Glossary of Lending risk analysis and Credit risk management

Prepared by Mahfuza Rahman

1. Consortium Loan: means that two or more than two banks authorize correspondent
banks to provide local and foreign currency loan, and credit business for borrowers
in a set time and proportion, based on the same conditions of loan and the same
agreement of loan.
2. DEFINITION of 'Vintage'--A slang term used by mortgage-backed securities (MBS)
traders and investors to refer to an MBS that is seasoned over some time period.
3. DEFINITION of 'Commitment Fee'--A fee charged by a lender to a borrower for an
unused credit line or undisbursed loan. A commitment fee is generally specified as a
fixed percentage of the undisbursed loan amount.
4. What is CIB?--Credit Information Bureau (CIB) is a document of an individual,
which contains the repayment history of liability. The CIB is generated from central
bank of a country. In the previous time, the CIB was generated manually but now a
days it is generated through online from the server of Central Bank. In manual
process it was a lengthy process which took about 15 to 20 days to generate, but now
it requires only few seconds.
5. Risk Grading: The Credit Risk Grading (CRG) is a collective definition based on
the pre-specified scale and reflects the underlying credit-risk for a given exposure.
6. Probate loan: Registration of Gifted/willed asset is costly and bank finance this cost
as a probate loan.

7. DEFINITION of 'Debt Rescheduling'--A practice that involves restructuring the

terms of an existing loan in order to extend the repayment period. Debt
rescheduling may mean a delay in the due date(s) of required payments or reducing
payment amounts by extending the payment period and increasing the number of
payments.
8. DEFINITION of 'Moral Hazard'--The risk that a party to a transaction has not
entered into the contract in good faith, has provided misleading information about
its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a
desperate attempt to earn a profit before the contract settles.
9. DEFINITION of 'Stress Testing'--A simulation technique used on asset and liability
portfolios to determine their reactions to different financial situations. Stress tests
are also used to gauge how certain stressors will affect a company or industry. They
are usually computer-generated simulation models that test hypothetical scenarios.
10. Risk Indexes--Categories of risk used in risk analysis. Examples include financial
risk, political risk, and credit risk.
11. DEFINITION of 'Spread'==The difference between the bid and the ask price of a
security or asset.
12. DEFINITION of 'Collateral'--Property or other assets that a borrower offers a
lender to secure a loan. If the borrower stops making the promised loan payments,
the lender can seize the collateral to recoup its losses. Because collateral offers some
security to the lender in case the borrower fails to pay back the loan, loans that are
secured by collateral typically have lower interest rates than unsecured loans. A
lender's claim to a borrower's collateral is called a lien.

13. DEFINITION of 'Syndicated Loan'--A loan offered by a group of lenders (called a

syndicate) who work together to provide funds for a single borrower. The borrower
could be a corporation, a large project, or a sovereignty (such as a government). The
loan may involve fixed amounts, a credit line, or a combination of the two
14. DEFINITION of 'Doubtful Loan'--A loan where full repayment is questionable and
uncertain. Degree of repayment of loans in question range from a complete loss to
uncertain loss unless corrective actions are taken. Doubtful loans are usually nonperforming loans on which interest is overdue and full collection of principal is
uncertain.
15. DEFINITION of 'Liability Management'--Use and management of liabilities, such
as customer deposits, by a bank in order to facilitate lending and allow for balanced
growth. Management of money accepted from depositors as well as funds secured
from other institutions constitute liability management.
16. Interest Rate Risk Definition:--The risk that an investment's value will change due
to a change in the absolute level of interest rate.
17. DEFINITION of 'Standby Letter of Credit - SLOC'--A guarantee of payment issued
by a bank on behalf of a client that is used as "payment of last resort" should the
client fail to fulfill a contractual commitment with a third party.
18. Bridge Loan Definition--A bridge loan is a type of short-term loan, typically taken
out for a period of 2 weeks to 3 years pending the arrangement of larger or longerterm financing.
19. credit review--Follow-up monitoring of a loan or extension of credit by a senior loan
committee, bank auditor, or regulatory agency

20. The Altman Z-score--The Altman Z-score is a combination of five weighted business
ratios that is used to estimate the likelihood of financial distress.
21. Restrictive covenants --Restrictive covenants can include such reasonable provisions
as adequate maintenance of property and limitations pertaining to paint and
decoration
22. Compensating-Balance Requirements--A bank account balance that a corporation
agrees to maintain with a current or potential lender.
23. Credit score--A credit score is a numerical expression based on a level analysis of a
person's credit files, to represent the creditworthiness of the person.
24. Roll rate: In the credit card industry, the "roll rate" is the rate at which 30-day
delinquencies "roll" to become 60-day and then 90+ day delinquencies.
25. Cost-plus pricing: Cost-plus pricing is a pricing strategy in which the selling price is
determined by adding a percentage markup to a product's unit cost.

26. PURCHASE AGAINST DOCUMENT:A payment arrangement in which an

exporter instructs a bank to hand over shipping and title documents (see document
of title) to the importer when the importer fully pays the accompanying bill of
exchange or draft. Also called documents against payment.
27. Risk-weighted asset-Risk-weighted asset ( also referred to as RWA) is a bank's
assets or off-balance-sheet exposures, weighted according to risk.
28. Securitization--Securitization is the process of converting an asset, or group of
assets, into a marketable security

29. Value At Risk (VaR) Definition--A statistical technique used to measure and
quantify the level of financial risk within a firm or investment portfolio over a
specific time frame.
30. Stress testing--Stress testing is a useful method for determining how a portfolio will
fare during a period of financial crisis.
31. Loan Administration: A loan administrator is the company that services a loan after
the loan agreement has been executed.