Managing Credit Risk

Managing credit risk involves assessing and mitigating the potential losses that can occur when borrowers fail to repay their loans. This process includes evaluating the creditworthiness of individuals or businesses before lending them money, monitoring their repayment behavior, and diversifying the types of loans issued to spread out risk. Financial institutions use various tools, such as credit scores and collateral requirements, to minimize the chance of default. By effectively managing credit risk, lenders aim to protect their investments and maintain financial stability, ensuring that they can continue to lend responsibly.