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Chap011_Saunders7e_SLIDES-1

Chap011_Saunders7e_SLIDES-1 - Ch-11 Credit Risk Overview...

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Ch-11 Credit Risk Overview This chapter discusses types of loans, and the analysis and measurement of credit risk on individual loans Important for purposes of: Pricing loans and bonds Setting limits on credit risk exposure 11-1
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Credit Quality Problems Problems with junk bonds, LDC loans, and residential and farm mortgage loans Late 1990s, credit card and auto loans Crises in other countries such as Argentina, Brazil, Russia, and South Korea 2006-2007: Mortgage delinquencies and subprime loans Emphasizes importance of managing credit risk Over the early to mid 1990s, improvements in NPLs for large banks and overall credit quality Late 1990s and early 2000s: Telecom companies, tech companies Mid 2000s, economic growth accompanied by reduction in NPLs Mortgage crisis, Countrywide Increased emphasis on credit risk evaluation 11-2
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Nonperforming Asset Ratio for U.S. Commercial Banks 11-3
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Types of Loans C&I loans: Secured and unsecured Syndication Spot loans, loan commitments Decline in C&I loans originated by commercial banks and growth in commercial paper market Downgrades of Ford, General Motors, and Tyco Effect of financial crisis on commercial paper market RE loans: Primarily mortgages Fixed-rate, ARM Mortgages can be subject to default risk when loan-to-value declines 11-4
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ARMs: Share of Total Loans Closed, 1992-2009 11-5
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Consumer Loans Individual (consumer) loans: personal, auto, credit card Nonrevolving loans Automobile, mobile home, personal loans Growth in credit card debt Visa, MasterCard Proprietary cards such as Sears, AT&T Consolidation among credit card issuers Bank of America & MBNA Risks affected by competitive conditions and usury ceilings Bankruptcy Reform Act of 2005 11-6
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Annual Net Charge-Off Rates on Loans 11-7
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