CCP Advanced Level
Advanced Credit Risk Management cheat sheet
Every chapter's key points, formulas and definitions on one page, for the last week before the exam. Each heading links to the chapter that explains it.
Introduction to credit portfolio management
- A loan's upside is capped at the contractual interest while default can cost the whole principal, so credit portfolios need different tools from equity portfolio theory, even though both rest on diversification.
- Credit portfolio management spots concentration risk before it becomes loss, informs capital allocation, supports risk-based pricing and lets a lender respond to risk proactively rather than reactively.
- The credit portfolio function can hold veto rights over transactions, act in an advisory role, or run as a profit centre measured on risk-adjusted portfolio returns.
- Passive CPM holds originated loans to maturity; active CPM reshapes the portfolio after origination through trading credit assets, credit derivatives and securitisation.
- Active CPM in Kenya is held back by thin local credit derivatives and secondary loan markets, data gaps, capital treatment complexity and resistance from relationship-based lending.
Key terms
- Veto rights model
- The credit department can block individual transactions that would breach portfolio-level risk limits, a control-focused role.
- Advisory role
- The credit department advises business units on portfolio implications without formal veto authority.
- Profit centre role
- The credit portfolio function is itself measured on risk-adjusted portfolio returns, actively trading exposure (see the chapter on portfolio risk mitigation) rather than only monitoring it.
- Passive CPM
- Originated exposures are held to maturity, risk managed primarily through origination discipline and diversification at the point of lending.
- Active CPM
- The portfolio is actively managed post-origination, through trading credit assets, credit derivatives, and securitisation (see the chapter on portfolio risk mitigation), adjusting exposure without waiting for facilities to mature.
The rest of the sheet covers
- Major portfolio risks
- Credit risk in working capital
- Credit risk in project finance
- From firm risks to portfolio risks and capital adequacy
- Credit risk pricing
- Credit risk modelling
- Basel and prudential guidelines
- Stress testing and scenario analysis
- Credit portfolio risk mitigation
- Collateral management
- Credit portfolio management and credit crises
- Bank runs and the Silicon Valley Bank collapse
- Analysis of case studies
- Worked examples
- Exam technique and revision
- Glossary