Corporate Risk & Valuation · Entry 02 of 71

What Is Credit Risk?

The hazard of borrower default and repayment failure

Core Definition

Credit Risk refers to the possibility that a borrower will fail to meet their financial obligations, resulting in financial losses for the lender or investor.

Key Implications

1. Can lead to defaults and repayment issues: Lenders may lose both the principal and interest payments, impacting their balance sheet.
2. Impacts the lender's financial performance and stability: High levels of credit risk can drain reserves, raise costs of capital, and harm overall solvency.