Introduction
Credit risk certainly stands as a cornerstone of the banking
system. Concerns that counterparties will default on their
repayment obligations has become a growing concern over years. In
the past, reality sometimes superseded the most pessimistic
scenarios that were prevailing. Since then, lessons have been
learnt: there is, today, no such thing as any form of qualitative
insurance as to the creditworthiness of a private individual, an
institution or even a financial system.
In this context, risk management virtues are obvious, in its
capacity to restore confidence and transparency as well as to
protect the banking sector. Credit institutions have subsequently
been actively looking for innovative solutions in risk mitigation.
In particular, credit risk can be moderated by enhancing the loan
structure. Either at loan inception or throughout the credit's
life, banks may require the counterparts to provide mitigants such
as collateral, guarantees or
