Explain credit risk management Pd, ldg, ead

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Accepted Answer

Credit risk management involves assessing and mitigating the risk of borrowers defaulting on their loans.

Credit risk management involves evaluating the Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD) of borrowers.
PD refers to the likelihood of a borrower defaulting on their loan.
LGD represents the amount of loss incurred if a borrower defaults.
EAD is the total amount that a lender is exposed to in case of borrower default.
By analyzing these factors, financial institutions can make informed decisions to minimize credit risk.
For example, a bank may use credit scoring models to assess the creditworthiness of borrowers and determine the appropriate interest rates or credit limits.

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