Adverse selection and moral hazard are the two major causes of credit risk and are explained as follows.

1. Adverse selection means that when banks lend, due to information asymmetry, they are unable to accurately assess the credit status of borrowers, causing high-risk borrowers to obtain more loans, thereby increasing the bank's credit losses.

2. Moral hazard means that after obtaining a loan, a borrower may engage in default, fraud and other behaviors due to profit motivation or other reasons, thereby increasing the bank's credit losses.