The risk that a borrower will default on any type of debt by failing to make required payments and that the corresponding lender suffers a loss.
The credit risk includes 3 kind of risks:
- the default risk: the risk of loss arising from a debtor being unlikely to pay its loan obligations in full or the debtor is more than 90 days past due (according to Basel agreements on any material credit obligation; default risk may impact all credit-sensitive transactions, including loans, securities and derivatives.
- the Concentration Risk: The risk associated with any single exposure or group of exposures with the potential to produce large enough losses to threaten a bank's core operations. It may arise in the form of single name concentration or industry concentration and particularly concerns the retail banking industry.
- The Country Risk: the risk of loss arising from a sovereign state freezing foreign currency payments (transfer/conversion risk) or when it defaults on its obligations (sovereign risk); this type of risk is prominently associated with the country's macroeconomic performance and its political stability.