To measure credit risk, which of the following are indicators of greater credit risk for a bank's loan portfolio relative to another bank.

Question

Quizplus · Accepted Answer

All of the given indicators are considered as measures of credit risk for a bank's loan portfolio.

- A higher % of commercial real estate and construction development loans indicate higher credit risk as these are considered riskier loan categories.
- A large % of net loan losses means the bank has experienced significant loan defaults and may indicate a weak credit risk management system. 
- A low earnings to net loan losses ratio indicates that the bank is not making enough profit to cover the loan losses, which may lead to financial instability.
- A low loan allowance to net losses ratio means that the bank has insufficient loan loss reserves which indicates higher credit risk.

Therefore, all of the above indicators are important when measuring credit risk for a bank's loan portfolio.

To Measure Credit Risk, Which of the Following Are Indicators