DOI:

Abstract

This article begins with a description of the basic principles of bank loans. It is followed by a short description of the most important parameters of credit default risk according to Basel II. With the help of these parameters, the expected loss can be calculated. It will easy to see that the expected loss does not completely cover the credit default risk. On the basis of ratings, the problems in the appraisal of the probabilities of defaults are directly connected to the measuring of the expected loss. The most important approaches for this set of problems will be described briefly. The next also most significant step, namely the measuring of unexpected loss, requires a short discussion of the Value at Risk theme of market price risks. By means of a simple single share position, the basic principle of the calculation of the Value at Risk (VaR) will be explained. This type of calculation is a globally recognized standard in the finance industry. Next follows the illustration and explanation of the unexpected loss with the help of the Credit Value at Risk. The issue of the problems of the calculation or the necessity of specific simplifications will be addressed in detail. Finally, on the basis of the Credit Value at Risk, possible approaches for the amount of equity requirement of banks can be described and discussed. In conclusion, proposals for a new financial supervision authority in Vietnam can be derived

Keywords

Basel II; Maximum Loss; Probability Of Default; Recovery Rate; Credit Exposure; Credit Value At Risk; Expected Loss; Unexpected Loss; Credit Default Risk; Density Function; Frequency Distribution; Value At Risk; Market Price Risks; Normal Distribution; Left Skewness