Identification of Credit Risk

Identification of credit risk

Inputs

External:

* Regulatory requirements

From other processes:

* Inputs from Global risk framework.

Objectives

Operating (Time, cost, quality):

* Manage credit exposures within the bank's risk appetite so that potential exposures are detected and executive action initiated on a timely basis so that credit losses are minimised.

External compliance:

* Ensure Central Bank regulations/ Parent bank directives are adhered to (priority sector lending, cap on industry/sectoral exposure, minimum collateral obligations (margin, negative list etc.), related party lending limits etc.

Financial reporting:

* Notes to financial statements (IAS 32 disclosures etc.)

Ending point of Process

Decision on the structure, gaps and credit profile of the bank's balance sheet.

Outputs

External:

* Central bank reporting

* Notes to financial statements

* Over the limit exception reports (for use by treasury middle office)

To other processes:

* To Risk Management -Customer facilities and Treasury, Credit policy manual

* Set up of credit approval authorities and limit authorisation

* Internal risk rating and grading structure

* Credit enhancement (guarantees, loan covenants, collateral) guidelines

* Credit scoring matrix approval for programmed credit (portfolio loans)

* Off Balance Sheet Instruments (OBSI) credit conversion factors

* Limit guidelines on industry, individual, group and country exposures

* Limit guidelines on maximum daily delivery risk (for settlement risk)

* Set up and maintenance of internal and external watch lists.

To Executive (Strategy)

* 'Target Market' and 'Terms of acceptance' guidelines

Key transformations

Translation of information on risk concentration, inputs from the risk framework and regulatory requirements into formalised policies and procedures for managing credit risk within the bank's risk appetite. Some of the key steps included in the above are:

* Formulation of a credit risk management strategy by Bank Management, mostly driven by the CCO

* Formalisation of the credit strategy into a policy and procedure manual

* Communication/ dissemination of the manual to appropriate departments/ business