Abstract
So far we have focused on methods how to properly measure credit risk and approve individual loan transactions. But even if this process is under control and loan underwriting is going well, a prudent bank management must ask the question; “When is enough enough?” Can the bank portfolio grow without limitations, or is there a limit? Moreover, is it optimal to specialize in one client segment, or economic sector, or is it better to split the underwriting activities among more segments and sectors? More specifically, can we optimize the risk/return relationship in the sense of the Markowitz Portfolio Theory (Fig. 4.1)?
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Witzany, J. (2017). Portfolio Credit Risk. In: Credit Risk Management. Springer, Cham. https://doi.org/10.1007/978-3-319-49800-3_4
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