State in brief the factors attributing to the increased importance of credit risk modelling in the banks.

The increasing importance of credit risk modeling can be attributed to the following three factors: Banks are becoming increasingly quantitative in their treatment of credit risk. New markets are emerging in credit derivatives and the marketability of existing loans is increasing through securitization / loan sales market. Regulators are concerned to improve the current system of bank capital requirements especially as it relates to credit risk. Credit Risk Models have assumed importance due to the fact that they provide the decision maker with insight or knowledge that would not otherwise be readily available or that could be obtained at a high cost. In a marketplace where margins are fast disappearing and the pressure to lower pricing the credit risk models give their users a competitive edge.