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

SAP Term: risk weight

• Component: FS-BA-PM-CR

• Component Name: Credit Risk

• Description: Factor stipulated by the supervisory authorities. It is used to derive the risk of a receivable from the external ratings. It can be multiplied by the exposure at default to obtain the amount of the risk-weighted assed in the standardized approach.

Smart SAP Assistant

• Key Concepts: 
  Risk weight is a term used in the Credit Risk Management component of SAP Financial Services (FS-BA-PM-CR). It is a numerical value assigned to a credit risk that reflects the likelihood of default. The higher the risk weight, the higher the probability of default. 
  
  How to use it: 
  Risk weights are used to calculate the capital requirements for a credit risk. The capital requirement is calculated by multiplying the risk weight by the exposure amount. This calculation helps financial institutions determine how much capital they need to set aside in order to cover potential losses from credit risks. 
  
  Tips & Tricks: 
  When calculating risk weights, it is important to consider all relevant factors such as the borrower’s creditworthiness, collateral, and other mitigating factors. This will help ensure that the risk weight is accurate and that the capital requirement is sufficient to cover potential losses. 
  
  Related Information: 
  The Basel Accords are international banking regulations that set out minimum capital requirements for financial institutions. These regulations include guidelines on how to calculate risk weights for credit risks.