RSK4804
STUDY GUIDE
NOTES
, lOMoARcPSD|18222662
LEARNING UNIT 2: INDUSTRY RISKS
Video Activity Text Additional reading and references
2.1 PURPOSE
To understand how industry analysis impacts on profitability as part of credit risk analysis and management
Key concepts
Obligor Porter’s model
Sector Competitor analysis
Industry-specific risks
Industry life cycle
Industry profitability
2.2 LEARNING OUTCOMES
On completion of this learning unit, you should be able to
• understand the obligor’s industry or market: sector versus industry
• explain why profitability among industries differs
• explain the reasoning behind operating risks that differ from one industry to another
• explain implications of industry risks
• describe forces determining the level of competition in an industry
2.3 LEARNING MATERIAL
Study chapter 6 of the prescribed textbook, Joseph (2013).
2.4 OVERVIEW OF THE UNIT
Industry analysis is a crucial and necessary part of credit risk analysis. Risk factors impacting industry are key in studying the
creditworthiness of firms in affected industries. Furthermore, availability of factors of production, such as the 5Ms (money,
man, machines, materials and management), impacts on the industry-related operating risk as well as competitiveness. It is
also crucial that the credit risk profile of a borrower be compared with the rest of the industry. Government plays an
important role in the development of industry in any country. Positive or negative involvement of government can make or
break the industry, thereby contributing to export potential. Lack of government support can therefore impact negatively
on the potential of a specific industry to grow (Joseph 2013).
Familiarise yourself with the following diagrams: -
, lOMoARcPSD|18222662
• Figure 6.1 (Joseph 2013:62)
• Figure 6.2 (Joseph 2013:64)
• Figure 6.3 (Joseph 2013:67)
2.5 ACTIVITIES 2.1
• Work through the case study on page 73 (Joseph 2013) to understand the application of the Five Forces Model.
• Following recent events regarding South African Airways (SAA), apply the dynamics of Porter’s model and
communicate the results.
• Go to Discussion Forum 2.1 and share your answers with your fellow students.
2.5.1 Self-test
Do self-test questions 2, 3, 4 and 6 at the end of chapter 6 on page 77 of your prescribed textbook.
2.6 REFLECTION
Before you continue to the next learning unit, reflect on the following questions:
• Can you confirm that you have achieved the learning outcomes of this learning unit?
• What did you find difficult? Why do you think you found this learning unit difficult?
• Do you understand it now or do you need more help? What are you going to do about it?
• Will you be able to use the skills you have learnt in this learning unit in your professional life?
2.7 CONCLUSION
In learning unit 2, we covered only chapter 6 of the prescribed textbook, which introduced the topic of industry risks. You
therefore need to revisit all the key concepts and familiarise yourself with them. Any other additional material deemed
important will be uploaded on myUnisa.
2.8 REFERENCES
Joseph, C (2013). Advanced credit risk analysis and management. West Sussex, UK: Wiley.
, lOMoARcPSD|18222662
LEARNING UNIT 3: RATING AND SCORING SYSTEMS
Video Activity Text Additional reading and references
3.1 Purpose
To understand how industry analysis impacts on profitability as part of credit risk analysis and management
Key concepts
Expected loss Project finance
Loss given default Competitor analysis
Exposure at default 5Cs of credit
Standard and Poor’s Altman’s Z-score
Modern methods Merton model
Scoring systems/models Country risk assessment
Moody’s Components of country risk
Credit ratings Credit rating agencies (CRAs)
Risk differentiation Statistical credit scoring models
3.2 LEARNING OUTCOMES
Work through chapter 3, sections 3.1 (pp 19–24), 3.2 (pp 34–37) and 3.3 (pp 37–39) (Witzany 2017) and chapter 2
(Bandyopadhyay 2016:24–57; 66, 69–70; 83–92) of your prescribed textbooks. You are also required to source additional
information relating to the topics to add to your knowledge base. This relates to the NQF8 graduate skill of accessing,
processing and managing information.
