Insolvency risk


The risk of insolvency is the probability that a creditor will not be able to meet its debts.

In a more extended way, the risk of insolvency is known as the probability and capacity that some creditors can (or cannot) face their credits in a given time to their maturity.

The risk of insolvency takes into account the economic-financial situation and circumstances of a creditor at a given time. Either due to the situation of its treasury, ability to obtain resources, benefits obtained or volume of debt. However, the risk of insolvency may vary over time according to certain circumstances.

Types of insolvency risk

The risk of insolvency can be of two types:

  • Straight: Derived from the collection rights, if at maturity a debtor does not face his payments.
  • Contingent: Resulting from derivative products. That is, of past events.

In general, the risk of insolvency is usually analyzed by the debtors to study the category and repayment capacity of the credits acquired by the creditors, and also, in those situations in which for the granting of a credit, the capacity to pay is decisive. repayment of the loan.

Thus, the risk of insolvency can occur once the credits have been acquired, or at the beginning of this. For example, in the study of granting mortgages or personal loans, where it is necessary to build a consumer profile to see the ability to repay debts.

In companies, the risks of insolvency are given by the situation of the corporate assets, and in this case the risk of insolvency can be of two types:

  • Temporary: If the company is going through a bad moment of liquidity, decrease in income, and it is necessary to establish a restructuring of assets and liabilities, the company being able to return to its initial situation and being able to face payments and debts once changes have been made .
  • Definitive: In your case the point of scope is the suspension of payments and bankruptcy, that is, the situation is irreversible. In this case, the economic-financial situation of the company is unsustainable and the best solution with the actual data given is the liquidation of the company. And, consequently, establish a bankruptcy for the payment of debts to creditors depending on who they are.
Credit risk

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