What is dilution risk in SAP FS-BA-PM-CR - Credit Risk?

SAP Term: dilution risk

• Component: FS-BA-PM-CR

• Component Name: Credit Risk

• Description: Basel-II-relevant risk that is additional to the default risk inherent in purchased receivables, and calculated in the IRB approaches. Dilution risk describes the loss a bank may incur through the purchase of a receivable, which results from cash or non-cash credits such as pooling or recourse made by the seller to the purchaser.

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• Key Concepts: 
  Dilution risk is a type of credit risk that arises when a borrower’s financial position deteriorates, resulting in a decrease in the value of the loan. This can occur when the borrower’s assets are sold off or when the borrower’s income decreases. In SAP, dilution risk is managed through the FS-BA-PM-CR Credit Risk Management component. 
  
  How to use it: 
  The FS-BA-PM-CR Credit Risk Management component helps to identify and manage dilution risk by providing an overview of the borrower’s financial position and assessing their ability to repay the loan. It also provides tools to monitor and manage dilution risk, such as credit scoring and stress testing. 
  
  Tips & Tricks: 
  When assessing a borrower’s financial position, it is important to consider both their current and future financial situation. This will help to identify any potential dilution risks that may arise in the future. Additionally, it is important to regularly monitor the borrower’s financial position to ensure that any changes are identified and addressed promptly. 
  
  Related Information: 
  For more information on managing dilution risk in SAP, please refer to the FS-BA-PM-CR Credit Risk Management documentation. Additionally, there are a number of online resources available that provide further information on managing credit risk in general.