Details

Advanced Credit Risk Analysis and Management

The Wiley Finance Series 1. Aufl.

von: Ciby Joseph
66,99 €
Verlag:	Wiley
Format:	PDF
Veröffentl.:	19.04.2013
ISBN/EAN:	9781118604885
Sprache:	englisch
Anzahl Seiten:	448

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Beschreibungen

Titelbeschreibung

Credit is essential in the modern world and creates wealth, provided it is used wisely. The Global Credit Crisis during 2008/2009 has shown that sound understanding of underlying credit risk is crucial. If credit freezes, almost every activity in the economy is affected. The best way to utilize credit and get results is to understand credit risk. Advanced Credit Risk Analysis and Management helps the reader to understand the various nuances of credit risk. It discusses various techniques to measure, analyze and manage credit risk for both lenders and borrowers. The book begins by defining what credit is and its advantages and disadvantages, the causes of credit risk, a brief historical overview of credit risk analysis and the strategic importance of credit risk in institutions that rely on claims or debtors. The book then details various techniques to study the entity level credit risks, including portfolio level credit risks. Authored by a credit expert with two decades of experience in corporate finance and corporate credit risk, the book discusses the macroeconomic, industry and financial analysis for the study of credit risk. It covers credit risk grading and explains concepts including PD, EAD and LGD. It also highlights the distinction with equity risks and touches on credit risk pricing and the importance of credit risk in Basel Accords I, II and III. The two most common credit risks, project finance credit risk and working capital credit risk, are covered in detail with illustrations. The role of diversification and credit derivatives in credit portfolio management is considered. It also reflects on how the credit crisis develops in an economy by referring to the bubble formation. The book links with the 2008/2009 credit crisis and carries out an interesting discussion on how the credit crisis may have been avoided by following the fundamentals or principles of credit risk analysis and management. The book is essential for both lenders and borrowers. Containing case studies adapted from real life examples and exercises, this important text is practical, topical and challenging. It is useful for a wide spectrum of academics and practitioners in credit risk and anyone interested in commercial and corporate credit and related products.

