Credit risk

The risk (potential for default) that a borrower (counterparty) will not meet its contractual obligations, i.e. repay a loan in full, either when due or at any time thereafter or pay interest. In a swap transaction it refers to the counterparty not making the payments due under the swap agreement.Credit risk includes replacement cost risk and principal risk. It also includes the risk of settlement bank failure. Most government securities from developed countries are considered to have very little credit risk.