What is credit risk?

Credit risk is the risk of loss because the creditworthiness of a counterparty you have lent money to, or of a bond issuer, deteriorates or it defaults.

Even short of default, losses from a fall in the value of assets such as bonds due to declining creditworthiness are included in credit risk in the broad sense. Financial institutions manage it as one of the main financial risks, along with market risk, liquidity risk and operational risk.