6.4 Credit risk

Credit risk referred to as default risk, i.e. the borrower will default on interest payment or repayment of principal on due date.

Credit risk is determined by two factors:

a) The probability of default

b) The recovery rate

Expected loss=loss given default (LGD)×probability of default (PD)

Credit risk is measured by credit rating.

Credit rating company:

? Standard & Poor 標準普爾

? Moody’s Investor Services 穆迪

? Fitch 惠譽