SECTION 1

I.

1. Definition of bank credit

The word credit comes from the Latin verb (credere) which means (I believe, I have confidence). This is therefore the activity
which is based on the trust that the lender places in the borrower.

In economic terms, the term credit refers to the various activities of lending money in the form of
contract, bank loan or payment delay from a supplier or client). This credit is bearer
interest that the debtor or borrower must pay to the lender.

In the banking field, a bank credit is concluded through a contract between

borrower and lender, represented by the provision of funds on a date or a period
data in exchange for a repayment obligation in return for a remuneration.

2. the characteristics of bank credit

The characteristics of bank credit can be presented as follows:

2.1 the confidence

The credit octroid rests on mutual trust between the client and their bank. The bank seeks the
creditworthiness of its client through its reputation, its position, and its skills in its activity
professional. And even the client must be convinced that the bank will not withdraw its support from him.
moment when he will need it.

2.2 the guarantees

A bank guarantee, also called a bank surety. Represents all means

allowing to ensure a refund in case one of the two parties fails to honor
the contract. This deposit can be (a payment guarantee, bid guarantee, guarantee of
refund of deposit...

2.3 remuneration

This refers to all the charges (the interest rate, anticipated fees, etc.) borne by the client.
in the form of annuities to be paid.

2.4% interest rate

The credit agreement also includes the credit rate also called the nominal rate.
It is an interest rate that is applied to the amount borrowed in the context of a loan. It allows for
calculate the amount of interest that will be paid by the borrower with the duration of the loan granted by
the bank, it allows to define the number and amount of the monthly payments. Its interests calculated with the
Interest rates allow the bank to offset its own refinancing cost and risk.
that she takes money on loan.

the risk

It is the risk that a borrower will not repay all or part of their loan on time.
foreseen by the contract signed between him and his bank. Managing this risk is at the heart of the profession of
banker because he determines the profitability of the operations carried out. This mastery implies a
dual skill the first concerns a perfect knowledge of the analysis procedures
credit files, the second in management requires careful monitoring of
customer competition.

3. the types of credit granted

The types of bank credits are those that encompass the various activities of lending money by the
commercial banks, these types vary according to several criteria. They can be analyzed according to (the
forms, duration, mode of marketing ...), today these modalities also vary
according to the banking institutions.

3.1 short-term credit

They are credits with a duration of less than 1 year and can be divided into two subcategories:

3.1.1 cash credit

Or exploitation, these credits are granted to companies in order to strengthen their

cash resources that will allow them to cover their operational needs. The credits that
are generally granted in this section are as follows:

II.

1. definition of credit risk

In finance, a risk refers to uncertainty about the future value of a current data point. It
corresponds to a possibility of monetary loss due to uncertainty that can be quantified.

A banking risk is a potential danger to which a banking institution is exposed when

the exercise of its activities and this may impact the members, the heritage, the activity and the
results of these activities.

Through these definitions, we can extract two essential elements that characterize risk.
in the banking sector:

• The random and unpredictable nature that is the source of risk.

• The issue is related to the future results and losses of the bank; it is the final consequence.
2. nature and category of risks:

Banking activity, through its role of financial intermediation and its related services, exposes the
establishments have numerous risks. The classification proposed by the new Basel agreement distinguishes
among three main categories:

• Credit risk.
• Market risk.
• Operational risk.

2.1 Credit risk

Credit risk or counterparty risk for the bank is the risk that a client does not
may no longer wish at any given moment to fulfill its financial obligations stipulated by
the contract. There are two types of credit risk:

2.1.1 the risk of default:

This type of risk seeks to show that there is a defect in the process level and that it
characterized by the inability of the counterparty to guarantee the payment of its due dates.

The Basel Committee in its second consultative document considers a debtor to be in

defect when one or more of the following events is observed:

The borrower is unlikely to repay all of his debts (principal, interest, and
commissions) ;

The identification of a loss concerning one of its facilities: recording of a loss,

distress restructuring involving a reduction or rescheduling of the principal, of
interests or commissions;

The borrower is in legal bankruptcy.

2.1.2 The risk of spread degradation:

The credit spread is the risk premium associated with it. Its value is determined based on
the volume of risk incurred (the higher the risk, the wider the spread). The risk of degradation
The spread is the risk of seeing the quality of the counterparty deteriorate and thus the increase in its
probability of default. This leads to an increase in its risk premium, hence the decrease in the margin
on interests.
This risk can be measured separately for each counterparty or globally across all.
the credit portfolio.

