What are the different types of credit risk that companies face?

- Default risk is a complex issue that requires careful consideration of various factors, including borrower creditworthiness, economic conditions, and the regulatory environment. Financial institutions should employ comprehensive risk assessment tools and implement robust risk management frameworks to minimize default risk exposure. - Regarding the Egyptian economic crisis : Default risk poses a significant threat to Egypt's economic recovery. The COVID-19 pandemic and global economic uncertainties have exacerbated credit risk, particularly in sectors like tourism and manufacturing. Addressing default risk is essential for restoring financial stability and promoting sustainable economic growth in Egypt.

Companies face various types of credit risk, including default risk, credit spread risk, concentration risk, country risk, counterparty risk, liquidity risk, interest rate risk, repayment risk, downgrade risk, migration risk, systemic risk, and technological and cyber risk. Understanding these risks is crucial for effective risk management, as it helps companies make informed financial decisions, implement risk mitigation strategies, and maintain a healthy credit profile. Risk management practices include diversification, credit analysis, and monitoring economic conditions. Understanding and managing these risks is essential for companies to make informed decisions and maintain a healthy credit profile.

Default risk is the most obvious and direct type of credit risk. It occurs when a borrower or a counterparty does not pay back the principal or interest of a loan or a financial contract on time or at all. Default risk can result from various factors, such as insolvency, bankruptcy, fraud, or economic downturn. Default risk can be measured by the probability of default (PD), which is the likelihood that a borrower or a counterparty will default within a given time horizon. Default risk can be managed by diversifying the credit portfolio, conducting credit analysis and due diligence, setting credit limits and covenants, and using credit derivatives or guarantees.

Companies’ credit default risk is similar to the balance of financial stability. It is a little bit like doing business chess, where you should not be smart and careful because people will not return the money they borrow. Ensure that your financial stability is maintained. Handling the latter risk can be compared to making a plan: you have to be smart and flexible to adapt to changing conditions to win in the long run.

- Exposure risk is a critical factor in financial risk management. - Proactive strategies can safeguard companies from potential losses. - Mitigating exposure risk is essential for economic stability. - Addressing exposure risk is crucial for Egypt's economic stability, as it can safeguard financial institutions and prevent systemic shocks during crises. *Examples: - Egypt's exposure to foreign currency risk has increased due to its reliance on imports and external debt. - The country's exposure to sovereign debt risk could be heightened by potential economic downturns.

Key Considerations for Recovery Risk in Egypt's Economic Crisis: 1. Collateral Adequacy: The availability and value of collateral significantly impact recovery potential. In Egypt's challenging economic environment, lenders may scrutinize collateral more closely to mitigate potential losses. 2. Borrower's Financial Health: Assessing a borrower's financial condition and ability to repay is essential. In Egypt's economic downturn, lenders may exercise greater caution in extending credit to borrowers facing financial strain. 3. Debt Restructuring Options: Flexibility in debt restructuring agreements can enhance recovery prospects. Egypt's government has implemented measures to support debt restructuring and promote orderly debt resolution.