Loss and Default Management

Loss and Default Management in Credit Risk Management involves assessing the likelihood that borrowers might fail to repay their loans. It focuses on identifying potential losses from defaults—situations where a borrower cannot meet their repayment obligations. By evaluating credit histories, economic conditions, and borrower behavior, financial institutions can implement strategies to minimize losses, such as diversification of loans and setting appropriate credit limits. Effective management helps ensure the institution remains financially stable and can continue to lend responsibly, balancing risk and profitability while protecting both the lender and the wider economy.