2.2 operational risk

The Basel Committee defines operational risk as 'the risk of direct or indirect losses
resulting from an inadequacy or failure attributable to procedures, agents,
internal systems or external events." It therefore refers to inefficiencies within the organization.
and the management of the institution. Included in this definition are: Legal risk, the risk
computer science, accounting risk, ethical risk, fraud, losses and theft. Excluded are:
reputational risk and strategic risk. Operational risk corresponds to a series of
losses incurred by the management of the establishment that are not directly related to the risk of
market or credit. The specificity of this risk lies in the difficulty of its quantification, which
makes its management quite complex. In the new capital adequacy ratio of the Basel Committee, the risk
operational is subject to a capital requirement.

2.3 the risk of walking

It is the risk of losing a market position that may result from fluctuations in prices.
make up a portfolio.

We distinguish between three categories of walking risk:

2.3.1 foreign exchange risk

It is a risk that arises during foreign investments (borrowing in dollars, for example)
and for financial products in foreign currencies. It results in a change in value
of an asset or a cash flow following a change in the exchange rate.

2.3.2 The interest rate risk

The interest rate risk exposes the bank to the subsequent evolution of interest rates.
Interest rate risk encompasses two elements: a general risk related to the evolution of rates.
interest and a specific risk that represents the risk related to the market's appreciation of
the issuer of the instrument. Two main valuation methods can be retained for
the general risk. The first is based on a detailed schedule where the securities are broken down and
weighted according to their remaining duration, then multiplied by a coefficient that represents the
interest rate variation. The second method is based on the precise duration of each security. The
weighted positions are then subject to capital requirements. Specific risk aims to
take into account the counterparty risk related to the issuer of the instrument, which must be distinguished from the
risk related to the counterparty of the transaction. The net positions on each security are then
weighted to reflect the quality of the issuer.

2.3.3 The risk of position in equities and commodities:

Which results in an unfavorable evolution of the prices of certain specific products (the
stocks, raw materials, and certain debt securities.
2. Nature and category

• The borrower will probably not repay his debts in full (principal,
interests and commissions;
• The identification of a loss affecting one of its facilities: accounting for a loss,
distress restructuring involving a reduction or rescheduling of the principal,
interest or commissions;
• The borrower has been in default for ninety (90) days on one of their
credits;
• The borrower is in legal bankruptcy.

2.1.2 the risk of recovery

The recovery rate allows to determine the percentage of the debt that will be recovered in
initiating legal proceedings due to the counterparty's bankruptcy. The recovery
will carry on the principal and the interest after deducting the amount of the guarantees beforehand
collected.

The recovery rate constitutes a source of uncertainty for the bank as it is

determined through the analysis of several factors:

• The length of judicial proceedings that vary from one country to another;
• The real value of the guarantees;
• The bank's rank in the list of creditors.

2.2 Operational Risk

……..

This risk is very complex. It is important to harmoniously integrate the past, the present and the
future. The past allows us to observe failures and partially model risk. But it must
to be completed with expert scenarios that anticipate future risks. Some risks
appear over time or increase due to environmental instability
banking. The risk thus evaluated must be corrected. The risks are proportional to certain
indicators for which it is possible to anticipate future developments. Moreover, an improvement in
internal control system can affect this risk.

2.3r. of walking

……

2.3.2 The interest rate risk

The interest rate risk poses a threat to the bank from the future evolution of interest rates. The
interest rate risk covers two elements: a general risk that is related to the evolution of rates
interest and a specific risk that represents the risk related to the market's appreciation of
the issuer of the instrument. Two main valuation methods can be selected for
the general risk. The first is based on a detailed schedule where the securities are broken down and
weighted according to their remaining duration, then multiplied by a coefficient representing the
interest rate variation. The second method is based on the exact duration of each security. The
weighted positions are then subject to capital requirements. Specific risk aims to
take into account the counterparty risk related to the issuer of the instrument, which must be distinguished from
risk related to the counterparty of the transaction. The net positions on each security are then
affected by weights that reflect the quality of the issuer.

2.3.3 The position risk on stocks and commodities:

This translates to an unfavorable evolution of prices for certain specific products.

stocks, raw materials and certain debt securities.