The document discusses credit risk management at a bank. It defines credit risk and outlines the bank's credit risk management framework, including having a credit risk policy, preferred organizational structure, and procedural guidelines. It emphasizes the importance of credit risk grading, monitoring, and mitigation. Key areas of responsibility for the investment risk management, relationship management, and credit administration teams are also outlined.
The system of organized lending can never run out of risks. Be market, liquidity, credit, interest or operational, risk is inevitable for banks and other financial firms.
Hence, a primary importance is given to risk profiling in all financial institutions.
One of the omnipresent risks that have taken a toll on banks regularly is credit risk. In simplest terms, this risk can be defined as non repayment of a loan as per agreed conditions, to the lender, thus ruining the lender’s investment.
The non repayment can be intentional (willful default), due to failure of an industry (systemic risk), failure of cross currency settlement (settlement risk) etc.
In this article, we are going to explore credit risk. We will discuss its basic meaning, types, causes, effects and how banks all over the world have made attempts to monitor, mitigate, transfer and at times, accept the risk.
Slide show for detailed information about risk management in Islamic banking and how it is different from conventional banking
includes risk failures models, risk mitigation tools etc.
The system of organized lending can never run out of risks. Be market, liquidity, credit, interest or operational, risk is inevitable for banks and other financial firms.
Hence, a primary importance is given to risk profiling in all financial institutions.
One of the omnipresent risks that have taken a toll on banks regularly is credit risk. In simplest terms, this risk can be defined as non repayment of a loan as per agreed conditions, to the lender, thus ruining the lender’s investment.
The non repayment can be intentional (willful default), due to failure of an industry (systemic risk), failure of cross currency settlement (settlement risk) etc.
In this article, we are going to explore credit risk. We will discuss its basic meaning, types, causes, effects and how banks all over the world have made attempts to monitor, mitigate, transfer and at times, accept the risk.
Slide show for detailed information about risk management in Islamic banking and how it is different from conventional banking
includes risk failures models, risk mitigation tools etc.
Safeguard your lending program by learning about the 8 steps of credit risk management. Learn about nonfinancial risks, structuring the loan, and more.
Risk Management in Banks - Overview (May 2024)Kristi Rohtsalu
Risk is at the heart of banking – and so is risk management. In a regulated bank, it is crucial to take a holistic view, including economic and normative perspectives. This material gives an overview of enterprise risk management in banks; specifics by risk type – credit risk, market risk, operational risk, liquidity risk, and other relevant risks – are not discussed here.
Before the financial crisis, the primary role of the bank underwriter was to make good decisions in deploying the bank’s resources to help loan applicants achieve their goals. Learn how this role in changing in the industry.
This presentation provides complete study ofcredit risk management,how it was performed in yester years ,how it is taken care nowadays and what is the road ahead in future
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
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Safeguard your lending program by learning about the 8 steps of credit risk management. Learn about nonfinancial risks, structuring the loan, and more.
Risk Management in Banks - Overview (May 2024)Kristi Rohtsalu
Risk is at the heart of banking – and so is risk management. In a regulated bank, it is crucial to take a holistic view, including economic and normative perspectives. This material gives an overview of enterprise risk management in banks; specifics by risk type – credit risk, market risk, operational risk, liquidity risk, and other relevant risks – are not discussed here.
Before the financial crisis, the primary role of the bank underwriter was to make good decisions in deploying the bank’s resources to help loan applicants achieve their goals. Learn how this role in changing in the industry.
This presentation provides complete study ofcredit risk management,how it was performed in yester years ,how it is taken care nowadays and what is the road ahead in future
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
Buy Verified PayPal Account | Buy Google 5 Star Reviewsusawebmarket
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Looking to buy verified PayPal accounts? Discover 7 expert tips for safely purchasing a verified PayPal account in 2024. Ensure security and reliability for your transactions.
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🟢 Bank Added
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🟢 Fasted Delivery
Client Satisfaction is Our First priority. Our services is very appropriate to buy. We assume that the first-rate way to purchase our offerings is to order on the website. If you have any worry in our cooperation usually You can order us on Skype or Telegram.
