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CREDIT & RISK MANAGEMENT (FIN625)
Assignment – 1
Total Marks: 10 Due Date: January 24, 2020
Topic: The Internal Ratings
ABC bank is a newly established bank that provides loans to individuals and corporates. To fully understand the credit risk bank applies two types of ratings that are:

Internal Ratings

External Ratings
The first rating that is internal ratings is assigned by the lenders undertaking the credit
risk. On the other side, external ratings are conducted by external agencies such as Fitch, Standard and Poor’s and Moody’s for the obligor to help in selecting the debt capital market. From the last several years, Standard and Poor’s and Moody’s are the most prominent external agencies that have rated a large number of companies. Most of the external rating agencies hold expertise in providing credit ratings and treated as unbiased raters which make their ratings widely acceptable among regulators. However, the bankruptcy cases such as Enron in 2001, and losses in Collateralized Debt Obligations in the year 2008 and 2009, making the ratings provided by external rating agencies doubtful.
Therefore, banks and financial institutions apply internal rating system to organizations to capture the whole spectrum of credit risk. Further, the various approaches of BASEL accord to measure credit risk also advocate the use of internal and external credit ratings. While external
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ratings are given a prominent place in the standardized approach, the internal ratings are related to the advanced approaches.
Required:

Keeping in view the above scenario you are required to enlist, and discuss the requirements that have to be fulfilled by ABC bank in adopting the Internal Rating Based Approach.
IMPORTANT
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OTHER INSTRUCTIONS
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REFERENCING GUIDELINES
• Use APA style for referencing and citation. For guidance search “APA reference style” in Google and read various website containing information for better understanding or visit:
http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html
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