Risk @ Wholesale Bank
An orientation to effective risk management & control
TABLE OF CONTENTS
Introduction ________________________________________________________ 3
Risk Culture – what does it mean at Standard Chartered ___________________ 3
Business and Risk __________________________________________________ 4
Risk Principles (also refer Database B 101) ______________________________ 5
Risk Types _________________________________________________________ 5
Credit Risk ______________________________________________________ 5
Country Risk (also refer database B 301 and B 326) ______________________ 6
Market and Liquidity Risk (also refer Group Market Risk Policy Database) _____ 6
Operational Risk (also refer database B 501) ___________________________ 7
Compliance Risk (also refer database B 601 and B 602) ___________________ 8
Reputational Risk (also refer database B 701 and J401) ___________________ 9
Environmental and Social Risk (also refer database B 204) ________________ 9
Risk Management Framework & Matrix of Responsibilities _________________ 9
Risk Management Organization ______________________________________ 10
Group Level ____________________________________________________ 10
Functional Level _________________________________________________ 11
Country Level ___________________________________________________ 11
Risk Policies and Procedures ________________________________________ 11
1. Group Policies ________________________________________________ 11
2. Functional Policies _____________________________________________ 12
3. Country Underwriting Standards ___________________________________ 12
Risk Pricing _______________________________________________________ 13
Economic Profit _________________________________________________ 13
Measurement Tools ______________________________________________ 13
Pricing Guidelines _______________________________________________ 13
Management of Customers/Counterparties _____________________________ 14
Target Customers________________________________________________ 14
Name Lending __________________________________________________ 14
Money Laundering – Know your customer (also refer database B 507 and B 534)14
Types _________________________________________________________ 15
I. CORPORATES _______________________________________________ 15
Groups (also refer database J 202, J 203 and J 206) ____________________ 15
Lending to Holding Companies (also refer database J101) ________________ 15
Subsidiary Companies (also refer database J 207) ______________________ 15
II. BANKS ____________________________________________________ 16
Banks and Financial Institutions (also refer database J 154, J 155, J 307, J 804 &
J 806) _______________________________________________________ 16
III. GOVERNMENTS ____________________________________________ 16
Governments and Government Owned Companies (also refer database J 204) 16
IV. INVESTMENT INSTITUTIONS _________________________________ 16
Funds, Fund Managers and Hedge Funds (also refer database J 807 and J 808)16
V. PERSONAL BORROWERS ____________________________________ 16
Lending to Individuals within Functional level policy (also refer database J 104) 17
Products _________________________________________________________ 17
Categories of Risk for Limit Purposes – Category 1,2&3 (also refer database R
201) ________________________________________________________ 17
Risk Handbook
Page 1
Suitability, Saleability, Pricing (also refer database J 101, J111) ____________ 18
Specific Requirements (also refer database J 101, J 302, J307) ____________ 18
Specialist Product and Higher Risk Areas (also refer database J 101) _______ 18
Restricted Activities (also refer database J 101 and B 702) ________________ 18
Environmental and Social Risk (also refer database B204 and B 226) _______ 19
Others (also refer database J 101) ___________________________________ 19
Approval Process __________________________________________________ 19
Business Credit Application (also refer database J 151, J154,) _____________ 19
Credit Grades (also refer database D 101 and J 206) ____________________ 21
Grading Groups and use of Parental Support (also refer database J 206)_____ 22
Regulatory Compliance (also refer database B 202) _____________________ 22
Credit Reference Levels (also refer database J 121) _____________________ 22
Security (also refer database J 158 and J 616) _________________________ 23
Country Risk (also refer database B 326) _____________________________ 23
Approval Authorities (also refer database J 102 & J 152) _________________ 23
Pre Disbursal Process – Control of Lending ____________________________ 24
Securing Documentation (also refer database J175 and J506) _____________ 24
Monitoring & Control _______________________________________________ 25
Trigger Points (also refer database J 151) _____________________________ 25
Early Alert Accounts – (also refer database J 503) ______________________ 25
Accounts Subject To Additional Review (also refer database J 505) _________ 25
Management of Special Assets - GSAM ________________________________ 26
Accounts graded CG 12 (also refer database N 101) ____________________ 26
Lessons Learned Review (also refer database N 300)____________________ 26
Risk Handbook
Page 2
Introduction
Welcome to Standard Chartered Bank. This risk handbook will give you an
introduction to the various risk related activities within the bank. This handbook is not
meant to be a “Bible” on Risk Management but instead will provide you with the
background to several key areas within the lending function and will serve as your
“first point of reference”. Elaboration and detail of any policy or process will be found
in the respective database(s) and you will be provided a reference to the same in the
handbook. Further, if you are in a sales related role, you must also refer to the
Relationship Managers Guide, which will equip you on, “How to be a better
Relationship Manager and become a partner to your clients”.
Risk Culture – what does it mean at Standard Chartered
What is culture? Webster defines it as:
"The set of shared attitudes, values, goals, and practices that characterises a
organisation" - the key word is 'shared'. We all have different roles to play within the
organisation but one thing is clear, Standard Chartered can and will only be
successful if we all take ownership of risk and accept accountability for our actions.
Every one of us can lead by example and ensure that the decisions we make, the
actions we take, are to the long term benefit of the bank firstly and that any personal
benefit is subordinate.
The bank benefits from a strong risk culture and we endeavour to reward good risk
behaviour in the same way that we reward other achievements. Those of us who
demonstrate a sound approach to risk can expect to see this further our careers and
be appropriately rewarded. Saving losses is as important as growing revenue.
We expect people to behave responsibly and to bring problems to the fore at the
earliest possible stage. In the same way that we expect openness and full disclosure
from our clients, so we expect it of ourselves. Problems are there to be solved, not
hidden.
In a good, sound institution risk is an integral part of strategic planning from the top
down. Good risk culture derives from good risk behaviour, a collegiate approach,
open and robust debate on issues of concern and most of all a firm and unwavering
commitment to a "No Surprises" philosophy. We will also ensure we all have a clear
framework within which to operate and that we all understand what we can and can
not do.
The following table lays down key characteristics of effective risk culture:
Risk Handbook
Page 3
SCB Risk Culture
We succeed if everyone sees ownership of risk as part of their responsibility, not everyone
else's; it doesn't have to be in the job description.
We are all expected to take risk decisions in the best interests of the Bank as a whole, not
just our part of it.
Risk behaviour that is in the best interests of the Bank will be recognised in career
development and promotion.
Risk ownership begins as close to the client as possible and is an active, on-going
responsibility.
Group Risk will provide and communicate a clear and unambiguous framework of policies,
principles and processes for risk ownership and review.
