THURSDAY: 16 December 2021. Time Allowed: 3 hours.
Answer any FIVE questions. ALL questions carry equal marks.
QUESTION ONE
1. Explain the term “credit risk”. (2 marks)
Describe five components of an effective credit risk management program. (5 marks)
2. Distinguish between “credit risk assessment” and “credit risk measurement”. (6 marks)
3. Describe CAMPARI model of credit risk assessment. (7 marks)
(Total: 20 marks)
QUESTION TWO
1. Describe four elements of SWOT analysis as a tool used in understanding an entity’s level of credit risk. (4 marks)
2. Explain the following types of risks:
Strategic risks. (2 marks)
Reputational risks. (2 marks)
3. Highlight four essential skills that a credit analyst must possess. (4 marks)
4. Explain the following terms:
Credit risk philosophy. (2 marks)
Credit risk strategy. (2 marks)
5. Examine two objectives of risk management. (4 marks)
(Total: 20 marks)
QUESTION THREE
1. Explain five steps in risk management process. (10 marks)
2. Describe the term “credit risk committee”. (2 marks)
Outline three functions of a credit risk committee. (3 marks)
3. Enumerate five steps that could be used to effectively identify risks across an institution. (5 marks)
(Total: 20 marks)
QUESTION FOUR
1. Summarise four sources of credit concentration risk. (4 marks)
2. Discuss three classes of operational risks. (6 marks)
3. Analyse five roles of a Chief Risk Officer in the credit process. (5 marks)
4. Enumerate five causes of bank illiquidity. (5 marks)
(Total: 20 marks)
QUESTION FIVE
1. Explain the term “risk assessment matrix”. (2 marks)
Examine three benefits of a risk assessment matrix. (6 marks)
2. In relation to credit risk management, identify three qualities of good collateral assets. (6 marks)
3. Explain the following methods that could be used to establish credit limits for customers:
Payment performance. (2 marks)
Payment record. (2 marks)
Competition. (2 marks)
(Total: 20 marks)
QUESTION SIX
1. Examine four responses that an institution could take against its risk exposure. (8 marks)
2. List six challenges faced by financial institutions in the process of credit risk analysis. (6 marks)
3. Explain three stages in the credit analysis process. (6 marks)
(Total: 20 marks)
QUESTION SEVEN
1. Every business needs to have procedures in place that determine what payment terms a customer will receive and how much credit the customer will be given.
With reference to the above statement, analyse four benefits of setting customer credit limits. (8 marks)
2. Propose four principles that an organisation’s management should consider when coming up with a business risk management plan. (8 marks)
3. Differentiate between the terms “risk appetite” and “risk tolerance”. (4 marks)
(Total: 20 marks)