24/7 Hours Reply/Please Contact
usawebmarketEmail: support@usawebmarket.com
Skype: usawebmarket
Telegram: @usawebmarket
WhatsApp: +1(218) 203-5951
USA WEB MARKET is the Best Verified PayPal, Payoneer, Cash App, Skrill, Neteller, Stripe Account and SEO, SMM Service provider.100%Satisfection granted.100% replacement Granted.
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Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
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1. Presentation on
Credit Risk Management: An Experiential
Learning Approach
Md. Abdul Jabbar
Executive Vice President
Islami Bank Bangladesh Limited
Risk Management Wing
3. The Risk Concept
ISO 31000 (2009)/ISO Guide 73 defines Risk as
“Effect of uncertainty on objectives”
Other Popular Definition of Risk:
“Existence of uncertainty about future outcomes”
“Difference between expected and actual result”
4. The Risk Concept (Cont’d…)
Risk is an integral part of our
life;
Human brain is programmed
to learn to manage risk.
Financial risk in a banking
organization is the
possibility that the outcome
of an action or event could
bring up adverse impacts.
Are those people (jumping from
5000 ft height without any life
protection measures) in the
picture at Risk?
No. Because expected outcome
(death) is certain.
5. The Credit Risk Concept
The risk of loss of principal or loss of a financial reward
stemming from a borrower's failure to repay a loan or otherwise
meet a contractual obligation.
Basel Defines Credit Risk as under:
Credit risk is the potential that a bank borrower or counterparty
fails to meet its obligation in accordance with agreed term.
6. Credit Risk Concept in Islam
“O you who have believed, when you contract a debt for a specified term,
write it down.” (mitigant of legal, residual, settlement risks etc.)
(Surah Al-Baqara 282)
"And if you are upon a journey and you do not find a scribe, then a security
may be taken into possession." (mitigant of credit default risks)
(Surah Al Baqara 283)
And he said, "O my sons, do not enter from one gate but enter from different
gates; and I cannot avail you against [the decree of] Allah at all. The decision
is only for Allah ; upon Him I have relied, and upon Him let those who would
rely [indeed] rely.“ (mitigant of concentration risk)
(Surah Al Yusuf 67)
7. Credit Risk Concept in Islam
“Then will come after that seven difficult [years] which will consume what you saved
for them, except a little from which you will store.”
(counter cyclical buffer, Capital Conservation Buffer for absorbing future loss)
(Sura Yusuf 48)
"Narrated Aisha, Ummul Mu'minin:
The Apostle of Allah (peace_be_upon_him) said: Profit follows responsibility of
bearing loss. “ (Importance of undertaking risks in business)
(Sunan e Ibn Majah Book 23, Number 3501)
Prophet (PBUH) once asked a Bedouin who had left his camel untied, “Why do you not
tie your camel?” The Bedouin answered, “I put my trust in God”.
Prophet (PBUH) then said, “tie up your camel first then put your trust in God”.
Knowing Sharia’h Ruling of the tasks that you do is a must being a Muslim.
So dependence on Allah only or Risk Management too?
9. Why Credit Risk Management?
• Bank deals with the Depositors’ money;
• Bank’s fund have cost implication & repayment
obligation; and
• Investment constitutes the major revenue
earning asset of a bank.
• “Credit Losses have, historically, been the single
largest cause of bank failures” – Economist
• RoE for banks worldwide has been below 10%
and declining after 1960 if one excludes non-
interest income.
• 9 out of 10 banking failures attributable to poor
credit risk management
Hence Bank’s fund is required to be invested with
minimum possible default risk. Risk may be higher
unless it is adequately cared & monitored.
10. Central Bank Initiatives in Investment Risk Mgt.
• 1993: Lending (Investment) Risk Analysis
Limitations: lot of Subjectivity, lack of objectivity, only decisive for lending or not,
indifference about limit utilization etc.
