Explain how credit risk management plays a critical role in the financial and operational vitality of commercial banks.
a. Detail and give examples of two (2) financial ratios often used to provide a direct
measure of a commercial bank’s credit risk exposure.
Guide: 200 words, 4 marks.
b. Find annual (yearly) data to calculate and graph the two ratios discussed in part (a) for
the top four Australian banks over 2014-2019.
Conduct trend and peer analyses based on your graphs, and comment on these banks’
credit risk management approaches.
Guide: 400 words, 9 marks. You must provide two (2) graphs, one for each ratio.
Your graphs must be presented in the main text of the essay together with the
discussion, while your data and calculated ratios must be shown in the appendix.
Note: Appendices are not included in the word limit.
c. Evaluate how and why Australian banks’ credit risk exposure may be affected by the
current COVID-19 pandemic in the foreseeable future. Comment on whether you
believe Australian banks have the resilience to weather this challenging episode and
why or why not. Your answers should be relevant to banks’ credit risk.
Guide: 400 words, 7 marks.
Note: Approximately 200 words are recommended for introduction and conclusion
together. Subheadings should be used to separate parts a, b and c.