Sample interview questions: How do you assess and manage credit default risks?
Sample answer:
Assessing Credit Default Risks:
- Credit Scoring Models: Employ statistical models that assign scores to borrowers based on their financial characteristics, predicting the likelihood of default.
- Financial Ratio Analysis: Examine key financial ratios to assess a borrower’s liquidity, solvency, and profitability.
- Cash Flow Analysis: Analyze historical and projected cash flows to identify potential shortfalls or fluctuations that may indicate an increased risk of default.
- Market Research: Monitor industry trends, macroeconomic conditions, and specific company performance to identify external factors that could impact creditworthiness.
- Industry and Peer Analysis: Compare a borrower’s financial metrics and performance to industry benchmarks and comparable companies to assess their relative risk profile.
Managing Credit Default Risks:
- Credit Limits and Extensions: Establish limits on the amount of credit extended to borrowers and monitor for any requests for extensions or increased credit.
- Guarantees and Collateral: Require guarantees from third parties or collateral assets to reduce the potential impact of a default.
- Loan Covenants: Implement contractual restrictions that obligate borrowers to maintain certain financial ratios or meet specific performance criteria, providing early warning of potential defaults.
- Diversification: Spread credit … Read full answer
Source: https://hireabo.com/job/1_2_45/Financial%20Risk%20Manager