• 2003: Credit Risk Management Guideline [as
one of the 6 (six) Core Risks]
• 2005: Credit Risk Grading Manual
• 2011: Inclusion of Environmental Risk
Management in CRM.
11. Contents of CRM Guideline
The CRM Guideline is segmented into the
following sections:
1. Policy Guideline;
2. Preferred Organizational Structure &
Responsibilities;
3. Procedural Guideline
12. Recommended Feature of the Policy Guidelines
business development priorities
terms and conditions for loans to be
approved.
should be updated at least annually
should be approved by the Managing
Director/CEO & Board of Directors of the
bank
should provide the key foundations for
account officers/relationship managers (RM)
14. Points of Consideration for RM to Recommend
Industry & Business segment focus (Bank’s appetite of
exposure in the major industry)
Types of Investment Facilities (Term, WC, Trade Finance etc.
& other products/schemes)
Single borrower/Group Limit/Syndication (35% of total
equity but not more than 15% of funded liability, for Export
50% of total equity but not more that 15% of funded, 10%
of total equity is said to be large investment)
Lending Caps (Industry sector exposure cap)
Discouraged Business Types (military equipment, weapons,
speculative investment etc.)
Cross Border Risk (world debt crisis, political risk, sovereign
risk etc.)
15. Investment Assessment & Risk Grading
Investment & Risk assessment prior to grant
investment;
At least annually thereafter for all facilities;
Result should be presented in Investment
Application;
RM will maintain relationship with the customer &
ensure the accuracy of the entire Investment
application;
16. Risk Areas to be Covered by RM for Assessment & Grading
Borrower analysis (shareholders, management etc.)
Industry analysis (position in the industry, overall industry concern)
Supplier/buyer analysis (supplier concentration)
Historical financial analysis (cash flow, 3 yrs a/c, profitability etc.)
Projected financial performance (cash flow to service debt repayments)
Account conduct (payments, cheques, interest & principal payments
etc.)
Adherence to lending Guideline (whether inline with the lending
guidance)
Mitigating factors (sustainability, high debt load, rapid growth, etc. )
Loan Structure (tenor & amount on the basis of repayment ability,
purpose etc.)
Security (valuation, insurance etc.)
Name Lending (should not be influenced by only name & fame of the
client)
17. What does IRG imply?
• Based on Pre-specified scale reflecting the
Investment risk for an exposure;
• Number/ Alphabet/ Symbol are used as summary
indicator of risk.
• Important tool of IRM to understand dimensions of
risk in Investment transactions.
• Aggregation of Grading of evaluated key risk areas
reflects the quality of investment.
18. Risk Grading System
• system should define the risk profile of borrower’s to
ensure that account management, structure and pricing
are commensurate with the risk involved.
• Risk grading is a key measurement of a Bank’s asset
quality
• All facilities should be assigned a risk grade
• Where deterioration in risk is noted, the Risk Grade
assigned to a borrower and its facilities should be
immediately changed.
• Borrower Risk Grades should be clearly stated on Credit
Applications.
19. Usage of Investment Risk Grading?
Stage of Use of IRG
Pre-investment: Investment Decision/Investment Pricing;
Post-investment: Review of Grading and Precautions.
IRG - Common Uses
Obligor-Level Analysis
Investment Selection and Pricing
Monitoring and Internal MIS
Also relevant for Portfolio Level Analysis of the Bank.
20. Grading Codes-Eight Categories
GRADING SHORT
NAME
NUMBER
Superior SUP 1
For Pre- Sanction
Stage
Good GD 2
Acceptable ACCPT 3
Marginal/Watch
list
MG/WL 4
Special Mention SM 5
For Post Sanction
Stage
Sub Standard SS 6
Doubtful DB 7
Bad & Loss BL 8
21. Description of Risk Grading Scale
Sup-1: Fully Cash covered, Govt./ Int. Bank Guarantee
GD-2: Strong Repayment Capacity
Accpt-3: Not like GD-2, but Good Track Record
MG/WL-4: Greater attention required – Above Average
Risk.
SM-5: Potential Weaknesses – Close attention required.
