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Credit risk has two components.The first is known as default risk, or default probability, which is the probability that a borrower defaults—that is, fails to meet its obligation to make full and timely payments of principal and interest, according to the terms of the debt security.

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  • Assuming the writer was a native speaker, he was presumably thinking of borrowing by entities like banks, companies, governments,... Nothing wrong with that. Commented May 5, 2021 at 14:28

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A borrower can be a non-human actor, like a business or a governmental entity. That is why its is being used here.

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Its refers to a borrower. It is the non-gendered singular possessive pronoun. "A borrower" may be a person (who may have a gender) or a business entity (which does not have a gender).

I might have used their (as a singular pronoun!) instead, which is less sterile and could apply to either a gender-neutral person or an anthropomorphized business entity.

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