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🇬🇧 Chartered Banker Institute Qualifications · flashcards
Chartered Banker Institute Qualifications Credit, Lending and Risk Management Flashcards
53 question-and-answer cards covering Credit, Lending and Risk Management as it is examined in Chartered Banker Institute Qualifications. 24 of them are printed below, taken from across the deck — no signup, no paywall on the preview.
24 sample cards from the Credit, Lending and Risk Management deck
Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.
Define Probability of Default (PD).
PD is the likelihood that a borrower will default on its obligations over a given time horizon (typically one year), expressed as a percentage. It is a core driver of expected loss and credit grading.
Define Loss Given Default (LGD).
LGD is the proportion of an exposure expected to be lost if the borrower defaults, after recoveries: $$LGD = 1 - \text{Recovery rate}$$ It reflects collateral, seniority and recovery costs.
Define Exposure at Default (EAD).
EAD is the total value a lender is exposed to at the moment of default, including drawn balances plus expected drawdown of undrawn commitments (via a credit conversion factor).
Distinguish expected loss from unexpected loss in credit risk.
Expected loss is the average anticipated loss covered by pricing and provisions. Unexpected loss is the volatility of losses around that average; it must be covered by capital (economic/regulatory).
What is the difference between a borrower (obligor) rating and a facility rating?
An obligor/borrower rating measures the probability of default (PD) of the customer. A facility rating reflects the loss given default (LGD) for a specific transaction, incorporating security, structure and seniority.
Contrast through-the-cycle and point-in-time credit rating approaches.
Through-the-cycle (TTC) ratings aim to be stable across the economic cycle, focusing on stress conditions. Point-in-time (PIT) ratings reflect current conditions and so move up and down with the cycle.
What is concentration risk in a credit portfolio?
The risk arising from a lack of diversification — large exposures to a single borrower, connected group, industry sector, or geographic region — so that one adverse event causes disproportionate losses.
Name techniques banks use to manage credit portfolio concentration risk.
Setting single-name, sector and geographic limits; diversification; syndication/participation; securitisation; loan sales; and credit derivatives (e.g. credit default swaps) to transfer risk.
Under IFRS 9, what are the three stages of the expected credit loss (ECL) model?
Stage 1: performing — 12-month ECL. Stage 2: significant increase in credit risk (SICR) — lifetime ECL, still accruing interest on gross. Stage 3: credit-impaired (default) — lifetime ECL, interest on net carrying amount.
What is the key difference between 12-month ECL and lifetime ECL under IFRS 9?
12-month ECL captures losses from default events possible within 12 months. Lifetime ECL captures expected losses from all possible default events over the remaining life of the instrument; it applies once credit risk has increased significantly (Stage 2/3).
How did IFRS 9's ECL model change provisioning compared with the previous IAS 39 approach?
IAS 39 used an "incurred loss" model — provisions only when a loss event had occurred. IFRS 9 uses a forward-looking "expected loss" model, recognising provisions earlier (from day one) based on probability-weighted future scenarios.
List the main credit risk mitigation (CRM) techniques.
Collateral/security (funded protection), netting, guarantees and credit derivatives (unfunded protection), covenants, diversification, insurance, and structuring (e.g. seniority, margining).
Distinguish funded from unfunded credit protection.
Funded (collateralised) protection gives the lender a claim on a specific asset (cash, securities, property). Unfunded protection relies on a third party's promise to pay (guarantee, credit derivative) if the borrower defaults.
Give common signs that a customer is in financial difficulty.
Missed or partial payments, persistent overdraft excesses, increasing reliance on credit, requests for payment holidays, returned direct debits, contact avoidance, and reliance on minimum payments only.
What is forbearance in the context of customers in financial difficulty?
Concessions a lender grants a struggling borrower to help them through temporary difficulty — e.g. reduced payments, payment holidays, interest freezes, or term extensions — rather than enforcing the original terms.
Describe a typical escalation of collections strategy as arrears increase.
Early/soft contact and reminders → affordability discussion and repayment arrangement/forbearance → formal default notice → debt recovery/litigation → enforcement of security or external/insolvency action. Treatment should reflect customer circumstances and TCF/Consumer Duty.
In the UK, contrast bankruptcy, an IVA, and a Debt Relief Order (DRO) as personal debt solutions.
Bankruptcy: court-based insolvency, assets realised, usually discharged after 12 months. IVA (Individual Voluntary Arrangement): a formal binding agreement to repay part of debts over time, avoiding bankruptcy. DRO: for low-income, low-asset debtors with limited debt — debts frozen then written off after the moratorium.
Contrast liquidation with administration as corporate insolvency procedures.
Liquidation winds up the company, realises assets and distributes proceeds, then dissolves it. Administration is a rescue procedure: an administrator runs the company seeking to rescue it as a going concern or achieve a better result for creditors than liquidation.
What does enforcement of security typically involve when recovery action begins?
Calling in (demanding repayment) the facility on default, then realising the charged assets — e.g. appointing a receiver, repossessing and selling property/collateral, or calling on guarantees — applying proceeds to the debt in order of priority.
What is the order of priority when distributing realisations in a UK insolvency (broadly)?
Fixed charge holders first, then insolvency costs, then preferential creditors, then the prescribed part for unsecured creditors, then floating charge holders, then remaining unsecured creditors, and finally shareholders.
List the main categories of banking risk.
Credit risk, market risk, liquidity risk, operational risk, and other risks such as conduct, reputational, strategic/business, and compliance/regulatory risk.
Describe the three lines of defence model in risk management.
First line: business/operational management that owns and manages risk. Second line: risk and compliance functions that set policy and oversee/challenge. Third line: internal audit providing independent assurance to the board over the first two lines.
Define risk appetite and distinguish it from risk capacity.
Risk appetite is the amount and type of risk an organisation is willing to take to meet its objectives, set by the board. Risk capacity is the maximum risk it could absorb before breaching constraints (capital, liquidity, regulation). Appetite sits within capacity.
What is operational resilience and how does it differ from business continuity?
Operational resilience is the ability to prevent, adapt, respond to, recover from and learn from disruption to important business services, staying within impact tolerances. Business continuity is a component — the plans/processes to keep operating and recover specific functions during a disruption.
What this deck covers
The Credit, Lending and Risk Management deck follows the Chartered Banker Institute Qualifications Credit, Lending and Risk Management syllabus — 5 chapters and 23 topics — so questions land on material that is genuinely examinable rather than trivia around it. That works out to roughly 10.6 cards per chapter.
Answers are written to be recallable, not just readable — averaging about 226 characters, which is long enough to carry the reasoning and short enough to say out loud.
A deck like this earns its keep on the second and third pass. Read the syllabus first so you know the shape of the subject, then use the cards to find the specific facts that have not stuck.
Credit, Lending and Risk Management flashcards FAQ
How many Credit, Lending and Risk Management flashcards are in this Chartered Banker Institute Qualifications deck?
53 cards. This page previews 24 of them, sampled evenly across the deck so you can judge the difficulty before installing anything.
Are these Chartered Banker Institute Qualifications flashcards free?
Yes. The preview here is free to read with no signup, and the full 53-card deck is free inside the Examius app.
What do the Credit, Lending and Risk Management cards cover?
They follow the Chartered Banker Institute Qualifications Credit, Lending and Risk Management syllabus — 5 chapters and 23 topics — so the questions track what is actually examinable.
How should I use these flashcards?
Read the syllabus first so you know the shape of the subject, then drill the deck. Examius schedules each card with spaced repetition, so cards you keep missing come back sooner and ones you know drift further apart.