Credit Risk Appetite: Basics

Credit risk appetite is the level of risk that a bank is prepared to accept to achieve its objectives. It is important for banks to set risk appetite at an appropriate level to ensure credit risks are only accepted and managed within that appetite. Appetite must be reviewed and reset in light of changing market conditions and portfolio performance. Here we describe the importance of setting credit risk appetite, the various measures of risk appetite, and the impact of risk appetite on credit decisions.