All risks decisions will have a clearly identifiable 'audit trail' and the Bank will hold staff
accountable.
In holding people to account, the Bank will differentiate between unforeseeable
consequences and deliberate policy- flouting.
Saving significant losses will be rewarded in the same way as growing the revenue line.
The Bank will work to create a climate in which staff can talk honestly and openly about risk
or problems at a sufficiently early stage, with the emphasis on solutions.
We will openly discuss and learn lessons from mistakes/misjudgements.
The Bank will ensure that all employees receive Risk training appropriate to their position,
starting with induction.
Business and Risk
Most dictionaries define risk as „danger‟ or „the possibility of something harmful or
undesirable happening‟. Consequently the intuitive understanding of the word is a
“negative” one. However, as a Bank, risk is our business and we profit from
managing it. Therefore it is imperative that we understand the risks we face and have
robust systems that identify, measure and manage these risks and have people who
are risk aware so that we can exploit the opportunities that are presented to us.
Specifically we need to ensure when we accept risk, we do so because it fits with our
strategy, is within underwriting standards, is priced and approved appropriately and is
monitored constantly.
Risk Handbook
Page 4
Risk Principles (also refer Database B 101)
The Basic Principles of Risk Management within the bank are:
We recognise that revenue is earned by accepting risk and we will ensure that
business activities are controlled on the basis of risk adjusted return.
We will be explicit in setting our appetite for risk and we will manage risk to stay
within agreed parameters. It follows from this that risk must be quantified
wherever possible.
Risk will be assessed before acceptance and for as long thereafter as we remain
exposed to it.
We will comply with all applicable laws and regulations in every country where we
do business, and with the governance standards prescribed for listed companies.
We will apply high and consistent ethical standards to our relationships with all
customers, employees, and other stakeholders.
Group activities will be undertaken in accordance with fundamental control
standards. These controls will employ the disciplines of planning, monitoring,
segregation, authorisation and approval, recording, safeguarding, reconciliation,
and valuation.
Risk Types
Often credit risk is considered as the only risk that lenders need to evaluate when
arriving at a lending decision. In an increasingly dynamic and complex marketplace, it
is imperative that we consider all the types of risk that could exist and then dimension
and evaluate the critical ones so as to focus our limited time and resources on them
before arriving at a decision. As a bank we generate most of our revenues by
accepting risk of differing types in our lending decisions. For a summary of definitions
of the main types of risk, also refer database B 101. The main types of risk that need
to be considered are: -
Credit Risk
In assessing credit risk we seek to establish the probability that a counterparty will not
repay it‟s obligations to the bank. The better the quality of the customer, the lower is
the expected probability of default. The assessment of this risk is carried out by the
nature of the counterparty and can be broadly categorised into the following:
Corporates – These include Local Franchises and MNC segments of the Corporate
Bank and are approved by Credit Officers with delegated lending authority within the
Risk Handbook
Page 5
Country and if beyond their authority then at Regional Credit Officer level or Group
level.
Non Corporates – These include Governments, Banks, Financial Institutions and
Investment Institutions. Given that the nature of these counterparties are very
different from that of Corporates, the same are assessed and approved by Markets
and Institutions Risk Management (MIRM) which is an independent approving unit
within the Risk Management function. MIRM on a centralised basis supports the
bank‟s business in setting and approving credit limits on counterparties to support the
following activities: –
1. Asset Liability Management – This is done on a portfolio basis and against pre
agreed norms with regard to counterparty rating, nature of instrument and amount
of exposure and does not need specific approval on a counterparty basis. These
are controlled on an oversight basis with regard to outstandings and credit quality.
2. Normal Business – This is done on a product basis (e.g. Trade Finance, FEX,
Derivatives, Fixed Income Securities, Syndication‟s, etc.) and with reference to a
specific counterparty on whom credit limits are established.
Sovereign Risk and Country Risk – are they the same? NO, Sovereign Risk is the
counter-party credit risk of a borrower who is a government or a wholly owned entity
of a government. Hence sovereign risk is assessed as part of the risk approval
process for Non Corporates and should not be confused with Country Risk.
Country Risk (also refer database B 301 and B 326)
Country Risk arises when the bank has a cross border exposure on a counterparty on
which we have Credit Risk. Country Risk is the risk that our counterparty is unable to
meet its contractual obligations as a result of adverse economic conditions or actions
taken by governments in the relevant country. Given that this is independent of the
counterparty credit risk, we assess this risk in addition to credit risk. Since the
assumption of country risk requires capital allocation, we also price for it in
accordance to the risk of the country on which an exposure is being taken. Country
risk arises in all cases other than in those that are on-shore transactions in domestic
currency. Nominated Country Risk Allocation Holders manage and monitor this risk
under the supervision of Group Country Risk in London. (also refer database B327
and B329, for details of allocation holders and country status)
A modular e-learning solution is also available on „Peoplewise‟ for Country Risk.
Market and Liquidity Risk (also refer Group Market Risk Policy Database)
Unlike Credit and Country Risk where the risk needs to be assessed at a
counterparty level, Market and Liquidity risk are assessed in the main on a portfolio
basis. However, in the case of large or complex exposures this could also be
evaluated at a transaction level. Typically these risks are evaluated with the use of
sophisticated statistical models which are employed to quantify these risks at
transaction or portfolio level. Group Market Risk is responsible for the overall
Risk Handbook
Page 6
framework and management/ control of market and liquidity risk within the
organisation. They evaluate and implement the models and validate the assumptions
in the models on a continuous basis. At a business and country level, they monitor
and control these risks by delegating authority to Local Management who are
primarily responsible to comply with the group guidelines. These can be briefly
explained as under: -
1. Market Risk is the risk to the Group's earnings and capital due to changes in the
market level of interest rates, securities, foreign exchange and equities, as well as
the volatilities of those prices. Group Market Risk prescribes the unified
framework for the assessment and control of market price risk. A risk monitoring
limit and reporting structure is set out for portfolios of products, instruments, and
income streams, where the economic value is directly or indirectly sensitive to
changes in variable market prices, such as spot foreign exchange or interest
rates.
2. Liquidity risk management involves the ability to manage and maintain adequate
liquidity at all times. Good liquidity risk management will result in the bank being in
a position (in the normal course of business) to meet all it‟s obligations, to repay
depositors, to fulfil commitments to lend and to meet any other commitments it
may have made. Of critical importance is the need to avoid having to liquidate
assets or to raise funds at unfavourable terms resulting in financial loss or long
term damage to the reputation of the Bank. Prudent liquidity management is of
paramount importance as the ultimate cost of a lack of liquidity is being out of
business, which we cannot afford.
