The ABC Bank is a bank in India and has a credit portfolio of Rs. 10 billion. The key portfolio features are given below: The largest sector exposure is in construction which accounted for 20% of the credit portfolio (others sectors in the portfolio include cement/steel manufacturers, building material distributors, real estate developers/builders, automobile manufacturers, tyre manufacturers and investment banks). The two largest customers account for 30% (they belong to the construction and building materials sector). All obligors in the credit portfolio are situated within India. The credit products offered by the bank include both short and long term – but the majority is long term exceeding one year, accounting for 60% of the portfolio. Most of the funding sources are short term – i.e. short-term deposits and inter-bank borrowings, which accounted for about 75% of the total funding requirements. Although entire lending was in Rupees, 45% of the short-term deposits were in non-rupee currencies. The only collateral it accepts is real estate. Discuss the portfolio level risks in this portfolio. Is there any significant undiversified risk in this credit portfolio? If so, suggest how further diversification can be achieved
- The ABC Bank is a bank in India and has a credit portfolio of Rs. 10 billion. The key portfolio features are given below:
The largest sector exposure is in construction which accounted for 20% of the credit portfolio (others sectors in the portfolio include cement/steel manufacturers, building material distributors, real estate developers/builders, automobile manufacturers, tyre manufacturers and investment banks).
The two largest customers account for 30% (they belong to the construction and building materials sector).
All obligors in the credit portfolio are situated within India.
The credit products offered by the bank include both short and long term – but the majority is long term exceeding one year, accounting for 60% of the portfolio.
Most of the funding sources are short term – i.e. short-term deposits and inter-bank borrowings, which accounted for about 75% of the total funding requirements.
Although entire lending was in Rupees, 45% of the short-term deposits were in non-rupee currencies. The only collateral it accepts is real estate.
Discuss the portfolio level risks in this portfolio. Is there any significant undiversified risk in this credit portfolio? If so, suggest how further diversification can be achieved.
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