On completion of this learning unit, you should be able to
• understand the importance of ratings
• understand the benefits of scoring a borrower
• explain in-house rating systems and uses
• list and explain types of scoring models
• understand different rating approaches
• understand expert rating systems and the 5Cs of credit
• explain the credit scoring model
• explain key risk areas for evaluation of a project
• understand the rating model for SMEs
• understand external credit rating systems
• understand risk factors used by CRAs
• understand and interpret statistical credit scoring models – Altman’s Z-score and its limitations
• list and explain drivers of default risk in corporate and SME loans
STUDY GUIDE
NOTES
, lOMoARcPSD|18222662
LEARNING UNIT 2: INDUSTRY RISKS
Video Activity Text Additional reading and references
2.1 PURPOSE
To understand how industry analysis impacts on profitability as part of credit risk analysis and management
Key concepts
Obligor Porter’s model
Sector Competitor analysis
Industry-specific risks
Industry life cycle
Industry profitability
2.2 LEARNING OUTCOMES
On completion of this learning unit, you should be able to
• understand the obligor’s industry or market: sector versus industry
• explain why profitability among industries differs
• explain the reasoning behind operating risks that differ from one industry to another
• explain implications of industry risks
• describe forces determining the level of competition in an industry
2.3 LEARNING MATERIAL
Study chapter 6 of the prescribed textbook, Joseph (2013).
2.4 OVERVIEW OF THE UNIT
Industry analysis is a crucial and necessary part of credit risk analysis. Risk factors impacting industry are key in studying the
creditworthiness of firms in affected industries. Furthermore, availability of factors of production, such as the 5Ms (money,
man, machines, materials and management), impacts on the industry-related operating risk as well as competitiveness. It is
also crucial that the credit risk profile of a borrower be compared with the rest of the industry. Government plays an
important role in the development of industry in any country. Positive or negative involvement of government can make or
break the industry, thereby contributing to export potential. Lack of government support can therefore impact negatively
on the potential of a specific industry to grow (Joseph 2013).
Familiarise yourself with the following diagrams: -
, lOMoARcPSD|18222662
• Figure 6.1 (Joseph 2013:62)
• Figure 6.2 (Joseph 2013:64)
• Figure 6.3 (Joseph 2013:67)
2.5 ACTIVITIES 2.1
• Work through the case study on page 73 (Joseph 2013) to understand the application of the Five Forces Model.
• Following recent events regarding South African Airways (SAA), apply the dynamics of Porter’s model and
communicate the results.
• Go to Discussion Forum 2.1 and share your answers with your fellow students.
2.5.1 Self-test
Do self-test questions 2, 3, 4 and 6 at the end of chapter 6 on page 77 of your prescribed textbook.
2.6 REFLECTION
Before you continue to the next learning unit, reflect on the following questions:
• Can you confirm that you have achieved the learning outcomes of this learning unit?
• What did you find difficult? Why do you think you found this learning unit difficult?
• Do you understand it now or do you need more help? What are you going to do about it?
• Will you be able to use the skills you have learnt in this learning unit in your professional life?
2.7 CONCLUSION
In learning unit 2, we covered only chapter 6 of the prescribed textbook, which introduced the topic of industry risks. You
therefore need to revisit all the key concepts and familiarise yourself with them. Any other additional material deemed
important will be uploaded on myUnisa.
2.8 REFERENCES
Joseph, C (2013). Advanced credit risk analysis and management. West Sussex, UK: Wiley.
, lOMoARcPSD|18222662
LEARNING UNIT 3: RATING AND SCORING SYSTEMS
Video Activity Text Additional reading and references
3.1 Purpose
To understand how industry analysis impacts on profitability as part of credit risk analysis and management
Key concepts
Expected loss Project finance
Loss given default Competitor analysis
Exposure at default 5Cs of credit
Standard and Poor’s Altman’s Z-score
Modern methods Merton model
Scoring systems/models Country risk assessment
Moody’s Components of country risk
Credit ratings Credit rating agencies (CRAs)
Risk differentiation Statistical credit scoring models
3.2 LEARNING OUTCOMES
Work through chapter 3, sections 3.1 (pp 19–24), 3.2 (pp 34–37) and 3.3 (pp 37–39) (Witzany 2017) and chapter 2
(Bandyopadhyay 2016:24–57; 66, 69–70; 83–92) of your prescribed textbooks. You are also required to source additional
information relating to the topics to add to your knowledge base. This relates to the NQF8 graduate skill of accessing,
processing and managing information.
On completion of this learning unit, you should be able to
• understand the importance of ratings
• understand the benefits of scoring a borrower
• explain in-house rating systems and uses
• list and explain types of scoring models
• understand different rating approaches
• understand expert rating systems and the 5Cs of credit
• explain the credit scoring model
• explain key risk areas for evaluation of a project
• understand the rating model for SMEs
• understand external credit rating systems
• understand risk factors used by CRAs
• understand and interpret statistical credit scoring models – Altman’s Z-score and its limitations
• list and explain drivers of default risk in corporate and SME loans