Operational Risk (also refer database B 501)
In addition to other established risk classes discussed so far, the bank also views
Operational risk as a separate risk class. Like Credit, Market and Liquidity risks,
Operational Risk too has evolved in the Group and now has it‟s own established
policies (also refer database sub chapter B 500) and procedures (also refer database
sub chapter B 525) to facilitate management and measurement.
Operational Risk is defined as “The risk that the Group will incur direct or indirect loss
due to an event or action causing the failure of technology, processes, infrastructure,
personnel and other risks having operational impact. Legal risk is included. This
definition excludes strategic/business and reputational risk”.
Some of the key developments in this area are enumerated hereunder:
Operational Risk coverage is now enterprise wide i.e. across front office / middle
office and back office functions in the Group and works on a de-centralised model,
with business and countries taking greater responsibility and ownership for day-to-
day risk management.
Risk Handbook
Page 7
Group Operational Risk is today an independent risk unit within Group Risk and is
responsible for defining and implementing the Group‟s Operational Risk Policy
and framework. In addition to the Operational Risk unit, the Group Operational
Risk function also includes Group Insurance and Group Security (including
responsibility for the Group‟s Continuity Planning Policy).
The Operational Risk management framework is also being used to track and
manage non-traditional risks like Reputational, Compliance, Social, Ethical and
Environmental risk in the Group.
Risk management at country, business and Group levels is an integrated process
and is through self-assessment and exception reporting.
The evolving relationship between a robust control environment and shareholder
value has resulted in a greater governance focus within organizations. Roles and
responsibilities are also being constantly reviewed / enhanced to support the
same and Group Audit plays an active role in reviewing the effectiveness of risk
management process and framework.
On the international front Standard Chartered is a member on the Financial
Services Authority (FSA) Advisory panel on Operational Risk and the Institute of
International Finance (IIF) Working Group on Operational Risk.
All employees have a role to play in managing operational risk and compliance with
the Group Operational Risk Policy & Procedures is mandatory. You must ensure that
your key operational risks are understood, being managed and reported (where
significant) to senior management. Within the Wholesale Bank, significant risks
should be reported to the Wholesale Bank Risk Committee. Coverage should be
across front office, middle office and back office areas and scope should not be
restricted to just Service Delivery / Technology issues.
Compliance Risk (also refer database B 601 and B 602)
Since Banking and Financial service activities are conducted within a framework of
obligations imposed by regulators and national/ international law, complying with
such requirements is not optional for the bank. The consequences of non-compliance
include fines, public reprimands, and enforced supervision of operations or
withdrawal of authorisation to operate, any of which can lead to reputational loss
particularly through adverse publicity in national or international media. Non-
compliance with regulatory requirements can also lead to civil or criminal action being
taken against the Bank and responsible employees, which is detrimental to our ability
to successfully conduct business. Therefore the bank is working towards developing
a robust framework of procedures and controls so as to minimise compliance risk and
to ensure that everyone understands their roles and responsibilities in this process.
All employees are expected to observe the Group Code of Conduct, which must be
followed at all times. The increasing importance to the issue of money laundering
cannot be overlooked and it is mandatory for all staff to be conversant with the Money
Laundering Policy (refer B 507).
Risk Handbook
Page 8
Reputational Risk (also refer database B 701 and J401)
Our reputation is one of our most important assets and therefore it is important to
understand the implications of putting our „Reputation‟ at risk. To protect our (good)
reputation we need to ensure that we are seen to conduct business activities in a
manner that is in line with the requirements or expectations of all our key
stakeholders. Every time we fail to manage one or more of the risks discussed so far
in an appropriate manner, the resultant adverse publicity will always impact our
reputation as well our revenue generating capability in any given business location.
The intuitive way to assess this risk is to ask yourself the question, “If this made it to
the Headlines in the newspaper, will it embarrass or harm us in any way?” If the
answer is Yes, then escalate the issue to your Manager at an early stage to enable a
risk reward assessment to be made and an appropriate decision agreed to. All staff
are responsible for the day to day identification and management of reputational risk.
It is the duty of every SCB employee to consider the reputational impact of his or her
actions. This must be considered at the outset of any course of action. The
Wholesale Bank Reputational Risk Committee is responsible to review the
reputational risk aspects of proposed transactions (products, lines of business etc)
originated within Wholesale Bank and is authorised to approve the reputational risk
aspects of the transactions referred to it.
Environmental and Social Risk (also refer database B 204)
With growing awareness about the need to protect the natural environment and
concerns with regard to social factors (e.g. employment of child labour), we are
exposed to the risks of non-compliance with environmental and social legislation.
This risk can emanate either directly from our own actions as a bank or in-directly as
a fall out of our counterpartys‟ actions, should they not be in compliance of legislation
or take actions that are not acceptable to their regulators. Environmental and Social
Risk is part of the total risk associated with lending, it should not be seen as a
standalone risk. It needs to be identified, mitigated where possible, and if appropriate
priced for, as are all other risks. Risk and Relationship Managers are not expected to
be experts in environmental and social issues, however they are expected to be able
to use the tools at their disposal to recognise and evaluate the risks associated with
lending decisions.
Risk Management Framework & Matrix of Responsibilities
In order to ensure that risk is effectively managed when we provide products to our
customers, and throughout the period of our relationship with them, it is necessary to
have a robust risk management framework in place and have clarity as to roles and
responsibilities.
The term risk management framework refers to the structure within which the
management of risk is effected within an organisation. Building and
maintaining this structure requires putting together a mix of the following
elements
Risk Handbook
Page 9
methodology for determining risk appetite
policies and procedures for managing risk
models for measuring risk e.g. credit grading
tools for analysing risk e.g. spreading balance sheets
processes for recording and approving credit requests e.g. Business Credit
Application
the means of delegating and monitoring the use of credit authority
the management of documentation and limit input
tools and techniques for monitoring and reporting risk exposures
the structures for regularly reviewing risk exposures e.g. risk committees
and so on. Just as you can build many different designs of buildings with simple
materials such as bricks, steel and cement the above elements can be put together
in many combinations depending on the nature of the risks involved. The structure
varies therefore according to the type of risk – credit, market and country risks are
managed in different ways – and even within credit according to the types of
counterparty – multinationals, local corporates, banks and financial institutions,
governments all have different credit processes.
Overall responsibility for ensuring that there is an appropriate risk management
framework in place rests with Group Risk. For Wholesale Bank the responsibility lies
with the WB Risk Management team. At country level the SCO will ensure that its
requirements are operating effectively.
