The principal means by which banks manage their credit risk exposures is through:

Question

Quizplus · Accepted Answer

Prudent lending practices such as assessing the creditworthiness of borrowers, monitoring and managing credit exposures, maintaining adequate loan loss provisions, and setting appropriate credit limits are the primary means by which banks manage their credit risks. While credit derivatives and securitisation can also be used for credit risk management, they are less common and may introduce additional risks. Charging high interest rates for high risk borrowers and investing in low risk government securities are strategies for managing interest rate risk, rather than credit risk.

The Principal Means by Which Banks Manage Their Credit Risk