What factors are considered in credit risk assessment?

In credit risk assessment, all listed factors—borrower's credit history, economic conditions, and financial statements—play a crucial role.

The borrower's credit history is a key element because it provides a detailed account of past borrowing behavior, payment patterns, and any defaults or bankruptcies. This history is often used to predict future repayment behavior, helping lenders assess the likelihood of default.

Economic conditions encompass broader market indicators that can influence a borrower's ability to repay loans. Factors such as unemployment rates, inflation, and overall economic stability can significantly impact a borrower's financial health and, consequently, their credit risk. For instance, during a recession, even creditworthy borrowers may struggle to meet their obligations.

Financial statements provide a snapshot of a borrower's current financial situation, detailing assets, liabilities, revenues, and expenses. This information helps lenders evaluate the borrower's ability to service debt and offers insights into cash flow and financial stability.

Considering all these factors together gives a comprehensive view of the credit risk associated with lending to a specific borrower. Therefore, the correct answer encompasses the holistic approach required in assessing credit risk.