As an officer of the bank, is it your responsibility to ensure that you are aware of the
business strategy and underwriting standards in your area. You must also be aware
of the policies and procedures that are relevant to the area in which you are working
and ensure that you work within their spirit as well as to their letter. Ignorance is no
defence so ask if you are unsure how things are supposed to operate in your location
and what your authorities are.
Risk Management Organization
As mentioned earlier, the risk management organization operates at three levels,
group, functional and country.
Group Level
Group Risk (GRM) largely based in London has responsibility for ensuring that risk
across SCB is recognized and managed effectively. It is a support function reporting
to an independant Group Executive Director. It ensures that the overall risk
management framework is operating effectively. This is done, for example, by putting
in place high level Group policies (see section B of the Notes database or the Group
Risk pages of SCyBernet), involvement in significant risk decisions including
business strategy and budgets, over-viewing actual exposures and involvement in the
various risk committees.
Risk Handbook
Page 10
Functional Level
The members of the Function (either WB or CB) risk team based in Singapore have
similar responsibilities as GRM but their focus is solely on the function or business
they manage. The main differences are the scope of this responsibility is narrower
and they must operate within the confines of the authorities given to them and within
Group policy boundaries. The risk team will therefore define policies and procedures
appropriate to the function and monitor the performance of the business within their
area of responsibility. The risk team is independent of the business but work very
closely with them. Their remit is global applying equally to countries managed on a
segmented and non-segmented basis.
Country Level
At the country level the SCO for a business is responsible for ensuring that risk is
managed effectively by setting local risk boundaries, underwriting standards, and
ensuring that risk is taken on within those boundaries and that Group and WB policy
and procedural requirements are complied with.
Other support functions, which impact on WB risk, are:
Group Special Assets Management – this unit is responsible for management of
delinquent or potentially delinquent accounts to maximise recoveries and minimise
losses. It is an independent function, which works very closely with WB and GRM.
Audit – the Group Audit function check that policies and procedures are being
complied with by operating units and is an independent function so as to ensure no
conflict of interest.
Risk Policies and Procedures
To define, regulate and monitor the activities of the bank, various policies and
procedures have been put in place. These are available in the Notes database under
“Risk Policies and Procedures Database” and in SCyBernet on the Group Risk web
page under “Policies and Procedures”. These are the set of rules and guiding
principles covering the provision of credit and related activities and also describe the
processes and procedures within the bank. These policies and procedures
encompass a wide range of risks (Credit, Country, Reputational, Operational etc.) as
discussed earlier in the handbook. It is useful to be familiar with the structure and
overall content of this database.
The policies in the bank could be broadly categorized into three –
1. Group Policies
These set out the broad overall credit policies of Standard Chartered Group for the
conduct of credit business and apply to all counter-parties and to all business
functions within the Group. The definitive document in this area is the Group Credit
Risk Handbook
Page 11
Policy (B 201). The ownership of these policies rest with Group Risk. These are
located under Chapter B of the Risk Policies and Procedures Database.
2. Functional Policies
These are Individual business specific credit policies and procedures, which are
developed within the overall guidelines of the group credit policies. The most
definitive documents in this area are the C&I Functional Credit Policy (J 101) and the
Global Markets Credit Policy (J103). These set out the basic credit philosophy and
standards by which business is to be undertaken and credit risk managed within the
Wholesale Bank in all territories and business units. Where necessary these are
supported by more detailed Polices and Product Programs as appropriate for each
business unit. The ownership of these policies rest with the respective businesses
that formulate these policies. These are located under Chapter J of the Risk Policies
and Procedures Database.
The following diagram schematically represents the policy framework within the bank.
3. Country Underwriting Standards
These are country specific standards that lay down norms for writing business in a
specific country and outline variations to either the Group or Functional Level policies.
This document essentially outlines the parameters within which business will be
conducted within a country that may not necessarily have been captured by the
higher level policies. The ownership of these standards rest with the Country Head of
Business and the Local Senior Credit Officer. These are located in the Country
Underwriting Standards Database.
Whilst it is possible to do business with customers on terms differing from those laid
down under the above policy framework, this will require a higher level of scrutiny and
a clear justification for the deviation. (also refer appendix 1 of Database J 101).
Risk Handbook
Page 12
Having got an appreciation of the structure of the Bank‟s Risk Management
organization, and Policies Framework let us now look at how these impact the
conduct of our business on a day to day basis. Most issues that you will be faced with
at work can be linked back to a credit policy or procedure and in the unlikely event
that it does not or you require any clarification, the Senior Credit Officer of your
country should be your first port of call!
Risk Pricing
As business models have evolved so have the measurement models. The bank is
now focussing on ensuring that we earn an adequate risk adjusted return on our
business relationships. The term we use is Economic Profit.
Economic Profit
This is a risk-adjusted performance measure, which measures profitability after
subtracting the expected minimum return to shareholders (i.e. capital charge). By risk
adjusted we mean including in the costs of doing business, a risk cost (Expected
Loss) and a charge for the capital needed to support the facilities provided to a
customer. Using Economic Profit as a performance measure allows the business to
understand whether shareholder wealth is being created or destroyed and aligns the
goals of the business with that of maximising shareholder value. Creating sustainable
improvement in Economic Profit is synonymous with increasing shareholder value
The consequences of looking at things from an EP point of view are that more
emphasis is placed on ensuring adequate returns are earned as negative EP deals
mean we are underpriced, under secured or providing too large facilities.
Measurement Tools
In the bank, „Odyssey‟ is the business tool that allows Relationship Managers and
Credit Analysts to model Risk Adjusted Return, Economic Profit and Expected Loss
for proposed deals and entire customer relationships. The tool is intended to provide
directional guidance, and not a prescriptive answer. It is very important that the tool
be used with a clear understanding of the methodology, how to interpret the results,
and how a single deal fits into the overall customer relationship and Account Plan.
Care is needed however as EL and EP are only calculated using a model which is
vulnerable to the quality of data inputs and the soundness of the model itself (model
risk).
Pricing Guidelines
In order to ensure that a minimum return is obtained on our customer relationships,
the bank is progressively introducing Pricing Guidelines at the country level to provide
Risk Handbook
Page 13
strategic direction to Relationship Managers. Make sure you have a copy of the
same.
For further details please refer to the Customer Management Process database in
Lotus Notes and the Customer Profitability Guide therein which contains a very good
and detailed explanation of all the measures, etc.
Also, look out for a modular e-learning solution in „Peoplewise‟ on Pricing for Risk
(available by 06/2003).