Inhaltsverzeichnis

Preface xvii Part I Introduction 1 Credit Basics 3 1.1 Meaning of Credit 4 1.2 Role of Credit 6 1.3 Credit Market 6 1.4 Credit – Advantages and Disadvantages 7 1.4.1 Merits of Credit 7 1.4.2 Demerits of Credit Usage 9 1.4.3 Is Wealth Creation Through Use of Credit Easy and Simple? 10 1.5 Suppliers of Credit 11 1.6 Credit Risk Study 12 Appendix: Credit Creation 13 Questions/Exercises 14 2 Essentials of Credit Risk Analysis 15 2.1 Meaning of Credit Risk 15 2.2 Causes of Credit Risk 16 2.3 Credit Risk and Return 17 2.4 Credit Risk Analysis 17 2.5 Historical Progress of Credit Risk Analysis 19 2.6 Need for Credit Risk Analysis 19 2.7 Challenges of Credit Risk Analysis 22 2.7.1 The Art and Science of Credit Risk Analysis 22 2.8 Elements of Credit Risk Analysis 24 Questions/Exercises 25 3 Credit Risk Management 27 3.1 Strategic Position of Credit Risk Management 27 3.2 Credit Risk Management Context 28 3.3 Credit Risk Management Objectives 28 3.4 Credit Risk Management Structure 29 3.5 Credit Risk Culture 29 3.6 Credit Risk Appetite 30 3.7 Credit Risk Management in Non-Financial Firms 31 3.8 Credit Risk Management in Financial Intermediaries 31 3.8.1 Stages of Credit Risk Management in Financial Intermediaries 31 3.8.2 Credit Risk Management Process 33 Questions/Exercises 34 Part II Firm (or) Obligor Credit Risk 4 Fundamental Firm/Obligor-Level Risks 37 4.1 Firm (or) Obligor Risk Classification 37 4.1.1 Business Risks or Operating Risks (OR) 37 4.1.2 Financial Risks (FR) 38 4.2 Risk Matrix 39 4.3 Different Risk Levels 39 4.3.1 Low Operating Risk and Low Financial Risk 39 4.3.2 Low Operating Risk and Medium Financial Risk 39 4.3.3 Low Operating Risk and High Financial Risk 40 4.3.4 Medium Operating Risk and Low Financial Risk 40 4.3.5 Medium Operating Risk and Medium Financial Risk 40 4.3.6 Medium Operating Risk and High Financial Risk 40 4.3.7 High Operating Risk and Low Financial Risk 40 4.3.8 High Operating Risk and Medium Financial Risk 41 4.3.9 High Operating Risk and High Financial Risk 41 Questions/Exercises 42 5 External Risks 43 5.1 Business Cycle 43 5.1.1 Benefits of Study of Business Cycles 45 5.1.2 Credit Risk in the Business Cycle 46 5.2 Economic Conditions 46 5.2.1 Private Consumption 47 5.2.2 Government Spending 47 5.2.3 Investment 48 5.2.4 Imports and Exports 48 5.2.5 How to Link NI Components to the Firm 48 5.2.6 Benefits of Study of National Income 49 5.3 Inflation and Deflation 50 5.4 Balance of Payments and Exchange Rates 51 5.5 Political 52 5.6 Fiscal Policy 53 5.7 Monetary Policy 53 5.8 Demographic Factors 54 5.9 Regulatory Framework 55 5.10 Technology 55 5.11 Environment Issues 55 5.12 International Developments 56 5.13 Others 56 5.14 Monitoring External Risks 57 Questions/Exercises 58 6 Industry Risks 61 6.1 Understanding Obligor’s Industry or Market 61 6.1.1 Sector vs. Industry vs. Market Segment 61 6.1.2 Challenges of Industry Classification 62 6.2 Types of Industry Risks 63 6.3 Industry Life Cycle 64 6.4 Permanence of Industry 65 6.5 Government Support 65 6.6 Industry and Factors of Production 66 6.7 Industry and Business Cycles 66 6.8 Industry Profitability 67 6.8.1 Competition Among the Existing Firms Within the Industry 68 6.8.2 Threat of New Entrants 68 6.8.3 Threat of Substitute Products 69 6.8.4 Bargaining Power of Buyers 69 6.8.5 Bargaining Power of Suppliers 70 6.9 Competitor/Peer Group Analysis 71 Questions/Exercises 77 7 Entity-Level Risks 79 7.1 Understanding the Activity 80 7.2 Risk Context and Management 81 7.3 Internal Risk Identification Steps 82 7.3.1 Interviews and Questioning 82 7.3.2 Market Developments and Peer Comparison 83 7.4 SWOT Analysis 83 7.5 Business Strategy Analysis 84 7.5.1 Cost Leadership 85 7.5.2 Differentiation 86 7.5.3 Contraction 86 7.5.4 Market Penetration 86 7.5.5 New Markets 87 7.5.6 New Products/Product Synergy Diversification 87 7.5.7 Product/Market Diversification 87 7.5.8 Consolidation 87 7.5.9 Merger/Takeover 87 7.5.10 Expansion 88 7.5.11 Cost Control 88 7.5.12 Focus 88 7.6 Pitfalls in Strategy 89 7.7 Management Analysis 90 7.7.1 One-Man Rule 91 7.7.2 Joint Chairman/CEO/MGD Position 91 7.7.3 