CREDIT RISK MANAGEMENT AUGUST 2022 PAST PAPER

TUESDAY: 2 August 2022.    Afternoon paper.    Time Allowed: 3 hours.

Answer any FIVE questions. ALL questions carry equal marks. Do NOT write anything on this paper.

QUESTION ONE

1. Explain the following terms:

Production risks. (2 marks)

Corporate risks. (2 marks)

Sibling rivalry risks. (2 marks)

2. Outline six factors that affect the credit score of an individual. (6 marks)

3. Describe how the following parties are exposed to credit risk:

Banks. (2 marks)

Asset managers. (2 marks)

Hedge funds. (2 marks)

Insurance companies. (2 marks)

(Total: 20 marks)

QUESTION TWO

1. Distinguish between “negative risks” and “positive risks”. (4 marks)

2. Discuss four benefits of risk monitoring and evaluation. (8 marks)

3. Describe four factors that a credit analyst should consider when calculating credit risks. (8 marks)

(Total: 20 marks)

QUESTION THREE

1. With reference to financial and operational risk matrix, explain the following credit risk levels:

Low operating and low financial risk. (2 marks)

Low operating and medium financial risk (2 marks)

Low operating and high financial risk. (2 marks)

2. Discuss four principles of selecting credit risks mitigant. (8 marks)

3. Identify six demographics factors that could affect the bank’s choice of credit products. (6 marks)

(Total: 20 marks)

QUESTION FOUR

1. Analyse four elements that a credit analyst should consider for comprehensive risk management in an organisation. (8 marks)

2. Explain the acronym PARSER as used in credit risk assessment. (12 marks)

(Total: 20 marks)

QUESTION FIVE

1. Describe the following terms:

The “risk-return trade-off”. (2 marks)

Business cycle. (2 marks)

2. Analyse four ways through which the management could use to identify risk in an organisation. (8 marks)

3. Enumerate four principles of proper periodic credit review. (8 marks)

(Total: 20 marks)

QUESTION SIX

1. Explain the term “credit culture”. (2 marks)

2. Using the Porter’s Five Forces Model on competitive analysis, explain five risks that influence industry profitability. (10 marks)

3. Distinguish between the following types of risk assessment:

“Qualitative risk assessment” and “quantitative risk assessment”. (4 marks)

“Generic risk assessment” and “site-specific risk assessment”. (4 marks)

(Total: 20 marks)

QUESTION SEVEN

1. Summarise four benefits of cash flow statement to a lending officer. (4 marks)

2. Outline eight principles applied by a credit committee in carrying out its core functions. (8 marks)

3. Identify four credit default events. (4 marks)

4. Explain the following levels of risks:

Low. (2 marks)

High. (2 marks)

(Total: 20 marks)

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