Management of Customers/Counterparties
Not having the right type of customer can often be the root of all problems and hence
a good place to start would be to know the type of customers that the bank would
normally do business with. This is driven by the country specific business strategy of
the bank and could vary from one country to another e.g. whilst we may be willing to
do business with middle market customers in one or more countries the same may
not be the case for all countries.
Knowing our customers well is a fundamental credit principle. Failure to do so will
mean that we will not understand the risks associated with doing business with the
customer resulting in inaccurate credit ratings and inappropriate credit facilities being
provided.
The following section highlights the overall mix of bank customers and the manner in
which they are categorized within the bank. This is categorization is necessitated due
to the varied nature of risks and different approaches used to assess these risks.
Target Customers
These can be in any of the categories mentioned below and must meet the business
acceptance criteria as laid down in the Country Underwriting Standards applicable to
the business unit.
Name Lending
For all counter-parties, name lending is to be avoided. Rather than just rely on a
name, a full assessment of risks and the putting in place of appropriate mitigants
would be the acceptable approach, as pure name lending has often resulted in losses
to the bank.
Money Laundering – Know your customer (also refer database B 507 and B 534)
Money laundering is the process by which criminals attempt to hide and disguise the
true origin and ownership of the proceeds of their criminal activities. The term
“money laundering” is also used in relation to the financing of terrorist activity (where
funds may, or may not, originate from crime). It is the primary responsibility of the
business to be satisfied about the source(s) of funds of it‟s customers and also have
a good understanding about the legitimacy of their business activities.
Risk Handbook
Page 14
Types
The types of customers we deal with can be categorized as under:
I. CORPORATES III. GOVERNMENTS
V. PERSONAL BORROWERS
– Are exceptionally dealt with when
they are closely associated with a
II. BANKS Corporation with whom we do IV. INVESTMENT
business. INSTITUTIONS
I. CORPORATES
Groups (also refer database J 202, J 203 and J 206)
Where we deal with two or more Counterparties who have common ownership, it is
necessary to understand the risks associated with the whole group, rather than just
those parts to which we are exposed. This is to avoid being adversely impacted by
knock on effects from the deterioration of risk in other parts of the group. Group
exposures must be identified and reported in order that we may comply with
regulatory requirements of the various countries that we operate in. A Global Account
Manager whose support is required for all business proposals being initiated within
the group must manage all such customer groups.
Lending to Holding Companies (also refer database J101)
Lending to a holding company in a group represents a higher level of risk and
wherever possible, facilities must be made available to operating subsidiaries whose
cash flow and liquidity profiles support the proposals. Where facilities are provided to
the holding company “upstream” guarantees should be obtained from the core
operating subsidiaries.
Subsidiary Companies (also refer database J 207)
Dealing with companies without having knowledge of or a banking relationship with
the parent is a higher risk activity and is exceptionally only permitted provided the
subsidiary and the parent meet certain criteria as stipulated from time to time.
Property Companies/ Developers (also refer database J 803)
The provision of finance for property is a specialist activity, which requires clear
boundaries to be set and adequate controls to be in place. These are required in
order to ensure that the bank‟s portfolio is not adversely affected by losses during any
cyclical downturn through the proper structuring, pricing and management of risks
involved in this sector.
Risk Handbook
Page 15
It is our policy that credit facilities may only be provided in accordance with the
underwriting standards for the dedicated property unit or in accordance with terms
and conditions set out in the generic product programme for Commercial & Industrial
Mortgage for Owner Occupiers and the approved country product templates. Own-
use or Owner-Occupier refers to premises occupied by the borrower or related
companies where they occupy a minimum of 70% of the premises. Where properties
are developed for own use such adverse factors will usually be mitigated e.g.
business cash flows will be available to service debt.
Specialist Commercial Real Estate Units (CRE) have been established in Singapore,
Hongkong and China to exploit specific market opportunities and the providing of
finance has to be in accordance with the Underwriting Standards for Commercial
Real Estate and approved by the RCO-Property.
II. BANKS
Banks and Financial Institutions (also refer database J 154, J 155, J 307, J 804 & J
806)
The definition of “banks” covers Central Banks, Commercial Banks, Savings Banks,
and certain Development and Merchant Banks. Some “banks” include activities such
as investment banking and it is the risk appraisal units responsibility to decide
whether the “bank” should be processed as a “bank” or as an “investment institution”.
These are assessed differently from Corporates and are approved by “MIRM” within
WB Risk Management.
III. GOVERNMENTS
Governments and Government Owned Companies (also refer database J 204)
It is generally assumed that lending to governments is low risk. This assumption does
not mean that lending to commercial enterprises fully or partially owned by a
government, e.g. state owned airlines, is low risk. It is a requirement that all such
organizations be assessed on their stand-alone merits before any credit facility is
made available. Only in instances where the lending is directly made to a
government body or is guaranteed by one, then the risk is assessed, reported and
approved as Government Risk.
IV. INVESTMENT INSTITUTIONS
Funds, Fund Managers and Hedge Funds (also refer database J 807 and J 808)
In view of the specialized nature of their business these Counterparties are assessed
in a manner different from Corporates and need approval from MIRM within WB Risk
Management.
V. PERSONAL BORROWERS
Risk Handbook
Page 16
Lending to Individuals within Functional level policy (also refer database J 104)
In normal course the Consumer Bank credit policy and product programs govern all
lending to individuals. However the bank recognizes that there could be instances of
lending to an individual because of an existing strong corporate relationship and the
close connection that the individual has with the corporate borrower (principal
shareholder, director etc.). On an exceptional basis such lending is permitted within
the Wholesale Bank as long is it complies with the stated policy on personal
borrowers.
Products
Our customers have varied requirements of credit facilities and the bank needs to
manage the risks associated with various products in a systematic manner. This is
done through Product Programs, which is the standard risk assessment tool for
identification and mitigation of risks associated with products.
The nature of facilities offered to customers can be broadly categorized into two
areas:
1. Normal Products to meet short and
long term financing requirements
2. Specialist Products and Higher Risk
Areas
It is the policy of the bank that only products, which are covered by approved product
programs, may be provided to customers. For details of product offerings of the bank,
please refer to the Product Programs Database in Lotus Notes.
Categories of Risk for Limit Purposes – Category 1,2&3 (also refer database R 201)
All product offerings/ credit limits to a counter-party are categorised into either „Pre-
Settlement Risk‟ or „Settlement Risk‟, to essentially reflect the differing nature of the
risk in the products.