Imbalance in Top Management Team 91 7.7.4 Weak Finance Function 92 7.7.5 Lack of Skilled Managers (or Inability to Attract Skilled Managers in Key Positions) 92 7.7.6 Disharmony in Management 92 7.7.7 Change in Ownership 92 7.7.8 Cultural Rigidity 92 7.7.9 Lack of Internal Controls 93 7.7.10 Low Staff Morale 93 7.7.11 Fraudulent Management 93 7.7.12 Myopic Vision 93 7.7.13 Big Projects 93 7.7.14 Inadequate Response to Change 94 7.7.15 Poor Corporate Governance 94 7.8 Other Internal Risks 94 Questions/Exercises 97 8 Financial Risks 99 8.1 Importance of Financial Statements 99 8.2 Quality and Quantity of Financial Statements 101 8.2.1 Quality of Financial Statements 101 8.2.2 Quantity of Financial Statements 102 8.3 Role of Historical Financial Statements 102 8.4 Financial Analysis 103 8.4.1 Balance Sheet 103 8.4.2 Income Statement (or) Profit and Loss Account 104 8.4.3 Cash Flow Statement (CFS) 105 8.5 Analytical Tools 105 8.5.1 Accounting Analysis 105 8.5.2 Common Sizing Analysis (CSA) 107 8.5.3 Indexed Trend Analysis (ITA) 110 8.5.4 Ratio Analysis 113 8.6 Solvency Ratios 115 8.6.1 Liquidity Ratios 115 8.6.2 Long Term Solvency Ratios 117 8.6.3 External Finance Ratios 120 8.6.4 Dividend and Equity Ratios 120 8.6.5 Cash Flow Ratios 121 8.7 Operational Ratios 123 8.7.1 Performance Ratios 123 8.7.2 Profitability Ratios 124 8.7.3 Return on Investment (ROI) Ratios 125 8.7.4 Asset Management (or Activity) Ratios 126 8.7.5 Leverage (Operating and Financial) Ratios 128 8.7.6 Cost-Volume-Profit (CVP) Ratios 133 8.8 Encapsulated Ratios 134 8.8.1 Dupont Model 134 8.8.2 Predictive Power of Ratios 135 Questions/Exercises 143 9 Integrated View of Firm-Level Risks 147 9.1 Relevance of an Integrated View 147 9.2 Judgement 147 9.3 Identifying Significant Credit Risks 148 9.4 Risk Mitigants 150 9.5 Types of Mitigants 150 9.5.1 Qualitative Mitigants 150 9.5.2 Quantitative Mitigants 152 9.5.3 Difference between Qualitative and Quantitative Mitigants 153 9.6 Principles to be Borne in Mind While Selecting Mitigants 153 9.7 Monitoring of Credit Risk 154 Appendix: Credit Risks and Possible Mitigants 155 Questions/Exercises 158 10 Credit Rating and Probability of Default 161 10.1 Credit Risk Grading 161 10.1.1 Linking EIIF Evaluation to Credit Risk Grades 161 10.1.2 Benefits of Credit Risk Grade System 163 10.2 Probability of Default 163 10.2.1 Benefits of PD Values 165 10.2.2 PD Values and Credit Decisions 165 10.3 External vs. Internal Rating 166 10.3.1 Reliability of External Ratings 167 10.3.2 Internal Ratings 168 10.4 PD in Credit Structural Models 169 10.4.1 The Merton Model (1974) 169 Questions/Exercises 172 Part III Credit Risks – Project and Working Capital 11 Credit Risks in Project Finance 177 11.1 Distinctive Features of Project Finance 177 11.2 Types of Project Finance 178 11.3 Reasons for Project Finance 179 11.3.1 Scarce Resources 179 11.3.2 Risk Sharing 179 11.3.3 Off-Balance Sheet Debt 179 11.3.4 Avoidance of Restrictive Covenants 179 11.3.5 Tax Considerations 180 11.3.6 Extended Tenor 180 11.4 Parties Involved in Project Finance 180 11.4.1 Sponsors 180 11.4.2 Project Lenders 180 11.4.3 Project Contractors/Consultants/Lawyers/Accountants 181 11.4.4 Governments 181 11.4.5 Multilateral Agencies 181 11.5 Phases of Project and Risks 182 11.5.1 Construction Phase Risks 182 11.5.2 Start-Up Phase Risks 182 11.5.3 Operational Phase Risks 183 11.6 Project Credit Risks 183 11.6.1 EIIF Risks 183 11.6.2 Project Specific Risks 184 11.6.3 Project Financial Viability Risks 186 11.7 Financial Study 187 11.7.1 Cash Flow Forecasts 187 11.7.2 Estimation of the Economic Worth of the Project 189 11.7.3 Assessing Creditworthiness – Building a Lender’s Case 190 11.8 Project Credit Risk Mitigants 192 Questions/Exercises 202 12 Credit Risks in Working Capital 207 12.1 Definition of Working Capital 207 12.1.1 Working Capital Cycle – Finance Manager’s Key Concern 207 12.1.2 Working Capital Cycle – Lending Bank’s Point of View 208 12.2 Assessing Working Capital through the Balance Sheet 208 12.3 Working Capital Ratios 210 12.4 Working Capital Cycle 212 12.5 Working Capital vs. Fixed Capital 216 12.6 Working