SS-6: Weak Financial Condition
DF-7: Repayment Unlikely
BL-8: No progress in repayment/ on the verge of wind-up
22. Investment Risk Grading Parameters
• 1. Leverage
• 2. Liquidity
• 3. Profitability
• 4. Coverage
• 5. Business Size
• 6. Business Age
• 7. Business Outlook
• 8. Industry Growth
• 9. Competition
• 10. Entry/Exit
• 11. Experience
• 12. Succession
• 13. Team Work
• 14. Security
• 15. Collateral
• 16. Support
• 17. Account Conduct
• 18. Limit Utilization
• 19. Compliance
• 20. Personal Deposit
23. Investment Risk Grading Parameters
CREDIT RISK
Financial Risk Management Risk
Business/Industry Risk Relationship Risk
Security Risk
Leverage
Liquidity
Profitability
Coverage
Experience
Succession
Team Work
Business Outlook
Size of Business
Industry Growth
Market Competition
Barriers to Business
Account Conduct
Utilization of Limit
Compliance of
Covenants/Conditi
on
Personal Deposits
Security Coverage
Collateral
Coverage
Support
Age of Business
24. Weightage of Risk Grading Parameters
Sl. Parameters Description Weight
Financial Risk (Risk Weight:50%):
1. Leverage TL/NW 15%
2. Liquidity CA/CL 15%
3. Profitability OPx100/Sales 15%
4. Coverage EBIT/Interest 5%
Business/Industry Risk (Risk Weight:18%):
5. Size of Business Sales Volume 5%
6. Age of Business Years in Business 3%
7. Business Outlook Mid Term Prospect 3%
8. Industry Growth Sector Growth 3%
9. Market Competition Borrower Position 2%
10.Entry/Exit Barrier Difficult/Easy 2%
Management Risk (Risk Weight:12%):
11. Experience Sr. Mgt Team 5%
12. Succession Ready/ Not Ready 4%
13.Team Work Good/ Poor 3%
Security Risk (Risk Weight:10%):
14. Security Coverage Fully Covered/Not 4%
15.Collateral Coverage Fully Seconded/Not 4%
16. Support Guarantors 2%
Relationship Risk (Risk Weight:10%):
17. Account Conduct Regular/Irregular 5%
18. Limit Utilization Satisfactory/ Not 2%
19. Compliance Full/Not 2%
20. Personal Deposit Yes/No 1%
Total: 100%
Sl. Parameters Description Weight
25. Early Alert Signal
The Early Alert Report should be completed in a timely
manner by the RM and forwarded to CRM for approval
to affect any downgrade. After approval, the report
should be forwarded to Credit Administration, who is
responsible to ensure the correct facility/borrower
Risk Grades are updated on the system. The
downgrading of an account should be done
immediately when adverse information is noted, and
should not be postponed until the annual review
process
29. Key Responsibilities of Investment Risk Management
• Oversight of the bank’s credit policies, procedures and controls relating to
all credit risks arising from corporate/commercial/institutional banking,
personal banking, & treasury operations.
• Oversight of the bank’s asset quality.
• Directly manage all Substandard, Doubtful & Bad and Loss accounts to
maximize recovery and ensure that appropriate and timely loan loss
provisions have been made.
• To approve (or decline), within delegated authority, Credit Applications
recommended by RM. Where aggregate borrower exposure is in excess of
approval limits, to provide recommendation to MD/CEO for approval.
• To provide advice/assistance regarding all credit matters to line
management/RMs.
• To ensure that lending executives have adequate experience and/or
training in order to carry out job duties effectively.
30. Key Responsibilities of Investment Administration
• To ensure that all security documentation complies with the
terms of approval and is enforceable.
• To monitor insurance coverage to ensure appropriate
coverage is in place over assets pledged as collateral, and is
properly assigned to the bank.
• To control loan disbursements only after all terms and
conditions of approval have been met, and all security
documentation is in place.
• To maintain control over all security documentation.
• To monitor borrower’s compliance with covenants and
agreed terms and conditions, and general monitoring of
account conduct/performance.
