Credit Risk
EASTERN CARIBBEAN CENTRAL BANK
GUIDELINES ON CREDIT RISK MANAGEMENT FOR INSTITUTIONS LICENSED TO CONDUCT BANKING BUSINESS UNDER THE BANKING ACT
Prepared by the BANK SUPERVISION DEPARTMENT May 2009
TABLE OF CONTENTS
INTRODUCTION I II III IV V OVERVIEW INTERPRETATION AUTHORITY APPLICATION COMMENCEMENT 1 2 3 3 3 4 10 12 14 15
CREDIT RISK MANAGEMENT PROGRAMME ADEQUATE CREDIT RISK CONTROLS ROLE OF BOARD OF DIRECTORS LOAN SYNDICATIONS OTHER REPORTING REQUIREMENTS
INTRODUCTION
I
OVERVIEW The major cause of serious banking problems continues to be ineffective credit risk management. The provision of credit remains the primary business of financial
institutions operating within the ECCU. For this reason, credit quality is considered a primary indicator of the financial soundness of these institutions.
The objective of credit risk management is to maximize a financial institution’s riskadjusted rate of return by maintaining credit risk exposure within acceptable parameters. Credit risk management should not only effectively address the credit risk inherent in the credit portfolio, but should also consider the relationships between credit risks and other risks. The effective management of credit risk is a critical component of a
comprehensive approach to total risk management and is fundamental to the safety and soundness of financial institutions. Appropriate policies, procedures and systems should be implemented at each financial institution to effectively identify, measure, monitor and control credit risk.
The Eastern Caribbean Central Bank (ECCB) has issued these guidelines in an effort to promote the implementation of sound credit risk management at licensed financial institutions. These guidelines represent the ECCB’s minimum requirements for credit risk management and are not be viewed as all encompassing. The ECCB endorses and recommends the Basel Committee’s 17 Principles for Management of Credit Risk (September 2000).
BSD
GUIDELINES ON CREDIT RISK MANAGEMENT FOR INSTITUTIONS LICENSED TO CONDUCT BANKING BUSINESS UNDER THE BANKING ACT
Prepared by the BANK SUPERVISION DEPARTMENT May 2009
TABLE OF CONTENTS
INTRODUCTION I II III IV V OVERVIEW INTERPRETATION AUTHORITY APPLICATION COMMENCEMENT 1 2 3 3 3 4 10 12 14 15
CREDIT RISK MANAGEMENT PROGRAMME ADEQUATE CREDIT RISK CONTROLS ROLE OF BOARD OF DIRECTORS LOAN SYNDICATIONS OTHER REPORTING REQUIREMENTS
INTRODUCTION
I
OVERVIEW The major cause of serious banking problems continues to be ineffective credit risk management. The provision of credit remains the primary business of financial
institutions operating within the ECCU. For this reason, credit quality is considered a primary indicator of the financial soundness of these institutions.
The objective of credit risk management is to maximize a financial institution’s riskadjusted rate of return by maintaining credit risk exposure within acceptable parameters. Credit risk management should not only effectively address the credit risk inherent in the credit portfolio, but should also consider the relationships between credit risks and other risks. The effective management of credit risk is a critical component of a
comprehensive approach to total risk management and is fundamental to the safety and soundness of financial institutions. Appropriate policies, procedures and systems should be implemented at each financial institution to effectively identify, measure, monitor and control credit risk.
The Eastern Caribbean Central Bank (ECCB) has issued these guidelines in an effort to promote the implementation of sound credit risk management at licensed financial institutions. These guidelines represent the ECCB’s minimum requirements for credit risk management and are not be viewed as all encompassing. The ECCB endorses and recommends the Basel Committee’s 17 Principles for Management of Credit Risk (September 2000).
BSD