Capital Behaviour 216 12.6.1 Availability of Finance 217 12.6.2 Changes in Trade Terms 218 12.6.3 Changes in Business Volume 219 12.6.4 Price Changes 222 12.6.5 Others 222 12.7 Working Capital, Profitability and Cash Flows 223 12.8 Working Capital Risks 225 12.8.1 Over-trading 225 12.8.2 Diversion Risk 227 12.8.3 Inadequate Financial Management 228 12.8.4 Inflation Risk 228 12.8.5 Inadequate Provisioning of Working Capital in Original Project Costs 228 12.8.6 Losses and Reducing Profitability 228 12.8.7 Inadequate Structuring of Facilities by Banks 229 12.8.8 Unforeseen Contingencies 229 12.9 Impact of Working Capital Risks 229 12.10 Working Capital Risk Mitigants 230 12.10.1 Covenants 230 12.10.2 Cancellation/Tightening/Temporary Freeze of Facilities 230 12.10.3 Increase Pricing 231 12.10.4 Liquidation of Non-Core Assets 231 12.10.5 Owners’ Injection/Strengthening Net Working Capital 231 12.10.6 Improvement of Working Capital Management 231 12.10.7 Insure against the Risk from Unforeseen Contingencies 231 12.11 Working Capital Financing 232 Questions/Exercises 236 Part IV Credit Portfolio Risks 13 Credit Portfolio Fundamentals 241 13.1 Credit Portfolio vs. Equity Portfolio 241 13.2 Criticality of Portfolio Credit Risks 242 13.3 Benefits of Credit Portfolio Study 242 13.3.1 Active Credit Portfolio Management 242 13.3.2 Overall Credit Risk Reduction 243 13.3.3 Optimizes Liquidity 244 13.3.4 Assists Sales and Marketing 244 13.3.5 Insights into Sectoral Risk Exposures 244 13.3.6 Solves the Capital Dilemma 245 13.3.7 Portfolio Management Strategies 246 13.3.8 Credit Quality Issues 247 13.4 Portfolio Analysis 247 13.5 Credit Portfolio Risk vs. Return 249 Appendix: Organizational Conflict in Credit Risk Management 249 Questions/Exercises 251 14 Major Portfolio Risks 253 14.1 Systematic Risk 253 14.1.1 Triggers of Systematic Risk 254 14.1.2 Consequences of Systematic Risk 254 14.2 Diversifiable Risk 255 14.3 Concentration 258 14.3.1 Industry or Sector Concentration 258 14.3.2 Exposure or Name Concentration 259 14.3.3 Region/Location/Country Concentration 259 14.3.4 Foreign Currency Concentration 259 14.3.5 Collateral Risk 260 14.3.6 Maturity Risks 260 14.3.7 Funding Risk 261 14.3.8 Correlation Risks 262 14.4 Credit Portfolio Beta 263 Questions/Exercises 263 15 Firm Risks to Portfolio Risks and Capital Adequacy 265 15.1 Obligor PD and Portfolio PD 265 15.2 Migration Risk 266 15.2.1 Firm Credit Risk Migration 266 15.2.2 Portfolio Risk Migration 268 15.2.3 Benefits of Migration Risk Study 269 15.3 Default Risk 269 15.3.1 Firm-Level Defaults 269 15.3.2 Portfolio-Level Defaults 270 15.4 Loss Given Default (LGD) 270 15.5 Expected Loss (EL) 271 15.5.1 Obligor EL 271 15.5.2 Portfolio EL 271 15.6 Provisioning 272 15.6.1 Provisioning – Firm Level 272 15.6.2 Portfolio-Level Provisioning 273 15.7 Credit Loss Distribution 274 15.7.1 Characteristics of Credit Loss Distribution 275 15.7.2 Benefits of Developing a Credit Risk (or Loss) Distribution 275 15.8 Economic Capital 276 15.8.1 Regulatory Capital vs. Economic Capital 277 15.8.2 Measuring Economic Capital 278 15.8.3 Optimizing Economic Capital 279 Questions/Exercises 282 16 Credit Risk and The Basel Accords 285 16.1 Basel Accords 285 16.2 Basel I (1988) – First Basel Accord 286 16.2.1 Criticisms of Basel I 287 16.3 Basel Accord II (2006) 288 16.3.1 Alternative Approaches for Credit Risk in Basel II 289 16.3.2 Risk Weighted Assets (RWA) and Capital Adequacy in Basel II 293 16.3.3 Do Higher LGD and PD Always Translate into Higher RWA under the IRB Approach? 294 16.3.4 Criticisms of Basel II 295 16.4 Basel III 296 16.4.1 Credit Risk Measurement in Basel III 297 16.4.2 Other Key Features of Basel III 298 16.4.3 Can Basel III Prevent Future Financial/Credit Crises? 