Bank Credit Risk Analysis and Bank Credit Rating

  • Terence M. Yhip
  • Bijan M. D. Alagheband


This chapter applies the criteria-based approach to the banking industry. Commercial banks are different from other enterprises in their core activities and thus the variables that determine bank failure are different. A commercial bank earns the bulk of its income from long-term loans funded by shorter-term retail deposits and wholesale borrowings—a process called maturity transformation. The chapter provides the conceptual framework to analyse a bank’s financial statements and to narrow the focus to the business environment, quality of management (including risk management) and governance, and financial strength. This last includes a comprehensive and thorough examination of asset quality, and the adequacy and quality of liquidity and capital. The chapter explains important metrics such as Basel III capital ratios, economic capital, and Value at Risk.


Maturity transformation Risk management Basel III capital ratios Economic capital Value at Risk 

Supplementary material

485627_1_En_7_MOESM1_ESM.pptx (933 kb)
Bank credit risk analysis and bank credit rating (PPTX 934 kb)

Copyright information

© The Author(s) 2020

Authors and Affiliations

  • Terence M. Yhip
    • 1
  • Bijan M. D. Alagheband
    • 2
  1. 1.University of the West IndiesMississaugaCanada
  2. 2.McMaster University and Hydro One Networks Inc.TorontoCanada

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