Moneyscience Interview

Moneyscience, London, UK had interviewed me on ' Advanced Credit Risk Analysis & Management'. Please see below: 

Jacob Bettany: Could you begin by telling us a little bit about your background and how you came to write this book?

Ciby Joseph: I would like to introduce myself as a veteran risk management professional with two decades of banking experience. My expertise includes risk analysis, credit risk management, derivative risk management, financial analysis, relationship management, Basel regulations and investment management. During my banking career, my focus was predominantly on credit risk.

How I came to write this book is an interesting story. In the late 1990s, when I was working with HSBC Saudi Arabia as Senior Credit Analyst, I was assigned the role of teaching credit basics to new recruits under JODP (Junior Officers Development Program). One of the new recruits approached me and asked.......to read more please see the link http://tinyurl.com/osq7rvt 

BASEL III in USA - will it make any difference?

 

Whilst Federal Reserve may be confused as to when to withdraw stimulus (i.e. QE), it seems that they do not have much confusion on what to do with Basel III.

 

They have decided to adopt tougher requirements for bank balance sheets under Basel III.

 

The rules are purportedly designed to prevent another financial crisis - however, it may be a tall claim. Basel II when launched during early 2000s, it was acclaimed as revolutionary. Well it ended up creating wrong revolution as it made banks' credit / lending pro-cyclical and gave unnecessary prominence to External Credit Rating agencies. So we have to wait and see whether Basel III fulfils the claims its creators currently make.

 

Well it looks like Basel Accords are predominantly created mainly by economists. More bankers must be involved at the design stage itself.  Basel III rules are supposed to make it more expensive to be a very big bank while going easier on small and medium-size institutions. They don't realise Big Banks are smarter and can convince the regulators how strong they are - For example, just before bankruptcy, Lehman was in full compliance with Basel II regulations and complied with capital adequacy norms!!

 

The reckless lending led to subprime bubble and its burst resulted in worst banking crisis since the Great Depression of 1929.  The federal government launched an unprecedented bailout that pumped about $700 billion into the U.S. financial system. The US Government is still saddled with issues related to the 2008 Credit Crisis - QE related problems, being one of them.

 

The time frame to comply with rules is rather relaxed - the banks must meet a new minimum capital requirement within 5& half years - it means the banks need to comply it by 2019 or even 2020, given the possible extensions, we can expect from the regulators based on the requests from banking sector. 

 

One of the key rules is that the banks have to hold at least 7% of RWA (risk weighted assets) in high-quality capital, such as common stock and retained earnings. Well it is not the capital adequacy that prevents bank collapses –the way the credit risks are analysed and managed is more important.

  

Fed officials made a big statement that they will introduce tougher rules on the nation's largest banks - well it seems to be a joke because, when JPMorgan Chase & Co. didn't provide much detail about its USD 5 billion derivative loss a few months back, Fed let them go without any significant action. When the law makers asked the CEO & Chairman of J P Morgan  - Jamie- a few questions, the answers were not only as murky as the deal; instead Jamie smacked arrogance in his replies (it shows the age old principle in action "attack is the best defence'.) The banks which accept deposits from public still play high risk games, especially the large ones such as JP Morgan - this casts doubt whether new standards, part of the so called Basel III will make any real difference.

Link to the book : http://eu.wiley.com/WileyCDA/WileyTitle/productCd-1118604911.html

http://www.amazon.com/Advanced-Analysis-Management-Finance-ebook/dp/B00CJ9FVGS


 

ADVANCED CREDIT RISK ANALYSIS & MANAGEMENT

 

 

The book carries following endorsements

 

‘The author has been very thorough in his research and it is obvious that he has used his extensive experience as a practitioner in the way that he has addressed this important subject.’
—David Moleshead,  Former Managing Director, HSBC (ME)

‘It’s rare to find such a mix of theoretical and practical advice on credit risk in such an accessible format. This book will surely be useful for both lenders and borrowers.’
—James Mathew FCA CPA (USA), Managing Director, Crowe Horwath, Dubai

‘This is possibly the most comprehensive and rigorous work on credit risk. I particularly liked the approach, the simple, lucid, attractive style and the numerous interesting real-life examples. Ciby is a banker turned consultant and we have the benefit of his varied experience. Loaded with many powerful tools and techniques, this book will be a valuable guide to practitioners and academics alike. I'd advise anyone involved in credit to read carefully what Ciby has to say!’
—Binod Shanker, CFA, Managing Director, Genesis Institute

‘Credit Risk is the buzzword in the financial world these days and this book throws light on how to approach the intricacies of credit risk management effectively.’
—Davis Kallukaran FCA CFE (USA), Chief Executive Officer, Horwath MAK Corporation

‘Anyone who's ever wanted to understand credit risk surely can benefit from the practical information in this book.’
—Srinivas Arun ACA, AICWA, CPA (USA) ACMA (UK), Partner, Venture Consulting/Former CFO, Dubai Gold & Commodity Exchange

 

Buy the book : http://www.amazon.com/Advanced-Analysis-Management-Finance-ebook/dp/B00CJ9FVGS

ABOUT THE BOOK

The way corporate credit risk is analysed and studied in the book is unique.  The book provides a thorough treatment on Credit Risk and discusses obligor risk, portfolio risk, capital requirement, credit pricing and Basel accords. Amongst others, the book

 

•              Introduces the nature of credit risk and discusses advantages of credit (Chapter 1) and discusses the historical progress and challenges of credit risk analysis (chapter 2).

