) and Potential Future Exposure (PFE). You’ll learn the components that make up CCR exposure:
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You’ll appreciate how CCR management was tightened post-2008, with Basel III requiring more capital and rigorous measurement for counterparty exposures. This module underscores that effective CCR management is now non-negotiable for banks – a lesson learned from the collapse of players like Lehman Brothers when counterparty defaults cascaded through the system.
Module 3 provides a comprehensive understanding of how credit risk can be mitigated through netting and collateral arrangements, which are critical for managing counterparty exposure in financial transactions. Participants will explore the ISDA Master Agreement and its role in credit support, including key components like the Credit Support Annex (CSA), trade confirmations, payment netting, and close-out netting. The module will also delve into collateral types, margining processes in both OTC and exchange-traded derivatives, and the calculation of collateral requirements, including managing haircuts.
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Real-world applications of CCR involve using tools like collateralization, netting agreements, stress testing, and credit derivatives to mitigate exposure and comply with global regulatory frameworks such as Basel. These practices help financial institutions minimize their risk exposure, ensure capital adequacy, and prevent systemic failures in the event of a counterparty default.
In Module 4, we turn to credit derivatives – financial instruments specifically designed to transfer or hedge credit risk. You’ll get an introduction to the world of credit derivatives, learning how they can be used for hedging (protecting against losses), speculation (taking views on credit events), or arbitrage opportunities. We cover the major types of credit derivatives and their practical uses: Credit Default Swaps (CDS), Credit Spread Options, Total Return Swaps (TRS), and Credit-Linked Notes (CLN).
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You will learn the benefits and risks of these products. For example, how a bank might hedge the risk of a corporate loan default by buying a CDS, or how an investor might gain exposure to a bank’s loan portfolio through a TRS. We emphasize that while credit derivatives are powerful risk management tools, they also require careful understanding (as misuse or concentration of these instruments was implicated in the 2008 crisis).
This module provides an in-depth understanding of the Basel regulatory standards for credit risk mitigation. We explore the Basel Accords' guidelines on managing credit risk through tools such as collateral, guarantees, credit derivatives, and netting, and understand how these techniques are practically applied to reduce risk in banking portfolios. Through real-world case studies, from retail credit scoring to corporate risk hedging at major institutions like JPMorgan and HSBC, the module emphasizes the industry relevance and regulatory compliance of these approaches.
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We illustrate the structural model with cases, Lehman Brothers in 2007-2008, as Lehman’s stock price plunged and volatility spiked, its calculated distance-to-default shrank dramatically, signaling a high PD well before the actual default. Indeed, researchers have shown that distance-to-default can serve as an early warning indicator of bank failures. In the module, we cite how the Federal Reserve Bank of Cleveland uses a Systemic Risk Indicator based on the average distance-to-default of major banks to monitor financial stability. Declines in this distance-to-default metric signaled rising probabilities of default and correlated distress during the 2008 crisis, providing valuable lead time. Moody’s KMV EDF for a company might be, say, 0.5% when things are good, but if the company takes on more debt or its equity price falls, that EDF could jump to 5%, an alert to lenders. Many banks incorporate market-implied PDs alongside their internal scores for a complete risk picture. Participants will hear how some institutions use Merton-style models for portfolio credit risk (CreditMetrics by JPMorgan was influenced by this approach, linking default risk to asset correlations).
In this advanced module, participants will gain in-depth knowledge and key techniques used to quantify credit risk and calculate exposure using advanced methodologies, in line with regulatory standards such as Basel guidelines. They will learn to apply models for calculating Probability of Default (PD), including Logistic Regression, Scorecard Models, and the Merton Structural Model. Additionally, the module covers risk exposure calculation techniques, including the Current Exposure Method (CEM) and the Standardized Approach for Counterparty Credit Risk (SACCR), enabling participants to assess Exposure at Default (EAD), Potential Future Exposure (PFE), and other key metrics.
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The transition from CEM to SA-CCR marks a significant advancement in exposure measurement. CEM’s simplicity has been replaced by a more nuanced approach that rewards netting and collateral and differentiates by risk type, in line with Basel’s push for approaches that better reflect actual risk. Mastering SA-CCR calculations allows risk managers to quantify Exposure at Default (EAD) and Potential Future Exposure (PFE) with greater accuracy.
This module offers an in-depth exploration of securitization, a key financial tool used to manage and transfer credit risk. Participants will learn the fundamentals of securitization, including the process of converting illiquid assets, such as mortgages, loans, or receivables, into tradable securities. The module covers various types of securitization structures, such as asset-backed securities (ABS), mortgage-backed securities (MBS), and collateralized debt obligations (CDOs), and their applications in credit risk management. Participants will explore how these instruments are structured, the role of credit tranching, and how they allow financial institutions to spread risk and increase liquidity. The module also covers the regulatory environment surrounding securitization, including Basel guidelines and the impact of financial crises on market practices. Real-world case studies will be used to illustrate the practical applications and risks associated with securitization, such as the subprime mortgage crisis.
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Real-world case study that will highlight how securitization instruments function in practice. One such example is the subprime mortgage crisis of 2007-2008, where excessive risk was transferred through MBS and CDOs tied to high-risk loans. These products were initially designed to spread risk, but as housing prices dropped and mortgage defaults increased, the value of these securities collapsed, causing widespread financial instability. This case demonstrates the importance of due diligence in securitization and the need for strong credit risk management.
Subscription
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Professional Plan
20,000 INR
100% Refund (No Questions Asked) within 2 hours of subscription.