Credit Management

PRESENTED BY
LILAN WICKRAMASEKARA
MBA-PIM, AIB, ADICM
In this Module
 Introduction to Credit Risk Management
 Credit Process and Selection
 Credit Risk and Objectives of Credit Portfolio
 Application of Credit Risk Measurement
Introduction to Credit Risk Management

 What is Banking
 Bank as an Enterprise and associated Risk
1. Capital & Liquidity 2. Compliance
3. Conduct 4. Country
5. Credit 6. Financial Crime
7. Information & Cyber Security 8. Model
9. Operational 10. Reputational
11. Traded
Introduction to Credit Risk Management

 What is Credit Risk Management

Credit risk is most simply defined as the potential for lose due to the failure of a
bank borrower or counterparty to meet its agreed obligations.
The goal of credit risk management is to maximize a bank's risk-adjusted rate of
return by maintaining credit risk exposure within acceptable parameters.
Introduction to Credit Risk Management

 Credit Risk Related Principles

Lending to counterparts should be followed a strong Credit assessment, an
evaluation of credit quality and including willingness, ability and capacity to pay.
1. be identified, assessed & measured
2. be monitored, limited through the term of exposure
3. be capped by a maximum acceptable exposure limit & tenor
4. not prohibited by the Bank’s policies or applicable laws or regulations
Introduction to Credit Risk Management

 Credit Risk Related Principles

5. be not used for illegal or immoral purposes or not known purposes
6. be assessed on material non-credit risk
7. approved by an authorized individual or committee
Introduction to Credit Risk Management

 Credit Risk Sub-Types

1. Credit Concentration Risk
2. Fx Lending Risk
3. Credit Residual Risk
4. Refinancing Risk
5. Regulatory Risk
6. Collateral Management
7. Credit Monitoring
8. Credit Approval
9. Credit fulfillment
Introduction to Credit Risk Management

 Lets introduce few terminologies

 Lending vs Facility
 Lending vs Trade
 Corporate Finance vs Non-CF
 Senior vs Subordinate
 Short Term, mid Term, Long Term
 Direct Lending vs Indirect Lending
 Balance sheet lending vs Non-balance sheet lending
 Contingent labilities vs Non-contingent liabilities
Introduction to Credit Risk Management

 Lets introduce few terminologies

 Capital expenditure vs Working capital
 Committed vs Uncommitted
 Secured vs clean
 Discretionally lending vs Programmed lending
 Syndicated vs Bi-lateral
 Standard Documentation vs Non-standard
 Outer / Inner or Limit / Sub-limit
Introduction to Credit Risk Management

 Lets introduce few terminologies

 IBOR, RFR – LIBOR, SLIBOR, AWPLR,
Secured Overnight Financing Rate (SOFR), Swiss Average Rate Overnight (SARON), Sterling
Overnight Index Average (SONIA), Tokyo Overnight Average Rate (TONAR)
Introduction to Credit Risk Management

 Segmentation of Business
1. Retail
2. Small & Medium
3. Corporate
Introduction to Credit Risk Management

 Type of Clients
1. Personal
2. Sole Proprietor, Partnership
3. Private Limited, Public Limited, Joint Ventures
4. Sovereign, Governments, State owned enterprises
5. Banks, Central Banks
Introduction to Credit Risk Management

 Types of Facilities (Retail)

1. Personal Loans, Overdrafts
2. Credit Cards
3. Mortgaged Loans – Hosing, Auto
4. Leasing, Hire-Purchases
Introduction to Credit Risk Management

 Categorization of Credit Exposures (Corporate & SME)

1. Lending and Trade facilities
2. Treasury facilities
3. Control and monitoring facilities
Introduction to Credit Risk Management

 Types of Facilities
 Lending
1. Overdraft
2. Short Term Loans
3. Term Loans

 Leasing
1. Finance Leasing
2. Hire Purchases
3. Operating Leasing
Introduction to Credit Risk Management

 Types of Facilities
 Trade - Pre-shipment and Post-shipment
1. Letter of Credit
2. Shipping Guarantee
3. Import loans
4. Bank Guarantee – Bid, Performance, Advance Payment, Retention, Custom, General Other
5. Bill discounting
6. Invoice financing

7. Buyer finance, Supplier finance, Vender prepayment, Trade payable

Introduction to Credit Risk Management

 Types of Facilities
 Trade - Pre-shipment and Post-shipment
8. Receivable finance – Buyer backed, Insurance backed, Cash/SBLC

9. Trust Receipts, Pledge facilities – dying

Introduction to Credit Risk Management

 Types of Facilities
 Treasury facilities
1. Fx facilities – Spot, Swap, Forward, Derivatives
2. Repo, Reverse Repo

 Control & Monitoring facilities (unadvised)

1. Risk-collateral – Bank Guarantee, Corporate Guarantee, Insurance
2. Product, Programmed facilities
Introduction to Credit Risk Management

Governance Committee   Board of Directors

Policy & Procedure Credit Manual Credit Risk Appetite SBL  

Credit Risk Management   Identification

& Control
  Assessment
  Monitoring
  Mitigation

Enable Culture People & Skill Infrastructure Information & Data quality

Oversight   Process inventory Health Check Audit  

Introduction to Credit Risk Management

 Facilities – Balance Sheet view

Non-current Assets

Current Assets

Current Liabilities

Equity

Long Term Liabilities

Introduction to Credit Risk Management

Thank You !