•              Explains the strategic role of credit risk culture and risk appetite statements (Chapter 3) and highlights the importance of separating credit risk (Chapter 4) variables.

•              Provides guidance on various external risks and formulation of effective early warning indicators (Chapter 5)

•              Discusses the impact of business cycles on the Industry as well as Industry profitability factors (Chapter 6). The chapter ends with a detailed case study.

•              Studies the entity level risks, including strategy and management risks. (Chapter 7). The chapter ends with a detailed case study.

•              Provides in-depth treatment of financial risk analysis (Chapter 8) with several worked out examples and a detailed case study. About 50 pages have been devoted to this important topic. 

•              Explains how to make integrated credit risk judgement and provides several credit risk mitigants for obligor risk (Chapter 9)

•              Shows how the obligor credit risk analysis is converted into risk grades and discusses how PD can drive credit decisions in a logical and mathematical manner (Chapter 10). Links Merton Model to the traditional accounting based credit risk analysis.

•              Provides in-depth analysis of the credit risks of two common situations - Project Finance and Working Capital Finance (Chapters 11 & 12). Besides worked out examples, both chapters end with detailed case studies.

•              Explains the benefits of credit portfolio analysis and the role of systematic and unsystematic risks and various credit portfolio risks (Chapters 13 & 14)

•              Shows the importance of Migration risk and how to construct Credit Loss distribution & estimate Economic Capital (Chapter 15). The chapter ends with a detailed case study.

•              Digs out the subtle issues in the Basel Accords and explains the role of external credit rating agencies (Chapter 16). Introduces Kelly’s formula in the context of credit risk management.

•              Provides various credit portfolio risk mitigants such as traditional and modern diversification, mathematical way of calculating sector limits, sale of credit assets and credit derivatives. Discusses the pros and cons of Credit Default Swaps (Chapter 19)

•              Explains importance of credit risk pricing, interest rate hedging and explains several pricing methods, including RAROC, EVA and NPV Pricing (Chapters 20 & 21).

•              Elaborates the role of security as return enhancer and credit risk mitigant. Also discusses various aspects of collateral and how systematic risks may impact collateral (Chapter 22)

•              Discusses the issue of structural subordination and importance of both financial and non-financial covenants and how to set covenants to manage the underlying risks. (Chapter 23)

•              Examines the reasons for credit crisis and links the credit to growth and how and when disconnect can happen leading to credit bubbles and subsequent credit and banking crisis (Chapter 24). The chapter ends with a case study. 

•              Explains 2008 Global Credit Crisis, led by the US Housing Sector, which in turn is traced to the subprime market bolstered by various credit market players and new credit risk linked products such as Credit Default Swaps.(Chapter 25). 

Whilst the above provides a glimpse of the contents of the book, the readers will find that the topics have a unique and practical treatment that will enable them to look at credit risk with clarity and better understanding.

The book has case studies adapted from real life, examples and exercises to ensure that the book is highly practical, topical, interesting and challenging. The book will be useful for a wide spectrum of academics and practitioners in credit risk and will include Bankers, Relationship Managers, Credit risk management professionals, Financial Advisors, Consulting professionals, Credit Analysts, Credit Managers, Bank Regulators, Bank Consultants, Treasury Managers. Finance Managers, Chief Finance Officers, Chief Executive Officers, Risk analysts, Investment bankers, Research and Ratings personnel, Portfolio Managers, Accountants, Auditors, Finance Professors, Finance students and anyone who is interested in the commercial and corporate credit and related products.

BUY at Amazon : http://www.amazon.com/Advanced-Analysis-Management-Finance-ebook/dp/B00CJ9FVGS


ABOUT THE AUTHOR

The book is authored by a veteran credit and finance professional with over 20 years' experience in lending to the business sector. University Rank holder and a recipient of ‘Letter of Appreciation’ from HSBC (2003) for best credit risk analysis, the author headed the corporate credit risk of Lloyds TSB Middle East where he enjoyed corporate credit sanction authority. He has also contributed articles on credit risk to various publications including Global Association of Risk Professionals, (GARP) USA.