credit exposure

Credit exposure is the potential amount of money a lender or investor could lose if a borrower defaults on a loan or debt obligation. It represents the maximum risk faced at any point, considering outstanding balances and any undrawn credit lines. Essentially, it measures how much of the lender’s or investor’s funds are at risk in the event the borrower cannot repay. Managing credit exposure helps financial institutions gauge risk levels and set appropriate safeguards, ensuring they are prepared for potential losses while supporting lending activities.