Prezentare Workshop Credit Risk - Conferinta Risk Management 2016

8/17/2019 Prezentare Workshop Credit Risk - Conferinta Risk Management 2016

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Credit Risk Management – a BCR view

April 18th, !1"

Catalin CARAGEA

Executive DirectorStrategic Risk Management / Risk Controlling Division


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Intro

#n $! seconds please introduce yourself: %ame

&ni'ersity

About you

hat ould you ant to hear today*


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Agenda

$

1+ hat is redit -is. Management*

+ -is. Management / 0an.ing from a -egulatory and third party perspecti'e$+ redit -is. and its types

+ redit -is. Assessment

2+ redit -is. under apital ade3uacy


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Agenda






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What is Credit Risk Management?

2

?


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"

-is. (source: 4E5) 6 the possibility of reaching a danger, to face a problem or

to suffer a damage

Risk management function ensures that all material ris.s are identified,

measured and properly reported+

7he risk management function is acti'ely in'ol'ed in elaborating the

institutions ris. strategy and in all material ris. management decisions and

that it can deli'er a complete 'ie of the hole range of ris.s of theinstitution+


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9

#nstitutions shall ha'e robust go'ernance arrangements, hich include a

clear organisational structure ith ell defined, transparent and consistentlines of responsibility, effecti'e processes to identify, manage, monitor and

report the risks they are or might be e;posed to, ade3uate internal control

mechanisms +++

7he types of

acti'ities tomanage ris.s

Credit risk is the ris. of a partial or complete default on contractually agreed

payment obligations+ #t refers to the negati'e conse3uences associated ith

defaults or the nonfulfillment of contracts due to deterioration in the

counterparty


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Agenda

8






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Risk Management & Banking from a Regulatory and third arty

ersective

=

-egulation292>!1$

-egulation2>!1$

?&G==>!!"

Manyothers

Bankingmarket a

highlyregulatedindustry

0asel ###


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ersective

1!

@rocesses

#7

inancial

Accounting

B-,@-,

Cegal

0usiness

RI!"

BA#"

!hareholders$Investors

Clients

Regulators%#BR 'CB

'BA(

'mloyees

hat

do

theyant*

hat

do

theyant*


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ersective

Dhareholders #n'est money and ant acertain return on thesemoney

0an.

@roduce ris.s that should

be co'ered by the

shareholder


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Agenda

1






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Credit Risk and its tyes

?)ow many credit risk su*+tyes do you think that e,ist in a

commercial *ank?

1$


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redit-is.

4efault ris.

Migration ris.

oncentration

ris.

-esidual ris.

4ilution ris.

Decuritiation

ris.

5 ris.

ounterpartycredit ris.

1

ountry ris.

Dettlement

ris.

E3uity ris.


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4efaultris.

Migrationris.

ountry ris. 4ilution ris.

G&EDD

+++ is the ris. of loss due to changes in

fair 'alue of credit e;posure, as a

result of changes in the rating of theclient+

F is the e;posure to a loss, caused by

e'ents in a particular country hich are

under the control of the go'ernment

but clearly not under the control of anindependent pri'ate enterprise or

indi'idual+

F is the ris. that an amount recei'able

is reduced through cash or noncash

credits to the obligor+

+++ is the ris. that issuers and obligors

fail to meet contractual obligations+

12


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Decuritiationris.

ounterpartycredit ris.

E3uity ris. 5 ris.

G&EDD

+++ is the ris. that the counterparty to a

deri'ati'e transaction could default

before the final settlement of thetransactions cash flos+

F is the credit ris. of nonconsolidated

e3uity in'estments+

F is a ris. associated ith foreign

currency lending to unhedged

borroers, hich arises due to

e;change rate fluctuations of the

respecti'e foreign currency+

+++ is the ris. arising from securitiation

transactions in hich the credit

institution acts as an originator or

sponsor, including reputational ris.s

due to comple; structures or products+

1"


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-esidual ris.oncentrationris.

Dettlementris.

G&EDD

+++ is the ris. that the recognied credit

ris. mitigation techni3ues (e+g+

collateral) employed by the ban. illbe less effecti'e than e;pected+

F is the ris. that a transaction ill fail

at the time of settlement+

+++ #s the ris. that arise from

interactions beteen similar and

different ris. factors, such as the ris.

arising from loans to the same client,

to a group of connected clients, to

clients from the same geographic

region or industry, or to clients hooffer the same goods and ser'ices, as

ell as the ris. arising from the use of

credit ris. mitigation techni3ues and in

particular from large indirect credit

e;posures+

19


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Agenda

18






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Credit Risk Assessment

Credit Risk is the ris. of loss resulting from ad'erse changes in thecreditorthiness of counterparties+

&sually credit ris. contribution includes E;pected lossH (EC) and ≠pected lossH

(&C)+

• ',ected loss + loss e;pected to be ta.en once a client>e;posure is accepted in the

portfolio+ E;pected loss should be co'ered by pro'isions+

•

-ne,ected loss %'conomic Caital or Risk Weighted Assets ./0( + loss that can occur ifdefaults e;ceed e;pectations and de'iate from the a'erage (at a specified confidence

le'el)+ 7he most significant factor in'ol'ed in portfolio &C estimation is correlation+

≠pected Coss should be co'ered by ban.


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!

-sually the average loss

that the *ank could suffer in

1 year eriod

2he fluctuation of actual losses

around average e,ected losses

creates additional risk of

une,ected losses %-3(4


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A ractical e,amle5

1


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Assessing the Credit Risk from an internal ersective

+ an e,amle +

6our individuals with

the same ersonal characteristics

each one wantingto *orrow 177 'uro from a *ank

Bank A Bank BBank A and

Bank B will lend

each 877 '-R

3 o

a n o f

1 7 7 ' -

R

3 o a n o f 1 7

7 ' - R

3 o

a n o

f 1 7 7 ' -

R

3 o a n

o f 1 7 7 '

- R

2wo comanies where the

individuals could work

Which Bank has taken a higher

risk?


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Agenda

$






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Credit Risk under Caital ade9uacy

apitalade3uacy

apital apital -e3uirement

6

redit -is. is in general more than 8!I from total ris. for

a commercial ban.

alculated as 8I from -is.

eighted Assets under @illar #

capital re3uirement


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2

D7A%4A-4#DE4 Approach (D74)

oundation #-0 Approach

Ad'anced #-0 Approach

?ne sie fits allNo incentive for

risk management

Approach based on institution


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"

EA4 (e;posure

at default)?n 0D e;posure1 ?ff0D e;posure (credit

con'ersion factor)

-is. eight RWAEA4 (e;posure at default) @ro'isions

D7A%4A-4#DE4 Approach (D74)


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9

@4 (probability of default)

EA4 (e;posure

at default)

CG4 (loss gi'en default)#-0 ormula

Risk weight1

?n0D e;posure ?ff0D e;posure (credit

con'ersion factor)

$ -is. eightEA4 (e;posure

at default)RWA

&

6oundation IRB Advanced IRB

@4

CG4

0an.


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8

Q&A

2hank you:

Documents

Prezentare Workshop Credit Risk - Conferinta Risk Management 2016