31. Key Responsibilities of Relationship Management/Marketing
• To act as the primary bank contact with borrowers.
• To maintain thorough knowledge of borrower’s business and
industry through regular contact, factory/warehouse inspections,
etc. RMs should proactively monitor the financial performance and
account conduct of borrowers.
• To be responsible for the timely and accurate submission of Credit
Applications for new proposals and annual reviews, taking into
account the credit assessment requirements.
• To highlight any deterioration in borrower’s financial standing and
amend the borrower’s Risk Grade in a timely manner. Changes in
Risk Grades should be advised to and approved by CRM.
• To seek assistance/advice at the earliest from CRM regarding the
structuring of facilities, potential deterioration in accounts or for
any credit related issues.
32. Credit Administration (procedural guideline)
ensuring that proper documentation and approvals are in
place prior to the disbursement of loan facilities.
the functions of Credit Administration be strictly segregated
from Relationship Management/Marketing in order to avoid
the possibility of controls being compromised or issues not
being highlighted at the appropriate level.
33. Disbursement (procedural guideline)
• Security documents are prepared in accordance with approval
terms and are legally enforceable.
• Standard loan facility documentation has been reviewed by legal
counsel should be used in all cases.
• Exceptions should be referred to legal counsel for advice based on
authorisation from an appropriate executive in CRM.
• Disbursements under loan facilities are only be made when all
security documentation is in place.
• CIB report should reflect/include the name of all the lenders with
facility, limit & outstanding.
• All formalities regarding large loans & loans to Directors should be
guided by Bangladesh Bank circulars & related section of Banking
Companies Act.
• All Credit Approval terms have been met.
34. Custodial Duties (procedural guideline)
• Loan disbursements and the preparation and storage of
security documents should be centralized in the regional
credit centers.
• Appropriate insurance coverage is maintained (and renewed
on a timely basis) on assets pledged as collateral.
• Security documentation is held under strict control,
preferably in locked fireproof storage.
35. Procedural Guideline Cont’d….
Procedural Guidelines also include the following:
– Investment Administration
– Disbursement
– Custodial Duties
– Compliance Requirements
– Investment Monitoring
– Early Alert Process
– Investment Recovery
– NPI Account Management
– Account Transfer Procedure
– NPI Monitoring
– NPI Provisioning & Write off
37. Example of Investment Risk
• ABC Bank issued a performance guarantee of Tk. 100 crore
favouring a corporate borrower XYZ Shipyard Ltd. without
having the required collateral/security coverage. The
corporate failed to perform the guaranteed task and the
guaranteed amount was forced to be repaid by the Bank due
to default of its corporate and lead to incur a loss of Tk. 100
crore by the Bank.
38. Credit Risk Sources and Consequences
Risk Areas Sources of Risks Consequences
Investment Faulty Induction
Faulty Appraisal
Biased Recommendation
Non segregation of duties
Wrong/biased decision
Incomplete documentation
Non compliance of policies
Faulty disbursement
Faulty valuation
Inadequate security coverage
Lack of monitoring
Lack of supervision
Lack of follow up and recovery
Improper IRG
Failure in Risk Rating
Inadequate margin & security
against LC, BG
Portfolio structuring
Inadequate professionalism in
handling export, import
business
Increase of NPI
Decay of profit
Enhanced provision requirement
Enhanced capital requirement
Less return on assets, equity
Decrease of RR for depositors
Decay of capital
Liquidity crunch
Increased expenditure like legal,
admin etc.
Limiting scope for new
investment
Losing confidence of
stakeholders.
Additional capital charge against
documentation and valuation
error.
Additional capital charge against
investment concentration
Increased provision
39. Impact of Inadequate Risk Management
Provision:
Are maintained for expected loss like investment classification
Are kept from profit.
Capital:
Capital is the last resort to cover losses
Capital comes from shareholder’s equity and reserves which are kept
from profit
Capital is the high cost bearing source of fund
Capital determines organizational growth
Cushion
Provision
Capital
Expected Loss
Unexpected Loss