The emphasis of credit portfolio management is on the importance of assets and earnings diversification, the immediate recognition as losses of all credits judged to be uncorrectable, and the maintenance of an appropriate credit loss allowance.
　　 Risk rating includes borrower’s risk rating and facility risk rating. Risk rating is assigned on a scale of 1 to 10, 1 being highest quality and lowest risk.
　　Borrower’s risk rating is to differentiate credit worthiness of various customers by objective rating methodology, including default norms.
　　To assess probability of default, the credit officer needs to consider the borrower’s financial strength,
　　size, industry trend, market position, relation with banks and its auditor’s reputation.
　　Risk rating is reviewed at least annually, based on new financial information, or any material change in financial and business condition.
　　Facility risk rating reflects the risk associated with a facility to the borrower and more specifically reflects the portfolio risk profile. For unsecured lending, the, facility risk rating is borrower’s risk rating, for secured lending, the facility risk rating will depend on collateral risk. For example, for facility with cash as collateral, the risk rating is 1, for facility secured by securities at acceptable loan ratio, the risk rating can be worse of 5, or equal to the risk rating of the securities, for facility secured by bonds at acceptable loan to value ratio, the risk rating is that of the bond.
　　Country risk rating is assessed as follows by evaluation of a country’s creditworthiness based on its debt servicing ability, foreign exchange generation ability, and foreign exchange reserves. External credit ratings by rating agencies such as Moody’s and S & P are closely followed by many analysts. It should be noted that local currency facility risk rating is better than country risk rating, while foreign currency facility risk rating cannot be better than country risk rating due to transferability (country) risk.
　　1. Assets and earnings diversification is the only purpose for credit portfolio management.
　　A. Right
　　B. Wrong
　　C. Doesn’t say
　　2. In risk rating, 1 refers to the highest risk and lowest quality.
　　A. Right
　　B. Wrong
　　C. Doesn’t say
　　3. Facility risk rating is also associated with the borrower’s rating.
　　A. Right
　　B. Wrong
　　C. Doesn’t say
　　4. Based on the text, local currency facility risk rating is better than foreign currency facility risk rating.
　　A. Right
　　B. Wrong
　　C. Doesn’t say
　　5. Analysts only follow the credit ratings made by Moody’s and S & P.
　　A. Right
　　B. Wrong
　　C. Doesn’t say

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