299 Appendix 300 Questions/Exercises 302 Part V Portfolio Risk Mitigants 17 Credit Risk Diversification 305 17.1 Traditional Diversification 305 17.1.1 Industry Limit 306 17.1.2 Counterparty Limit 307 17.1.3 Region-Wise Restriction 307 17.1.4 Size 308 17.2 Modern Diversification of Credit Portfolio 309 17.2.1 Portfolio Selection Theory 309 17.2.2 Application of PS in Credit Portfolio 310 17.2.3 More Tools to Study Diversification of Portfolio Risks 314 17.3 Correlations in Credit Risk Models 315 Questions/Exercises 315 18 Trading of Credit Assets 317 18.1 Syndicated Loans/Credit Assets 317 18.2 Securitization 318 18.2.1 Asset Backed Securities (ABS) 319 18.2.2 Collateralized Debt Obligations (CDO) 319 18.2.3 Downfall of CDOs (and Similar Securitized Instruments) 321 18.3 Distressed Debt 321 18.4 Factoring 322 18.5 Distressed Receivables 322 Questions/Exercises 322 19 Credit Derivatives 323 19.1 Meaning of a Credit Derivative 323 19.1.1 Credit Event 324 19.2 Credit Default Swap (CDS) 324 19.2.1 Is CDS an Insurance? 326 19.2.2 CDS and Speculation 327 19.2.3 Uses of CDS 327 19.2.4 Sovereign CDS 329 19.2.5 Criticism of CDS 329 19.3 Total Return Swap 330 19.3.1 Uses of TR Swap 331 19.4 Credit Option (CO) 332 19.5 Credit Spread Options (CSO) 333 19.6 Credit Derivative Linked Structures 333 19.7 Future of Credit Derivatives 334 19.8 Credit Derivatives and Over-the-Counter (OTC) Markets 334 Questions/Exercises 334 Part VI Credit Risk Pricing 20 Pricing Basics 337 20.1 Credit Pricing Factors 337 20.1.1 Credit Risk Premium 337 20.1.2 Portfolio Risk 339 20.1.3 Cost of Capital 340 20.1.4 Cost of Leverage 340 20.1.5 Sector Risks 340 20.1.6 Overheads 341 20.1.7 Other Factors 341 20.2 Pricing Structure 342 20.2.1 Interest Rates 342 20.2.2 Commission and Fees 344 20.3 Credit Risk Pricing Model 344 20.4 Prime Lending Rate 345 Questions/Exercises 348 21 Pricing Methods 349 21.1 RORAC (Return on Risk-Adjusted Capital) Based Pricing 349 21.2 Market Determined 351 21.3 Economic Profit Based Pricing 351 21.4 Cost Plus 353 21.5 Structured Pricing 353 21.6 Grid Pricing 354 21.7 Net Present Value (NPV) Pricing 354 21.8 RANPV (Risk-Adjusted NPV) Pricing 355 Questions/Exercises 355 Part VII The Last Line of Defence – Security 22 Security Basics 359 22.1 Need for Security 359 22.2 Merits and Demerits of a Security 360 22.2.1 Advantages to the Creditor 360 22.2.2 Disadvantages to the Creditor 360 22.2.3 Advantages to the Borrower 361 22.2.4 Disadvantages to the Borrower 361 22.3 Attributes of a Good Security 362 22.4 Security and Pricing 362 22.5 Impact of Systematic Risks on Security 364 22.6 Facility Grades 364 Questions/Exercises 366 23 Collaterals and Covenants 367 23.1 Tangible Security 367 23.1.1 Deposits (with Banks, Financial Institutions, etc.) 367 23.1.2 Stock and Shares 367 23.1.3 Property/Land 367 23.1.4 Goods 368 23.1.5 Gold or Other Precious Metals 368 23.1.6 Bank Guarantees/Letters of Credit 368 23.2 Intangible Security 369 23.2.1 Unregistered Charges 369 23.2.2 Assignment of Debtors 369 23.2.3 Corporate Guarantee 369 23.2.4 Letter of Comfort (LOC) 370 23.2.5 Letter of Awareness 370 23.2.6 Letter of Negative Pledge 370 23.3 Methods of Taking Security 371 23.3.1 Mortgage 371 23.3.2 Pledge 371 23.3.3 Hypothecation 372 23.3.4 Lien 372 23.4 Realizing Security 372 23.5 Covenants – A Trigger to Seek Additional Security 373 23.5.1 Financial Covenants 373 23.5.2 Non-Financial Covenants 376 Questions/Exercises 377 Part VIII Credit Crisis 24 Road to Credit Crisis 381 24.1 Credit and Growth 381 24.2 Role of Banks 382 24.2.1 Credit Creation 382 24.2.2 Confidence in Banking 383 24.2.3 Ultimate Use of Credit 384 24.3 Formation of Credit Bubbles 385 24.4 Types of Credit Bubble 386 24.5 Credit Bubble Explosion 387 Questions/Exercises 390 25 2008 Credit Crisis 393 25.1 Credit Asset – Prime vs. Sub-Prime 393 25.2 Securitization 394 25.2.1 Higher Risk Appetite 394 25.2.2 Availability of CDS 395 25.3 US Housing Bubble 396 25.4 Role of OTC Derivatives 398 25.4.1 Reasons for Popularity of OTC Derivatives 399 25.4.2 Complexity and Opaqueness – the Hallmark of OTC Derivatives 399 25.4.3 Systemic Risk and OTC Derivatives 400 25.5 Role of Rating Agencies 400 25.6 Why Did the Bubble Burst? 401 25.7 Consequences 402 25.7.1 2007 402 25.7.2 2008 402 25.7.3 2009 403 25.8 Impact of the Lehman Collapse 403 25.9 Housing Crisis to Credit Crisis to Economic Crisis 404 25.10 Common Factors 1929 vs. 2009 406 25.11 Lessons of the 2008 Credit Crisis 407 Questions/Exercises 410 Bibliography 411 Index 415

