德勤信用风险管理课件

CreditRiskManagement

EnhancingYourBottomLineEbrahimShabudinManagingDirectorDeloitte&ToucheLLPTheAFP23rdAnnualConferenceNewOrleansNovember3-6,20021CreditBackgroundThoroughidentificationandaccuratemeasurementofcreditrisk,supportedbystrongriskmanagementcanhelpimprovethebottomline…..Anuncertainandvolatileeconomic environmentsignificantlyimpactsthisability…..Thedesiretogrowandturninoutstanding resultshasatendencytoputpressureonthe checksandbalanceswithinbusinesses2ValuePropositionCreditplaysacriticalrolein“selling”productsandservicesExpandsrevenueopportunitieswithcreditworthy,incrementalcustomersUtilizesinnovativestructurestosupportbusinessrelationshipsEffectivecreditriskmanagementlimitscreditlossesandprovidesstablecashflowsandearningsMarketplacerewardscompaniesexhibitingearningsandcashflowstabilitywithhigherP/EmultiplesMarketplacepenalizescreditinducedvolatilityand“surprises”Raisesquestionsaboutqualityofmanagement3CorporateCreditRiskCompaniesareexposedtosignificantlevelsofcreditriskemanatingfromdifferentsourcesAccountsReceivablesOtherNotesReceivablesBuyerandFranchiseFinancingWithRecourseFinancingProjectFinanceStructuredTransactionsLeaseswithRecourseDerivativesExposuresFX,InterestRateRisk,Commoditiesetc.CollateralRiskParentorThirdPartyGuaranteesCommercialandStandbyLettersofCreditNotealsothatCriticalSupplierstothecompanymayposespecificcreditrisk4DSOImpact…anexampleActualCompanyAPeerAverageQ3A/R$295,396,000Q3Sales$261,201,000\DSOs=124*51.3HypotheticalDCashDSOs51.3Q3Sales$261,201,000\Q3A/R=$122,002,230+$173,393,770*Equals295.4M/261.2Mx90(ornumberofdaysinsalesperiod)5CreditasaFacilitator6CreditStrategy&RiskToleranceSpecificQuantifiableObjectivesManagementReviewMethodologyCreditStrategyStatementandRiskToleranceCoordinationwithBusinessPlanThebusinessstrategiesandobjectivesdrivetheestablishmentofcreditpoliciesandprocedures.Measurementandreportingaswellastheuseofcurrenttechnologiesenhancecreditdecision-makingandimproveriskmanagement.Theentireprocessiscontinuallyre-evaluatedandimproved.7CreditRiskAreastoConsiderExposureManagementAggregationControlPeriodicAccountReviewsPayments/AgingCreditConditionCompliancewithCovenants,TermsTechnology/ReportsTransactions/BookingsRisk-adjustedReturnSalesChannelsRiskStrategyUnderwritingStandardsCreditApplicationAnalysisBusiness/IndustryFinancialCreditCreditScoringandRatingsOrigination/AssessmentAdministrationMonitoring/ControlRiskManagementPortfolioManagementConcentrationDiversificationAllowanceforBadDebtsRiskMitigationObjectivesTypeofExposureInstrumentsorMethods8ValueCreationBusinessPerformanceMeasuresOrganizationsneedarigoroussetofmeasurestosupportcontinuousimprovementPerformance-basedmanagementutilizesmetricsthatmeasureactualperformanceagainstpredeterminedthresholds.Thethresholdsareestablishedtakingintoaccounttheorganization’sstrategy,operatingenvironmentandprocesscontrols.Themeasuresdrivevaluecreationandshouldsupportproblemidentificationandcorrection.BusinessStrategySystemsOperationsFinancePerformanceManagement9SaleschannelsContracts&DocumentationCreditanalysisCreditlimitPricing&termsCreditAnalysisCreditDecisionsCollectionsCREDITPOLICYCollateralacceptancePortfoliomanagementFinancialanalysisDisposal/

RiskmitigationCollateralmanagementCustomermanagementExposuremeasurementManagementreportingExposureaggregationRecoveriesCreditscoringRiskratingRISKMANAGEMENTCreditRiskManagement’sInter-relatedActivitiesComplianceOriginationReportingTransactions10CreditPolicies

&Procedures

Analysis&RiskManagementGovernance,ControlandImplementation

MeasurementMethodologiesTechnology&DataIntegrityCreditStrategy&RiskTolerance

AcompleteandcoherentriskmanagementframeworkcontainsthefollowingelementsCreditRiskManagement11ANewParadigmAnewbusinessparadigmhadevolved:causingalackofrelianceongoodfundamentalanalysisTheideathatstockmarketvalueswouldcontinuetogoupindefinitelyIncreasinglycompetitive,complexandvolatilemarketplaceHigherthanexpectedactualdebtburdensExtensiverelianceonunrealisticfuturecashflowsFailuresincorporategovernanceQuestionablepersonalandcorporateethics12ImplicationsforCorporateGovernanceCurrentorganizationstructurestoberevisitedClarityaroundrolesandresponsibilitiesNeedforhonesty,integrityandindependence(self-regulation)TechnicalexpertiseofpeopleandstrongmanagementprocessesImproveddisclosurerequirementsImportanceandimplementationofsanctionsIncreasedlegislationandcompliancerequirements13Foundation:CreditRatingandUnderwritingStandardsRiskIdentification,Origination,CreditAdministration,etc.ShortTerm:ManagingExpectedLossRiskIdentification,Transaction

Structuring,Approval&PricingDecisions,Reserving,etc.NearTerm:ManagingEconomicCapital/CreditVaRPortfolioRiskConcentration,RiskBasedLimits,etc.

