Luottorisken

Luottorisken (a Finnish form related to luottoriski, meaning "credit risk") denotes the risk that a borrower or counterparty will fail to meet contractual payment obligations, causing a financial loss for the lender or investor. It is a core concept in banking, corporate finance and fixed-income investing, affecting lending decisions, pricing and capital allocation.

Credit risk is commonly characterized by three quantitative components: probability of default (PD), loss given default (LGD) and exposure at default (EAD). These inputs are used to calculate expected loss (EL = PD × LGD × EAD) and to perform stress tests and scenario analyses. Qualitative factors include borrower creditworthiness, industry conditions and macroeconomic outlook.

Management of luottorisken involves assessment, mitigation and monitoring. Typical tools are credit analysis and scoring, covenants, collateral and guarantees, loan syndication, diversification, credit derivatives and securitization. Pricing models and internal credit rating systems help allocate capital and set provisioning. Regulatory frameworks such as the Basel accords impose capital requirements and reporting standards to ensure resilience against credit losses.

Credit risk can be idiosyncratic (borrower-specific) or systemic (related to broader economic cycles). Effective risk management balances return and exposure, influences monetary stability and affects financial institution profitability. Failures in managing credit risk have historically contributed to banking crises and require ongoing governance, data quality and stress-testing capabilities.