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Effective from Jun 30 2013 - Jun 29 2013 To view other versions open the versions tab on the right
Banks should establish a mechanism of conducting an independent review of credit risk management process. Such a review should be conducted by staff involved in credit risk assessment, independent from business area. The placement of this function within the organization and its reporting lines can be determined by the banks themselves provided its independence from the business is ensured. The Credit Policy of the bank should contain provisions for conducting the credit risk review whereas the modalities of conducting such a review should be spelt out in the procedural documents. The purpose of such review is to independently assess the credit appraisal and administration process, the accuracy of credit risk ratings, level of risk, sufficiency of collaterals and overall quality of loan portfolio. Banks should take into account the following factors for conducting a credit risk review:
a.
All facilities except those managed on a portfolio basis should be subjected to individual risk review at least once in a year. The review may be conducted more frequently for new borrowers as well as for classified and low rated accounts that have higher probability of default;
b.
The credit review should be conducted with updated information on the borrowers financial and business conditions, as well as conduct of account. Any exceptions noted in the credit monitoring process should also be evaluated for impact on the borrowers’ creditworthiness;
c.
The credit review should be conducted on a solo as well as consolidated group basis to factor in the business connections among entities in a borrowing group;
d.
The results of such review should be properly documented and reported directly to the board or its relevant sub-committee as well as to the senior management;
The credit risk review will mainly focus on corporate and commercial loans. Banks may decide not to cover a particular loans products or categories e.g. consumer loans or retail loans under the risk review. However, they should closely monitor the quality of such loans and report any deterioration in their quality along with the results of credit reviews conducted on other loans.
