Analytics-University
The video covers the four types of credit markets, including sovereign, financial institution, corporate, and retail financing. Each market varies in terms of product and risk assessment. The retail credit market is more data-driven, while corporate and investment banking use expert opinion and additional information beyond the data. The speaker discusses revolving and non-revolving credit in the corporate and retail markets, and how risk assessment is conducted in each sector. The bond market, which is part of the credit market, is discussed, with different types of bonds carrying varying levels of risk. The speaker also explores how companies raise capital through issuing bonds to the public and offers advice on assessing a company's stability before investing in their corporate debt.
In this section, we will learn about the four types of credit markets and their differences in terms of product and risk assessment. The four types are sovereign, financial institution, corporate, and retail financing, which includes individual borrowers and SME financing. The retail credit market is more data-driven, while the corporate and investment banking division uses expert opinion and other information beyond the data. Also, there is household credit, which includes mortgage and consumer finance for different needs, auto finance, student finance, and credit cards, which are revolving in nature.
In this section, the speaker discusses revolving and non-revolving credit in the corporate and retail markets. Revolving credit comes with a predefined maximum limit and allows corporations to access funds anytime they need it. The interest is only paid on the outstanding amount, not the limit. Risk assessment in the retail market is usually done using an automated scorecard, while on the corporate side, banks rely on rating institutions and in-house default models to assess the probability of default for a given financial institutional or corporate client.
In this section, the speaker explains the credit market, which involves using internal and external models, as well as expert opinions, for assessing risk in the retail, corporate, financial institution, and sovereign sectors. The bond market, which is part of the credit market, is different from the loan market because it is traded in the financial market, while loans are not. Bonds are issued in primary markets and traded in the secondary market, and they come in different types, such as corporate bonds, government bonds, and public sector bonds, with different levels of risk associated with them. Corporate bonds have a higher expected return because they are more risky compared to government bonds, which are considered low-risk.
In this section, the speaker discusses how companies raise capital through issuing bonds to the public, which is a common practice nowadays. Government bonds from developed countries are generally considered risk-free, while banking bonds are no longer considered risky after the 2008 financial crisis. Corporate debt instruments, on the other hand, are considered risky, with some being more risky than others depending on the stability of the company. The speaker recommends doing a proper assessment of a company's stability before investing in their corporate debt, and using ratings provided by rating agencies as a proxy for a company's financial stability.
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