Krediidiriskide

Krediidiriskide is the Estonian term for credit risks, referring to the risk that a borrower or counterparty will fail to fulfill contractual obligations, resulting in a financial loss for the lender. In financial practice, credit risk arises whenever an entity extends credit, purchases on credit, or engages in funding activities that depend on future repayments. Credit risks can affect individuals, corporations, financial institutions, and governments, and they may stem from default, adverse changes in credit quality, or liquidity constraints of the counterparty.

Credit risk is typically measured with metrics such as the probability of default (PD), exposure at default (EAD), and loss given default (LGD). These inputs feed expected or potential credit losses, including the IFRS 9 framework’s expected credit loss (ECL) calculations. Banks and other lenders also use internal ratings, external credit ratings, and credit scoring to monitor risk levels and to guide pricing, provisioning, and capital allocation.

Mitigation strategies include thorough underwriting, diversification of exposures, collateral and guarantees, credit enhancements, and robust covenants. Portfolio risk can be reduced through correct structuring, securitization, or hedging, though such techniques add complexity and model risk.

Regulatory and supervisory frameworks, such as Basel III, set capital requirements and standards for risk management, governance, and reporting related to credit risk. Ongoing monitoring, stress testing, and scenario analysis help institutions adapt to changing economic conditions and credit cycles.

Krediidiriskide thus represents a central concern in financial risk management, influencing lending standards, product design, capital adequacy, and overall financial stability.