Autorenportrait

Ciby Joseph (FCA, FRM) is a veteran credit and finance professional with two decades of banking experience. His expertise includes credit risk analysis, credit risk management, financial analysis, relationship management, Basel regulations, investment management, derivatives and feasibility studies. His banking exposure included banks such as CSB, HSBC and Lloyds TSB. University Rank holder (1989) and a recipient of a ‘Letter of Appreciation’ from HSBC (2003) for best credit risk analysis, Ciby headed the corporate credit risk of Lloyds TSB Middle East where he enjoyed corporate credit sanction authority. He is currently a Director at Crowe Horwath, UAE and a Partner of Transcend Investments & Credit Advisory, India. Ciby advises CEOs, CFOs and senior executives on optimum credit/borrowing strategies and participates in strategic assignments with respect to financing, debt syndication and risk management and conducts classes on credit risk. He has also contributed articles to various publications including Global Association of Risk Professionals, (GARP) USA.

Back cover copy

Credit is essential in the modern world and creates wealth, provided it is used wisely. The Global Credit Crisis during 2008/2009 has shown that sound understanding of underlying credit risk is crucial. If credit freezes, almost every activity in the economy is affected. The best way to utilize credit and get results is to understand credit risk. Advanced Credit Risk Analysis and Management helps the reader to understand the various nuances of credit risk. It discusses various techniques to measure, analyze and manage credit risk for both lenders and borrowers. The book begins by defining what credit is and its advantages and disadvantages, the causes of credit risk, a brief historical overview of credit risk analysis and the strategic importance of credit risk in institutions that rely on claims or debtors. The book then details various techniques to study the entity level credit risks, including portfolio level credit risks. Authored by a credit expert with two decades of experience in corporate finance and corporate credit risk, the book discusses the macroeconomic, industry and financial analysis for the study of credit risk. It covers credit risk grading and explains concepts including PD, EAD and LGD. It also highlights the distinction with equity risks and touches on credit risk pricing and the importance of credit risk in Basel Accords I, II and III. The two most common credit risks, project finance credit risk and working capital credit risk, are covered in detail with illustrations. The role of diversification and credit derivatives in credit portfolio management is considered. It also reflects on how a credit crisis develops in an economy by referring to the bubble formation. The book links with the 2008/2009 Global Credit Crisis and carries out an interesting discussion on how the credit crisis may have been avoided by following the fundamentals or principles of credit risk analysis and management. The book is essential for both lenders and borrowers. Containing case studies adapted from real-life examples and exercises, this important text is practical, topical and challenging. It is useful for a wide spectrum of academics and practitioners in credit risk and anyone interested in commercial and corporate credit and related products.