Comprehensive credit risk management

What it is about

Strengthen the analytical, technical and leadership capabilities of participants so they can anticipate, measure and manage credit risks in line with the institution’s risk appetite, the regulatory requirements of Basel and IFRS 9, and the business strategy.

Session summary

The speaker argues that credit risk is no longer a control function that appears after the risk has materialized, but a strategic one: it takes part in sales through pre-approved offers, in pricing, in product development and in the response to crises. He explains how portfolio deterioration turns into provisions, cost of risk and higher capital requirements, and why the main problem is usually one of integration rather than technique: reactive handling of deterioration, no link between risk and the business, origination, monitoring and collections units that do not talk to each other, sophisticated models that are not used in decisions, and sales incentives that ignore deterioration.

He walks through the credit cycle in three stages: origination (policies, scoring, company ratings and committees), portfolio monitoring with early-warning systems and special follow-up, and collections. He sets out the Basel regulatory context (expected loss covered by provisions, unexpected loss covered by capital, and the three pillars) and closes with four ideas: credit risk is managed with better decisions, not more controls; what matters is how the model talks to the business; the focus is on anticipating; and capital should be seen as a signal. The questions covered the role of the business area, the separation of origination and monitoring, economic capital, model recalibration, forward-looking metrics and control of policy exceptions.

Topics covered

• Credit risk as a strategic function and its effect on results
• Provisions, cost of risk and capital requirements
• Integration problems: reactive deterioration, incentives and unused models
• Three lines of defense and the credit cycle: origination, monitoring and collections
• Early warnings and special follow-up of the portfolio
• Basel: regulatory and economic capital, expected and unexpected loss
• Questions: segregation of duties, forward-looking metrics and exception control