Smoke cannot be released without a fire there must

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bankruptcy due to bad credit assessment practices brought a big loss to the bank. Smoke cannot be released without a fire. There must have been something wrong in that Banks credit procedures. The main source of credit risk include limited institutional capacity, inappropriate credit policies, volatile interest rates, poor management, low capital and liquidity levels, direct lending, poor loan underwriting, laxity in credit assessment, poor lending practices, government interference and inadequate supervision by the central bank. For banks, managing credit risk is not a simple task since comprehensive considerations and practices are needed for identifying, measuring, controlling and minimizing credit risk Risk can be basically defined as the degree of uncertainty of net future returns. Those interacting in the financial markets will usually face different types of risks since uncertainty come in several ways. This is the reason why uncertainty is used as a source to classify risk. David H.Phyle (1997) defined risk as a fall in a firm’s value because of the changes in the dynamic business environment. In my study, I will be focusing mainly on credit risk.The Monetary Authority of Singapore (2006) has defined credit risk as the “risk arising from the uncertainty of an obligor’s ability to meet its contractual obligations.” Regarding the importance of this kind of financial risk, Kaminski and Reinhart, as cited by Jackson and Perrraudin (1999) think of it to be the largest element of risk in the books of most banks and if not managed in a proper way, can weaken individual banks or even cause many episodes of financial instability by impacting on the whole banking system. In the same line, according to M.J Mc Donough (1999) “credit risk remains the predominant risk for most banks”. Since this risk carries the potential of wiping out enough of a bank’s capital to force it into bankruptcy, managing this kind of risk has always been one of the predominant challenges in running a bank (Broll, Pausch and Welzel, 2002). Different authors have expressed different criteria regarding the classification of credit risk. It was argued by Hennie (2003) that the main types of credit risk are consumer risk, corporate risk and sovereign or country risk. Culp and Neves (1998), on the other hand, consider realized default risk and resale risk to be the two main types of credit risk. Horcher (2005) defines six types of credit risk, namely, default risk, counterparty settlement risk, legal risk, country or sovereign risk and concentration risk.