Pre-settlement risk includes Category 1 products (such as loans, guarantees, bonds,
leases, letters of credit, overdrafts) and Category 2 products (such as Currency and
Interest Rate Derivatives, securities trading and commodity trading products). Whilst
Category 1 limits are quantified and monitored on a notional principal basis, Category
2 limits are quantified and monitored on a Loan Equivalent Risk (LER)/Potential
Future Exposure (PFE) basis.
Settlement Risk (Category 3) limits are products such as Intra Day, Next Day (Tom)
and Spot (2days) limits to cover exposures for Currency payments and/or Securities
Risk Handbook
Page 17
settlements. These limits are quantified on a notional principal basis. Settlement Risk
occurs where there is an exchange of value for the same value date and receipt is
not validated until after the bank has paid or delivered. Settlement Risk covers the
period from when the SCB side of the transaction is paid or delivered until
confirmation the counterparty side of the transaction has been delivered.
Suitability, Saleability, Pricing (also refer database J 101, J111)
Only products, which are appropriate to the nature and scale of the customer’s
business, may be provided. In offering products to a customer, one must ensure
that the same is appropriate to the nature and scale of the customers business and
that the same is appropriately priced and generates economic profit. Where possible
the facilities must be structured such that they can be sold down in the secondary
market. This will allow us to optimize the use of our balance sheet and maximize
economic profit. The slogan should be “Sell the Asset – Keep the Customer”.
Specific Requirements (also refer database J 101, J 302, J307)
This area pertains to issues that are not generically covered in product programmes
because they are transaction specific. It is accepted that specific customer needs
may require products to be so structured that they increase risks on the bank and the
counterparty. These refer to areas such as Tenors, Committed Facilities, Term
Facilities, Historical Rate Rollovers, Asset Sales & Purchases and Payment
Guarantees. The guidelines on such enhanced risk situations are specifically
discussed in the functional credit policy and should be adhered to at all times.
Specialist Product and Higher Risk Areas (also refer database J 101)
The bank also recognizes that some areas require specialist management input and
whilst policy does not preclude doing business in these areas, one is required to seek
assistance form these groups when transacting Specialist Products with customers.
These groups are in the areas of Commodity Finance, Structured Trade Finance,
Structured Export Finance, Debt Underwriting and Forfaiting/Factoring (without
recourse). Any other specialist products will require the specific approval of the Chief
Risk Officer, WB and will be considered on a case by case basis.
Restricted Activities (also refer database J 101 and B 702)
In view of credit risk considerations and the higher probability of reputational damage,
it is against the policy of the bank to finance /facilitate:
Hostile acquisitions
Acquisition finance where the take out is from the sale of assets of the Acquiree
Politicians or political parties
Money laundering activities
Armaments Trade
Trade in Ivory products and other endangered species
Risk Handbook
Page 18
Environmental and Social Risk (also refer database B204 and B 226)
Given the higher degree of importance being internationally accorded to the above
issues, it is a policy of the bank that we will recognize social concerns and the impact
on the natural environment of our own actions and business decisions and those of
our customers. This requires that all credit proposals will include consideration of
environmental and social issues where appropriate.
Others (also refer database J 101)
Inferior Security Position – Facilities to be avoided in such situations as this renders
us in an unfavourable position in case of liquidation – Exceptions for customers
graded 1-8 permitted, subject to certain conditions.
Restructured Customer Facilities – Requires local SCO concurrence so as to ensure
that restructuring is not being done to avoid default or cover a deteriorating credit
situation.
Non–Resident Borrowers – In view of the higher degree of risk with regard to the
cross border nature of the exposure, this requires additional risk management and is
hence permitted subject to certain restrictions.
Approval Process
To get a speedy approval for a proposed transaction it is imperative that you
understand and address all the relevant key risks appropriately before submitting the
transaction for consideration of the Approvers. The screening process of a customer
must start at the Initiator‟s level and not be left for the Approver to do. You must be
satisfied that the borrower and deal are acceptable and be able to defend your point
of view with valid justifications. The assessment of risk is also meant to enable the
bank to determine the level of reward appropriate to the risk of the exposure. The
facilities will be approved only after the Approver is satisfied that a complete analysis
of risks has been undertaken to assess the ability of the counterparty to meet its
commitments.
Business Credit Application (also refer database J 151, J154,)
Any proposal to provide a counterparty with credit facilities requires approval from the
designated authorities and this must be sought through a document titled “Business
Credit Application” (BCA). In most countries this is a word document, however
some of the larger countries also have access to an electronic format called “Credit
Casebook”. Where the counterparty is a Financial/ Investment Institution the
document is prepared in an electronic format called “Apollo Fastrack”. Both the
electronic formats reside on the “Notes” platform.
The primary ownership of this document lies with the person(s) initiating the
transaction and would typically be a Relationship Manager and/or Credit Analyst.
Where credit facilities are made available to one or more entities in a group, the
Group Account Manager, covering the group as well as its constituent parts must
Risk Handbook
Page 19
undertake the primary risk assessment on the group as a whole and this will be
further supported by entity level analysis at the company level where facilities are
provided.
The BCA will include the following documents, which individually details:
Front Sheet - static data on the counterparty
Facilities Sheet - facilities sought and the terms & conditions
Risk Analysis Section - the key risk analysis on the counter-party
Global Mandate - facilities made available on a group basis
Odyssey - Deal Analyzer - the Economic Profit generated
Credit Grade Scorecard - enumerates the credit risk grade of the counterparty
MFA Spreads - enumerates the Financial Statements of the c’party
In the case of corporate customers, depending on the size, complexity and nature of
the standalone counter-party or group, the Risk Analysis section will be done in one
of the following formats:
Standalone Review - for all standalone exposures
Complex Group Review - for group exposures (non-investment grade)
OECD 1 to 6 Review - for group exposures (investment grade)
FAM Review - for subsidiaries/ associates of OECD groups
SPOCA - for single product exposures on a counter-party
The important thing to remember is that the above are all enablers to standardize the
process for presentation of information to an approver in a structured manner.
The key is to focus on the analysis - bad analysis can never be buried into a good
presentation…it will always show through!
Avoid the temptation to turn the BCA into a Sales document. It should be a balanced
analysis, which should highlight the positives and the negatives. Be realistic, the best
amongst us will have some negatives. Understand the motivation of all
Counterparties to the transaction and state that in a lucid and clear manner. The
Approver and you play for the same team, albeit in different positions so you must
complement each other‟s efforts.
Risk Handbook
Page 20
Finally, remember that you are accountable for the quality of business undertaken.
Value your signature and ensure that you only sign applications when you are
comfortable that you understand and are happy with the risks involved and not simply
because someone else has signed it or you are put under pressure to do so.
