Credit risk within the consumer credit segment refers to the potential for loss that lenders face when borrowers fail to repay their loans, such as personal loans, credit cards, or mortgages. This risk is influenced by factors such as the borrower’s credit history, income level, debt-to-income ratio, and overall financial stability. In consumer credit, lenders assess credit risk through credit scoring models and detailed evaluations of borrower profiles. Effective management involves careful underwriting practices, ongoing monitoring of borrower behavior, and strategies to mitigate defaults, such as diversifying loan portfolios and implementing collections processes for delinquent accounts.

Basel scope:

• Pillar 1
• Pillar 2

Capital requirements:

Mitigated by Capital

Related Links:

•       The Basel framework
•                 BCBS 424 - Basel III: Finalising post-crisis reforms
•                 Basel Framework
•                 BCBS 347 - Revisions to the Standardised Approach for credit risk