Unit 01             Understanding Credit Risk Management

Learning Outcomes:

What the candidate must do:

1.1.1   List the functional elements in the credit cycle

1.1.2   Discuss the role and definition of credit risk management

What the candidate must know:

1.1.3        The concept of the “Credit Cycle”

1.1.4        The impact of credit losses in a P&L account

1.1.5        The concept of the “risk-reward trade-off”

Learning Outcomes:

What the candidate must do:

1.2.1  Discuss the purpose of a Credit Policy

1.2.2  Consider alternative credit quality metrics

1.2.3  Calculate the “odds”  

What the candidate must know:

1.2.4    The difference between credit policy and operational procedures

1.2.5    The role of a Credit Committee

1.2.6    Why odds are an important metric 

Learning Outcomes:

What the candidate must do:

1.3.1    Calculate a score from a scorecard 

1.3.2    Discuss the difference between manual underwriting and scoring

1.3.3    Read off the acceptance rate for a given bad rate

What the candidate must know:

1.3.4    The difference between application and behavioural scoring

1.3.5   The uses of behavioural scoring

1.3.6   Why scorecards use “Bad” instead of “Unprofitable”

Learning Outcomes:

What the candidate must do:

1.4.1  Predict the impact on acceptance rate and credit quality

1.4.2  Discuss what bad marketing programmes and features are

What the candidate must know:

1.4.3    The meaning of “Adverse Selection”

1.4.4    The conflict between marketing and credit quality

1.4.5    The types of impact on credit quality

Learning Outcomes:

What the candidate must do:

1.5.1  Underwrite an application

1.5.2  List the areas where underwriters can add value

1.5.3  Discuss the relation between cost of investigation and product risk

What the candidate must know:

1.5.4    When to use underwriters

1.5.5    The 3 alternative ways of using underwriters together with scorecards

1.5.6    The 3 C’s of underwriting

Learning Outcomes:

What the candidate must do:

1.6.1  Identify a fraudulent application

1.6.2  Calculate the FP ratio

1.6.3  Discuss logic for detecting application fraud

What the candidate must know:

1.6.4   The difference between application and transaction fraud

1.6.5    Alternative systems and approaches to detecting fraud

1.6.6    The principles of fraud control

Learning Outcomes:

What the candidate must do:

1.7.1  Discuss alternative operational structures  

1.7.2  Discuss the need for collections 

1.7.3  Calculate the most efficient operation

What the candidate must know:

1.7.4    The collections process

1.7.5    The cost vs collection trade-off

1.7.6    The principles of Collections

Learning Outcomes:

What the candidate must do:

1.8.1  Read a dynamic delinquency report    

1.8.2  Calculate “Cleverness Index”

1.8.3  Determine the portfolio impact

What the candidate must know:

1.8.4    How to read a dynamic delinquency report

1.8.5    Alternative portfolio metrics

1.8.6    What comprises of a credit programme control