Integrated View of Firm-Level Risks
In the today's world, as we have seen in Chapter 1, credit is pervasive and inexorable. From the local retailer/financier to multinational banks/manufacturers and multilateral financial institutions, credit holds sway. We have already seen external risks, industry risks, internal/company risks and financial risks. The credit risk model we discussed in Chapters 5 to 8 comprehensively covers all the significant components of credit risk at an entity or firm or company level. Now an integrated approach is required. Having covered all External, Industry, Internal and Financial (EIIF) risks, an integrated view is required to arrive at the correct credit risk.
9.1 RELEVANCE OF AN INTEGRATED VIEW
The obligor credit risk analysis calls for the critical examination or due diligence of the credit risk on a disaggregation basis (EIIF model/risks). However, the overall risk assessment is done on an ‘aggregation basis’ using the output derived from the study of each component of the EIIF model. The division of credit risk into EIIF risks facilitates in-depth study of the credit risk and covers all factors that impact the creditworthiness of a business firm. It should be borne in mind that it is seldom the case that a single condition causes failure, but rather it is a combination of factors. EIIF risks should be viewed together because often two or more EIIF risks work together to trigger a business collapse. For instance, the foray into new markets/ sectors ...