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Which type of banking risk increases when economic slowdown affects borrowers’ repayment capacity?

medium Q5 of 15
Banking Awareness - Banking Acts, Reforms & Risk Management
Which type of banking risk increases when economic slowdown affects borrowers’ repayment capacity?
ACredit risk
BMarket risk
COperational risk
DLiquidity risk
Step-by-Step Solution

  1. Step 1: Identify impact of slowdown

    Borrowers may struggle to repay loans.

  2. Step 2: Link with risk type

    Higher probability of default increases credit risk.

  3. Final Answer:

    Credit risk → Option A

  4. Quick Check:

    Repayment capacity fall = Credit risk rise ✅
Quick Trick: Borrower stress increases credit risk.
Common Mistakes:
MISTAKES
  • Attributing economic slowdown only to market risk.
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