Credit Risk - Monetary Authority of Singapore

2 Fundamentals 1 3 Risk Management Policies and Procedures 2 3.1 Risk Management Strategy 2 3.2 Risk Management Structure 2 3.3 Credit Policies 3 3.4 Procedures 4 3.5 Delegation of Authority 4 3.6 Credit Criteria 5 3.7 Credit Limit 6 3.8 Credit Extension to Related Parties 6 4 Risk Measurement, Monitoring and Control 7 4.1 Credit Granting 7 4.2 Risk Mitigation 8 4.3 Monitoring 9 4.4 Credit Review 11 4.5 Classification and Provision 11 4.6 Problem Credits 12 4.7 Credit Administration 13 4.8 Internal Risk Rating 14 4.9 Credit Portfolio Risk Management 16 4.10 Stress Testing 18 5 Credit Risk in the Trading Book 19 Checklist of Sound Practices to Adopt I GUIDELINES ON RISK MANAGEMENT PRACTICES MARCH 2013 - CREDIT RISK MONETARY AUTHORITY OF SINGAPORE 1 1

INTRODUCTION The chapter provides guidance on sound practices in credit risk management. It also articulates broad principles that should be embedded in a risk management framework covering strategy, organisational structure, policy, as well as credit control processes for origination, monitoring and administration of credit transactions and portfolios. The guidelines are applicable to the extension of credit by financial institutions. In the case of banks, they are applicable to both the banking and trading books. 2 FUNDAMENTALS 2.1 Credit risk1 is the risk arising from the uncertainty of an obligor’s2 ability to perform its contractual obligations. Credit risk could stem from both on- and off-balance sheet transactions. An institution is also exposed to credit risk from diverse financial instruments such as trade finance products and acceptances, foreign exchange, financial futures, swaps, bonds, options, commitments and guarantees. 2.2 Credit risk often does not occur in isolation. A risk event may engender both market and credit risks. For example, a rise in interest rates can impair the creditworthiness of the bond issuer thereby increasing the credit risk to an institution holding those bonds. At the same time, the fall in the value of the bond raises the market risk for the institution. Similarly, if an institution holds a large number of an obligor’s shares as collateral for loans granted, a deterioration in the obligor’s credit standing can result in lower share prices, causing an increase in both market and credit risks. 2.3 An institution should therefore adopt a holistic approach to assessing credit risk and ensure that credit risk management is part of an integrated approach to the management of all financial risks. The institution...

Website: www.mas.gov.sg | Filesize: 337kb
No of Page(s): 28
Download credit risk - mas - Monetary Authority of Singapore.pdf