Vision: ManagingRisk/ReturnPricingdecisions,Performancemeasurement,businessandcustomersegmentation,compensation,etc.AbusinessmodelviewofCreditRiskInfrastructurecomponentsCreditRiskManagement–StrategicVision14DevelopmentStagesFoundationStageincludesapplicationofriskidentificationmethodologies,riskscoringorratingsystemsandstrongunderwritingstandards

BasicStagetendstoincludemanagingonatransactionalbasisbyevaluatingspecificattributessuchasstructuring,collateralandpricing

AdvancedStagerepresentsmanagingonaportfoliobasisincludingaspectssuchasconcentrations,correlationsanddiversification

TheSophisticatedStageincludesapplicationofhighlydevelopedmeasurementtechniquesfortransactionsandportfolios,supportedbydecision-makingrelatingtosegmentsorbusinessesagainstestablishedhurdlerates.15CreditRiskClarified

Creditriskisdefinedastheriskoflossorpotentiallossresultingfrom:DefaultincontractualobligationsbyacustomerMigrationinconditionandratingDeteriorationinperformance

Creditriskincludesbothanexpected(predictable)andunexpected(volatile)losscomponent.

16BusinesseshavetocontendwithExpectedandUnexpectedLossesExpectedLossesAnticipatedCostofdoingbusinessChargedtoprovisionsCapturedinpricingRelativelyeasiertomeasureAssessingexpectedlossincludesdeterminingexposure,defaultprobabilityandseverity17CreditRiskManagementExplainedAlthoughcreditriskmaybedifficulttomeasureitisimportanttoestimateandmanage

WhatdoesCreditRiskManagementmean?Itrepresentsaninstitution’sabilitytoproperlyidentifyandevaluatethepotentialriskofdefaultinpaymentofobligationsofcustomersItincorporatesthefirm’sabilitytoeffectivelymanageandcontrolthisexposureinawaythatisconsistentwiththeinstitution’sbusinessstrategy,riskappetiteandcreditculture182026/6/1819ImportantBuildingBlocksEffectiveCreditRiskManagementrequiresClearoriginationandunderwritingstandardsAstrongcorporateandcreditcultureHighlydevelopedriskmeasurementtechniquesAbilitytorecognizeandcoverexpectedandunexpectedlossesPricingcommensuratewithrisksundertakenMethodologiestoassessnetprofitcontributionsbycustomersandappropriatebusinesssegmentsProperallocationofcapitalandmanagementresourcesInorderto:Improveoverallcorporateperformance,measuredbyahigherEPSorP/Eratio(ormarketvalue)20CreditPolicyandProcess21RiskMonitoring22ContractTermsandDocumentation23RiskRatingSystemEffectiveness24EffectiveRiskRatingSystemsSufficientgranularityofriskratingcategoriesAccurateandtimelyassignmentofratings

ClearandconsistentapplicationofdefaultdefinitionPeriodiccalibration,triangulationandvalidationofriskratingsAccurateidentificationofmigrationoftransactionsandportfolios(asreflectedbyupgradesanddowngradesinratings)25CreditEvaluation:FinancialFactorsGettheinformationyouneedtomakeafullanalysisSomeinformationwillneedtobecross-checkedandobtainedonaregularandtimelybasisBeconstructivelycynical:newbusinessmodelsaredifficulttopulloffBecognizantofdelayingtacticsNumbersdon’ttellthewholestory!26CreditEvaluation:QualitativeFactorsEvaluationofsubjectivefactorsisoftentimesmoreimportantthanthenumericalanalysisPeoplemakeabusiness:visions,valuesandstrategiesareonlywordsunlesspeopleimplementthemManagement,industry,product,geography,competitionetc.allinfluenceresultsandmustbeproperlyassessedAnalysis-paralysismayleadtowrongdecisions27ArtandScienceofJudgment28ConcludingCommentsCompaniesthatmeasureandmanagecreditriskinapro-activemannerwillbenefitfromafavorableriskprofileresultinginHigherrevenueLowerlossesImprovedefficienciesHigherEPS,P/Eratiosandmarketvalues29ConcludingCommentsRiskAssessmentandLimitManagementCreditInfrastructureandPortfolioManagementCreditAnalyticsSupportCreditTechnologyEnablementCreditQualityCreditUnderwritingRiskRatingSystemEffectivenessCounterpartyandPortfolioLimitsOrganizationalStructurePoliciesandProceduresTechnologySelectionandImplementationProblemAssetManagementRiskRatingCalibrationTransactionPricing,StructureandSupportDefaultProbabilityandRecoveryCalibrationCreditReserveMethodologyRiskBasedPricingModelsRiskAdjustedReturnAnalysisPortfolioValueMeasurementCreditRiskMeasurementCreditPerformanceScorecards

InternalSoftware

ExternalVendorSoftware30Appendix:BusinessProposalChecklistBusinessProposalSummaryCustomer,Rating,LegalStatus,LineofBusinessGuarantor,ifany…sameCollateral,ifany…truevalueexplainedOtherSupport,ifany...LegalormoralonlyTheTransaction…risksandmitigationAmount,purpose,termsandconditionsSourcesofrepayment…clearlyidentifiedClientpaymenthistoryandrelationship31Appendix:BusinessProposalChecklistRationaleandAnalysisCustomer,Guarantor,Collateral,SupportFacilityDescriptionAmount,purpose,tenor,pricing,terms,conditions,covenants,restrictionsetc.Consideraffectonabovee.g.newleverageFacilityRating?RepaymentCapacityFuturecashflow,conversionofassetsetc.ConsistencywithCreditStrategyandPolicyConfirm,andidentifyanyexceptionstopolicy,underwritingstandards,orprocessRiskadjustedreturnacceptability32Appendix:BusinessProposal