1. Defining Segments for Credit Risk Assessment

Segment your borrowers and analyze each segment separately.

1. The factors relevant to creditworthiness depend on the type of borrower.
2. The available data source depend on the type of borrower.
3. The risk level depends on the type of borrower.

Business considerations lead to defining the following segments:

1. Government
2. Financial services providers
3. Corporate customers
4. Retail customers

Basel II defines the following categories of assets under the IRB approach:

1. Sovereigns and central governments
2. Banks and financial institutions
3. Corporate loans
4. Retail loans
5. Equity

Corporate loans/customers are split into the following sub-categories:

• Specialized lending
• Enterprises and business owners

Specialized lending:

1. Project finance
2. Object finance
3. Commodities finance
4. Financing of income producing real estate

Detailed best practices on segmentation are provided in Chart 1, Page 10.