Credit Exposure


DEFINITION of 'Credit Exposure'

The total amount of credit extended to a borrower by a lender. The magnitude of credit exposure indicates the extent to which the lender is exposed to the risk of loss in the event of the borrower's default. Credit exposure can be minimized through purchasing credit default swaps or other types of financial instruments.

BREAKING DOWN 'Credit Exposure'

For example, if a bank has made short-term and long-term loans totaling $100 million to company A, its credit exposure to company A is $100 million.

In general, a bank will seek to have greater credit exposure to its customers with the highest credit rating, and less exposure to clients with a lower credit rating. If a customer encounters unexpected financial problems, the bank may seek to reduce its credit exposure in order to mitigate the risk of loss arising from a potential default.

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  5. Default Risk

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