ICM239: Credit Risk

Module code: ICM239

Module provider: Finance and Accounting; Henley Business School

Credits: 20

Level: 7

When you’ll be taught: Semester 2

Module convenor: Professor Simone Varotto, email: s.varotto@icmacentre.ac.uk

Pre-requisite module(s):

Co-requisite module(s):

Pre-requisite or Co-requisite module(s):

Module(s) excluded:

Placement information: NA

Academic year: 2025/6

Available to visiting students: No

Talis reading list: No

Last updated: 9 September 2025

Overview

Module aims and purpose

This module introduces students to a range of techniques for measuring and managing credit risk in banks. It covers recent developments in credit risk regulation within the banking sector. To provide context and highlight the relevance of the material to current risk management challenges, financial press articles are extensively utilised. The module explores retail, corporate, and sovereign credit risks, as well as their interactions with other financial risks, through practical examples. Students are also introduced to popular credit risk portfolio models employed by risk managers and central banks, along with their implementation using Artificial Intelligence and Python programming.

Module learning outcomes

By the end of the module, it is expected that students will be able to: 

• Explain how financial and economic crises are linked to credit risk in financial institutions; 
• Explain how credit risk is regulated and managed in banks; 
• Derive and use credit ratings and apply Value-at-Risk and Expected Shortfall techniques to portfolios of credit risk exposures; 
• Explain the main features and implementation of JPMorgan’s CreditMetrics and the Moody’s-KMV model, using Artificial Intelligence and Python programming,  and how they can be applied for stress testing in credit risk portfolios.

Module content

1. Financial/economic crises and current issues in risk management 
2. Value-at-risk and expected shortfall 
3. Economic and Regulatory capital. Basel requirements. 
4. Determinants of credit risk: 

     a. Default probability 

     b. Recovery rate 

     c. Exposure at default

5. Credit risk assessment 

     a. Retail vs commercial credit risk 

     b. Agency ratings 

     c. Spread implied ratings 

     d. Credit scoring models: Altman Z-score 

     e. Default probability models 

6. Credit portfolio models 

     a.Transition matrices and time horizon 

     b.CreditMetrics 

     c. Moody's-KMV 

7. Credit Risk Management Tools

Structure

Teaching and learning methods

The core theory and concepts will be presented during lectures. Problem sets will be solved in workshops.

Study hours

At least 32 hours of scheduled teaching and learning activities will be delivered in person, with the remaining hours for scheduled and self-scheduled teaching and learning activities delivered either in person or online. You will receive further details about how these hours will be delivered before the start of the module.

Please note the independent study hours above are notional numbers of hours; each student will approach studying in different ways. We would advise you to reflect on your learning and the number of hours you are allocating to these tasks.

Semester 1 The hours in this column may include hours during the Christmas holiday period.

Semester 2 The hours in this column may include hours during the Easter holiday period.

Summer The hours in this column will take place during the summer holidays and may be at the start and/or end of the module.

Assessment

Requirements for a pass

Students need to achieve an overall module mark of 50% to pass this module.

Summative assessment

Penalties for late submission of summative assessment

The Support Centres will apply the following penalties for work submitted late:

Assessments with numerical marks

• where the piece of work is submitted after the original deadline (or a DAS-agreed extension as a reasonable adjustment indicated in your Individual Learning Plan): 10% of the total marks available for that piece of work will be deducted from the mark for each calendar day (or part thereof) following the deadline up to a total of three calendar days;
• where the piece of work is submitted up to three calendar days after the original deadline (or a DAS-agreed extension as a reasonable adjustment indicated in you Individual Learning Plan), the mark awarded due to the imposition of the penalty shall not fall below the threshold pass mark, namely 40% in the case of modules at Levels 4-6 (i.e. undergraduate modules for Parts 1-3) and 50% in the case of Level 7 modules offered as part of an Integrated Masters or taught postgraduate degree programme;
• where the piece of work is awarded a mark below the threshold pass mark prior to any penalty being imposed, and is submitted up to three calendar days after the original deadline (or a DAS-agreed extension as a reasonable adjustment indicated in your Individual Learning Plan), no penalty shall be imposed;
• where the piece of work is submitted more than three calendar days after the original deadline (or a DAS-agreed extension as a reasonable adjustment indicated in your Individual Learning Plan): a mark of zero will be recorded.

Assessments marked Pass/Fail

• where the piece of work is submitted within three calendar days of the deadline (or a DAS-agreed extension as a reasonable adjustment indicated in your Individual Learning Plan): no penalty will be applied;
• where the piece of work is submitted more than three calendar days after the original deadline (or a DAS-agreed extension as a reasonable adjustment indicated in your Individual Learning Plan): a grade of Fail will be awarded.

Where a piece of work is submitted late after a deadline which has been revised owing to an extension granted through the Assessment Adjustments policy and process (self-certified or otherwise), it will be subject to the maximum penalty (i.e., considered to be more than three calendar days late). This will also apply when such an extension is used in conjunction with a DAS-agreed extension as a reasonable adjustment.

The University policy statement on penalties for late submission can be found at: https://www.reading.ac.uk/cqsd/-/media/project/functions/cqsd/documents/qap/penaltiesforlatesubmission.pdf

You are strongly advised to ensure that coursework is submitted by the relevant deadline. You should note that it is advisable to submit work in an unfinished state rather than to fail to submit any work.

Formative assessment

Formative assessment is any task or activity which creates feedback (or feedforward) for you about your learning, but which does not contribute towards your overall module mark.

Multiple choice tests

Reassessment

Additional costs