1. Best Practices in Credit Risk Management

2. Observation:
Banks make bulk of their money from good loans; Banks lose bulk of their money from bad loans!
Conclusion:
Thus making more good loans and less bad loans is the dream of every banker!

3. Credit Risk Management
Standardized Approach
PD, LGD, EAD, Haircuts, Off-Balance sheet Exposure (CCF), Internal Rating Models, Scorecards, CVaR
Regulatory Reports
RWA Computation
Risk-based Loan Pricing
Global Limits Management
Comprehensive Coverage of all Risk Mitigants
Collaterals
Simple Approach
Comprehensive Approach
Guarantees
Credit Derivatives
Netting Agreements
F-IRB
A-IRB
Assuring Compliance & Capital Adequacy
Top Management Involvement
Risk Policies
Data Quality
Continuous Monitoring
Model Validation
Stress Testing
Back Testing
Credit Risk
Operational Risk
Market Risk
Ensure Capital Adequacy
Better Align Regulatory Capital with various Risk
Continuous Risk Profiling
Evaluate Banks Capital
Adequacy Strategies
Certify Internal Models
Proactive Monitoring of Capital levels & Ensuring Remedial Action
Increased Information Disclosure
Improved Transparency of Financial Disclosures to the Market
Minimum Capital Requirements
Supervisory Review Process
Market Discipline
Pillar1
Pillar2
Pillar3

4. Best Practices in Credit Risk Management
Effectiveness-focused (decision support) versus Efficiency-focused (workflow)
Structured & granular risk data for AIRB Compliance
Robust Collateral & Limits Management
End-to-end, integrated platform versus piecemeal solutions
Proactive concentration risk management
Risk-based and relationship-based lending
OLAP – based portfolio management
Flexible and scalable technology platform

5. End-to-end Integrated Platform
Treasury
Collection & Recovery System
Collateral & Limits Management System
Credit Rating System
Credit Processing System
SmartLender
Exposure Management
Concentration Reports
Excess Validation
Event Handler
CRM Engine
Haircut Engine
Collateral Maintenance
Documentation
Valuation Engine
Financial Analysis
Risk Rating Engine
Risk-based Pricing
Group Exposure
Prospecting
Pre-qualification
Covenants Monitoring
Facility Structuring
Credit Underwriting
Call Management
Document Generator
Queue Management
Perf Incentives
Strategy Templates
SmartView/Reports
Trade
Finance
Relationship Mgrs
Core Banking
Credit Admin Officers
Data Warehouse & RWA Engine
Credit
Bureau
Remedial Officers
Reuters
Credit Risk Managers
Front Office
Mid - Office
Back Office

6. Collateral Maintenance Concentration Reports
Structured & Granular Risk Data for AIRB Compliance
SmartLender
Basel II Risk Components
Credit Processing System
Prospecting
Pre-qualification
Group Exposure
Facility Structuring
Credit Underwriting
Covenants Monitoring
Credit Rating System PD
Financial Analysis
Risk Rating Engine
Risk-based Pricing
Collateral & Limits Management System
Collateral Maintenance
Documentation
Valuation Engine
EAD
LGD M
Event Handler
CRM Engine
Haircut Engine
Exposure Management
Concentration Reports
Excess Validation
Collection & Recovery System
Queue Management
Call Management
Document Generator
SmartView/Reports
Perf Incentives
Strategy Templates

7. Collateral Maintenance Concentration Reports
Robust Collateral & Limits Management
Drivers for Collateral Management
Basel II Minimum Operational Requirements
Expanding Range of Acceptable Collaterals
Dynamic Valuation & Covenants Monitoring
Concentration Risk Management (Pillar II)
Limitations of Legacy Systems
Collection & Recovery System
Collateral & Limits Management System
Credit Rating System
Credit Processing System
SmartLender
Event Handler
CRM Engine
Haircut Engine
Collateral Maintenance
Documentation
Valuation Engine
Exposure Management
Concentration Reports
Excess Validation
Financial Analysis
Risk Rating Engine
Risk-based Pricing
Group Exposure
Prospecting
Pre-qualification
Covenants Monitoring
Facility Structuring
Credit Underwriting
Call Management
Document Generator
Queue Management
Perf Incentives
Strategy Templates
SmartView/Reports

8. Robust Collateral & Limits Management
Basel II BCBS Para 115
The use of CRM (Credit Risk Mitigation) techniques reduces or transfers credit risk but introduces other risks e.g. legal, operational, liquidity and market risks
Imperative that banks employ robust procedures and processes to control these risks e.g. valuation, roll-off risk & concentration risk

9. Types of collaterals supported with proper categorization
Robust Collateral & Limits Management
Types of collaterals supported with proper categorization
Cash (Same Currency, Different Currency)
Marketable Securities (Bonds, Stocks/Index, Stocks/Non-Index)
Guarantees (Corporate, Government, Standby LC)
Insurance & Protection (Credit Insurance, Credit Default Swap)
Document (FX/Derivatives – Netting Agreement, Letter of Undertaking)
Properties (Residential/Standard, Residential/Luxury)
Asset Based (Plant & Machinery, Vehicle, Receivables, Post-dated Cheques)
Commodities (Soft, Metals, Energy)

10. Best Practices in Collateral Management
Robust Collateral & Limits Management
Best Practices in Collateral Management
Quality & Comprehensive Collateral Data
Collateral Mark to Market
Automatic Multi-Limit Collateral Allocation
Automatic Security Covenant Monitoring
Sophisticated Documentation Workflow
Combined View of Limits & Collaterals
Concentration Risk Management
Automated Global Collaboration Tasks
Supports LGD & AIRB Computation

11. Multi–limit Iterative Collateral Allocation
Robust Collateral & Limits Management
Multi–limit Iterative Collateral Allocation
Limits sharing among legal entities
Outer and inner limits
Multiple accounts per limits
Collateral specifically charged to a limit
Collateral sharing among legal entities
Many-to-many linkages between collaterals & limits
Hierarchical and pari passu charging
Prior charge amount
Collateral value not to exceed limit

12. OLAP – based Portfolio Management

13. Thank You