Credit Grades (also refer database D 101 and J 206)
A Credit Grade represents the best estimate of the probability that the counterparty
being graded will default in the 12 months after the date of grading such that the
better the grade the lower the probability of default. It is in many ways the numerical
synopsis of the credit quality of the counterparty.
Whilst the process of arriving at a credit grade can be quite mechanical, it is
important to bear in mind that this is a pre-dominant factor in determining the nature
and quality of a credit relationship with a counterparty. (amounts, products, pricing,
security etc.). It is important that it must be done in a balanced and holistic manner.
Having arrived at a credit grade, reflect and consider if the grade actually stacks up or
not, don‟t accept it at face value. Given the increasing level of globalisation in
industries, you should consider benchmarking against an international or regional
peer group, rather than be content with the counter-party‟s dominant position in the
local context.
Finally, Credit Grading is a dynamic process and should not be reduced to an annual
exercise done at the time of the review. Any developments during the year must be
reflected in the credit grade without further delay and the credit grade should be kept
up to date at all times. In practice this is often limited to adverse developments and
consequent downgrades, however it is good practice to consider any improvements
that are sustainable and well justified for a possible upgrade of the customer credit
grade.
The credit grades that we arrive at for our customers can also be mapped to
externally available ratings from S&P and Moody‟s and expected default frequency
for KMV.
Given the unique characteristics of different counter-parties, the bank recognizes that
a “One size fits all” approach is not a suitable one to follow and hence scorecards
have been specifically designed to grade counter-parties engaged in differing
business activities. These are:
Governments and Central Banks (refer database D204)
Banks (refer database D206)
Broker/ Dealers (refer database D208)
Funds and Fund Managers (refer database D209)
Insurance Companies (refer database D210)
Corporate(s) (refer database D201)
Unlike all the other types of counter-parties listed above, a corporate counter-party
can be graded using either a Large Corporate Score Card or a Middle Market Score
Risk Handbook
Page 21
Card. The defining criterion for usage is based on the Sales of the Corporate
Customers as under:
Sales > USD 375 million Large Corporate Score Card
Sales < USD 375 million Middle Market Score Card
Grading Groups and use of Parental Support (also refer database J 206)
When grading counter-parties within a group, it is not unusual to arrive at a
standalone grade for an individual counterparty and another grade for the group as a
whole. The group grade is also used to grade subsidiaries that have explicit support
from the group by way of guarantees or other forms of support. When evaluating
parental support, you must verify that the parent is willing to confirm support for both
commercial and country risk.
Regulatory Compliance (also refer database B 202)
Full cognizance must be taken of regulatory constraints on risk concentrations at
Group level and at local business unit level (see Underwriting Standards) which must
be complied with without exception. In particular all changes in exposures in excess
of 10% of the bank‟s regulatory capital (LECB) must be reported to the FSA. In
addition any proposals to increase exposure where that exposure exceeds 25% of
LECB requires prior approval of the FSA.
Credit Reference Levels (also refer database J 121)
Credit Reference Levels are meant to ensure that undue concentration risks are not
created at a portfolio level, as a result of a decision making process focused on
approvals at individual counter-party level. Of particular concern are a significant
number of individual large exposures. Whilst it may be justifiable to provide sizeable
facilities to individual counter-parties, doing so to a significant number increases the
risk that sizeable losses could arise through one or more such accounts rapidly
deteriorating. Losses can also arise from having a sizeable portfolio of lower value
exposures where correlation risks are more significant i.e. they are more likely to
default together.
Thus whilst CRLs are applied at a counter-party level they are essentially intended to
ensure that risk concentration issues are also addressed and managed when BCAs
are approved. CRLs do not indicate the maximum level of permitted exposure on a
counter-party group, but provide a trigger that a higher level of exposure requires
clear justification. Approval is also required at a higher level. Approaching a CRL is
thus to be considered in the same manner as approaching an amber traffic light –
proceed with caution rather than stop. CRLs are not hard ceilings, but all exceptions
must be fully justified and approved at the appropriate level. In addition, the level,
number and total value of exceptions must be carefully monitored at portfolio level.
Risk Handbook
Page 22
It is not possible to be precise on when CRL exceptions will be permissible and for
what reasons. Each case will be treated on its merits but due consideration must be
given to the nature of the counter-party risk, the size of the excess, the structure of
the exposure, the period it will occur for, pricing, and ability to sell down and so on.
Security (also refer database J 158 and J 616)
Where necessary and whenever possible security must always be obtained in order
to mitigate credit risk and improve the recoveries of the bank in the case of a default.
However security must only be treated as a „risk mitigation tool‟ and not as a „primary
repayment source‟. Based on the experience of the bank in recovery from security, a
risk mitigation template with certain minimum acceptance criteria (MAC) have been
established at a group level which have to be followed by all countries. Further
templates have been developed on a country specific basis wherein the amount of
Forced Sale Value (FSV) for a particular security will depend on the nature of the
security and the jurisdiction in which it is enforceable. This will vary from one country
to another based on the bank‟s experience in recovery. Where security is in the form
of protection from another Financial Institution either by way of a Guarantee or a
Product (Insurance or Derivative), appropriate credit approval needs to be obtained
from MIRM prior to acceptance of the security in the transaction.
Country Risk (also refer database B 326)
For counter-parties where we have a cross border exposure resulting in country risk,
appropriate approvals need to be in place before the relevant approving authority
approves the transaction.
For countries on “Open” status no pre-approval is required. When a country is on
“Refer” status, then country limits are held in country for monitoring and control
purposes. The SCO or GM of a territory would typically hold the country risk limit for
the respective country and is the designated “Allocation Holder”. Lastly, for countries
whose status is “Suspend”, no transactions are permitted without the specific
approval of Group Country Risk. Approvals for “Suspend” countries will be on a
exceptional basis and only for well justified transactions.
One must also keep in mind that a country could have dual status, i.e. be “Open” for
Short Term and “Refer” for Medium Term transactions. Care must be exercised in
establishing the status prior to proceeding with a transaction. It is the responsibility of
the originator of the deal to ensure that appropriate approvals are in place to cover
country risk and that the same is priced for appropriately.
Approval Authorities (also refer database J 102 & J 152)
All signatories to a BCA are fully accountable for the credit decision made in respect
of that application. Duality of control is a fundamental principle of credit and hence a
BCA cannot be originated and approved by the same person. By default, all BCA‟s
require a minimum of two signatures, which must include business representative(s)
responsible for the business origination.
Within the bank credit authority is delegated to individuals based on experience and
integrity. The delegation chain proceeds from the Board through the Group Risk
Risk Handbook
Page 23
Committee to the Group Executive Director - Risk down the credit authority chain to
individual authority holders except that officers below the level of Senior Credit Officer
may not delegate credit authority. A credit signatory can have one of the following
signatory designations:
A Relationship Managers, Credit Analysts and Group Account Managers
B Team Leaders, C&I Heads, Head of Credit Analysts
Credit Senior Credit Officers, Regional Credit Officers
Signatories may only approve BCA‟s which clearly fall within their delegated
authority. Any approval given outside such authority is a serious breach of discipline
as this may lead to unanticipated levels of credit loss. Approval of credit for values in
excess of those delegated to individuals, will be handled by the Credit Committee,
which comprises of senior credit staff from the business and Group Risk. For a clear
understanding of procedures for submission of transactions to Credit Committee also
refer database J 160.
Credit authorities are based on the concept of “Expected Loss” but are subject to a
gross exposure cap. This is to ensure that a large exposure transaction with a low EL
is not approved without adequate discussion at an appropriate authority level. When
determining authority levels, as a general guideline, approx. 15-20 percent of credits,
by EL, should be approved outside the country, territory or region in which the credits
originate. This is to ensure a streamlined process where majority of the credit
decisions, are taken close to the origination point and yet a reasonable amount are
cascaded upwards to maintain a balance in the process.
All approvals are valid until the limit review date, which is usually (but not always) set
for a maximum period of 12 months from the date of first application. It is essential
that risk is reassessed on a regular basis to ensure that the structure, size of facilities
and the terms and conditions, including security and pricing, on which those facilities
are provided remain appropriate and changes if any are made on a pro-active basis.
Pre Disbursal Process – Control of Lending
Securing Documentation (also refer database J175 and J506)
Group Credit Operations is responsible for ensuring that the Relationship Manager
obtains all the documentation from the customer. They are also responsible to ensure
it‟s completeness based on the approval terms and conditions of a given facility. This
function is organizationally independent of the sales process and enables the bank to
maintain duality of control. They are also responsible to monitor that a transaction
has been approved at the correct level by the appropriate authorities.
Authorization from Credit Operations is a must prior to disbursement of funds in all
cases and this is obtained through a „Security Compliance Certificate‟ which certifies
that all security has been perfected and conditions precedent satisfied. Once this is
issued, Credit Operations will make a limit operative. It is worthwhile to note that
Risk Handbook
Page 24
whilst Credit Operations is responsible for completeness of documentation, the
Relationship Manager has the onus of obtaining the same from the customer.
Credit Operations also maintains a diary system to follow up with Relationship
Managers all outstanding issues with the customer with regard to ongoing submission
of documents and compliance with approval terms and conditions.
Monitoring & Control
Given that risk is dynamic, it is a natural corollary that changes in risk profile will
always occur and can have an adverse impact on the repayment ability of the
borrower. Remember that approval is always granted on the basis of existing facts
and it is imperative that relationship officers and all others interacting with customers
must proactively review a customers creditworthiness and be vigilant for any early
signs of deterioration. Hindsight reviews have shown that in a large number of
instances whilst risk identification in the first instance was often accurate, it was the
lack of effective monitoring and control that led to customer default and consequent
losses to the bank. The lending Game is not about winning all the time; it is about
staying ahead! The earlier we are the better our chances of getting fully repaid.
Trigger Points (also refer database J 151)
To spot early warning signs in a deteriorating credit it is important to have a thorough
understanding of the key risks faced by the customer and set up appropriate Trigger
Points within the BCA to monitor these risks. The breaching of a Trigger point must
result in a tangible action on the part of the Relationship Manager both externally with
the customer (in terms of understanding their strategy and action points) and
internally by way of escalation to senior colleagues (for review and remedial inputs).
Trigger Points are distinct from Covenants, which are externally agreed with
customers and a breach of which will result in an Event of Default and make our
facilities repayable on demand. It is important to understand that Covenants by
nature are reactive whereas care should be taken to make Trigger Points proactive,
so as to enable early identification of problems.
Early Alert Accounts – (also refer database J 503)
The Early Alert Policy requires that Early identification, prompt reporting and
proactive management of deteriorating accounts is the prime responsibility of all
Relationship Managers, which must be undertaken on a continuous basis.
Remember, raising an early alert when a payment is overdue or an account is
overdrawn is almost invariably too late, the symptoms indicating that such default will
occur should have been picked up much earlier. The early alert process is designed
to enable this identification, however a key ingredient to its effectiveness is your
alertness!
Accounts Subject To Additional Review (also refer database J 505)
Accounts exhibiting features, which are of sufficient concern that they need
monitoring and corrective action, but do not warrant classification as „Early Alert
Risk Handbook
Page 25
Accounts‟, will be subject to additional review and will be, designated “Accounts
Subject to Additional Review”. Such features will generally be of an administrative
nature which, by themselves, need not necessarily indicate a deterioration in credit
risk.
Management of Special Assets - GSAM
Despite our best efforts, there will be instances when an asset will become a “Special
Asset” instead of being a normal one! These accounts are to be actively managed by
Group Special Assets Management (GSAM) and are taken away from the regular
portfolio of performing accounts of a Relationship Manager. Whilst the Relationship
Manager may continue to be the primary point of contact for the customer (if this is
considered in the best interest of the bank), the same will run under the authority of
GSAM and not the Business Unit.
Accounts graded CG 12 (also refer database N 101)
These are typically accounts where current trading performance and balance sheet
parameters indicate that there is a possibility that full recovery will not be made and
the bank may sustain some loss if the deficiencies are not corrected. They could also
be instances where there is a reasonable expectation that the perceived deficiencies
can be rectified and obligations repaid in due course but requiring close supervision.
In such instances the Relationship Manager is required to prepare a “Request For
Action” and a “Special Assets Review Report” which become the primary documents
to transfer an account to GSAM and thereafter to monitor it‟s performance.
Should an account‟s credit quality subsequently improve adequately to justify a re-
grading of the account and re-instating the same to a performing grade (CG 1-11),
then the same requires specific approval of GSAM prior to transfer back to the
business unit.
Lessons Learned Review (also refer database N 300)
Based on the loss experiences within the bank a database of case studies has been
prepared to showcase the instances where we lost money and what the
circumstances leading to the loss were. These cases provide useful insights on what
we could have done better and more importantly tells us what we should look out for
and avoid, when we are busy trying to meet budget and earn those dollars for the
bank.
Now that you are done with this you must read the – “Relationship Managers Guide”
and that will give you equally useful and mission critical information on „How to
become a partner to your clients‟.
“Happy hunting with targets and budgets – All the best!”
Risk Handbook
Page 26