德勤-信用风险管理课件.ppt

1、德勤德勤-信用风险管理信用风险管理Credit Backgroundp Thorough identification and accurate measurement of credit risk,supported by strong risk management can help improve the bottom linep.An uncertain and volatile economic environment significantly impacts this abilityp.The desire to grow and turn in outstanding resu

2、lts has a tendency to put pressure on the checks and balances within businessesValue PropositionlCredit plays a critical role in“selling”products and services Expands revenue opportunities with creditworthy,incremental customers Utilizes innovative structures to support business relationshipslEffect

3、ive credit risk management limits credit losses and provides stable cash flows and earnings Marketplace rewards companies exhibiting earnings and cash flow stability with higher P/E multiples Marketplace penalizes credit induced volatility and“surprises”lRaises questions about quality of managementC

4、orporate Credit RisklCompanies are exposed to significant levels of credit risk emanating from different sourceslAccounts Receivables lOther Notes ReceivableslBuyer and Franchise FinancinglWith Recourse Financing Project Finance Structured Transactions Leases with RecourselDerivatives Exposures FX,I

5、nterest Rate Risk,Commodities etc.lCollateral Risk Parent or Third Party Guarantees Commercial and Standby Letters of Credit Note also that Critical Suppliers to the company may pose specific credit riskDSO Impact an exampleActualCompany APeer AverageQ3 A/R$295,396,000Q3 Sales$261,201,000 DSOs=124*5

6、1.3HypotheticalD CashDSOs51.3Q3 Sales$261,201,000 Q3 A/R=$122,002,230+$173,393,770*Equals 295.4M/261.2M x 90(or number of days in sales period)Credit as a FacilitatorlCredit risk management is important Credit is a facilitator of business growth and performance High business margins tend to attract

7、lower quality clients and therefore higher risk profile to manage Clients(buyers)may be concentrated in selected industries and provide limited portfolio diversification opportunity Poor credit risk management resulting in negative impact to bottom-line is heavily penalized by marketsCredit Strategy

8、&Risk ToleranceuSpecific Quantifiable ObjectivesuManagement Review MethodologyuCredit Strategy Statement and Risk ToleranceuCoordination with Business PlanThe business strategies and objectives drive the establishment of creditpolicies and procedures.Measurement and reporting as well as the use of c

9、urrent technologies enhance credit decision-making and improve risk management.The entire process is continually re-evaluated and improved.Credit Risk Areas to ConsiderpCredit PolicypCredit Approval AuthoritypLimit SettingpPricing Terms and ConditionspDocumentation:Contracts and CovenantspCollateral

10、 and SecuritypCollections,Delinquencies and WorkoutspExposure ManagementnAggregationnControlpPeriodic Account ReviewsnPayments/AgingnCredit ConditionpCompliance with Covenants,TermspTechnology/ReportsnTransactions/BookingsnRisk-adjusted ReturnOrigination/AssessmentAdministrationMonitoring/ControlRis

11、kManagementValue CreationBusiness Performance MeasuresOrganizations need a rigorous set of measures to support continuous improvementPerformance-based management utilizes metrics that measure actual performance against predetermined thresholds.The thresholds are established taking into account the o

12、rganizations strategy,operatingenvironment and process controls.The measures drive value creation and should support problem identification and correction.nBusiness StrategynSystemsnOperationsnFinancePerformance ManagementSales channelsContracts&DocumentationCredit analysisCredit limitPricing&termsC

13、redit AnalysisCredit DecisionsCollectionsCREDIT POLICYCollateral acceptancePortfolio managementFinancial analysisDisposal/Risk mitigationCollateral managementCustomer managementExposure measurementManagement reportingExposure aggregationRecoveriesCredit scoringRisk ratingRISK MANAGEMENTCredit Risk M

14、anagements Inter-related ActivitiesComplianceOriginationReportingTransactionslCredit Policies&Procedures lAnalysis&lRisklManagementlGovernance,Controlland ImplementationlMeasurementlMethodologieslTechnology&lData IntegritylCredit Strategy&Risk ToleranceA complete and coherent risk management framewo

15、rk contains the following elementsCredit Risk ManagementA New ParadigmlA new business paradigm had evolved:causing a lack of reliance on good fundamental analysislThe idea that stock market values would continue to go up indefinitelylIncreasingly competitive,complex and volatile market placelHigher

16、than expected actual debt burdenslExtensive reliance on unrealistic future cash flowslFailures in corporate governancelQuestionable personal and corporate ethicsImplications for Corporate GovernancelCurrent organization structures to be revisitedlClarity around roles and responsibilitieslNeed for ho

17、nesty,integrity and independence(self-regulation)lTechnical expertise of people and strong management processeslImproved disclosure requirementslImportance and implementation of sanctionslIncreased legislation and compliance requirementsRisk Identification,Origination,Credit Administration,etc.Risk

18、Identification,Transaction Structuring,Approval&Pricing Decisions,Reserving,etc.Portfolio Risk Concentration,Risk Based Limits,etc.Pricing decisions,Performance measurement,business and customer segmentation,compensation,etc.A business model view of Credit Risk Infrastructure componentsCredit Risk M

19、anagement Strategic VisionDevelopment Stages Foundation Stage includes application of risk identification methodologies,risk scoring or rating systems and strong underwriting standards Basic Stage tends to include managing on a transactional basis by evaluating specific attributes such as structurin

20、g,collateral and pricing Advanced Stage represents managing on a portfolio basis including aspects such as concentrations,correlations and diversification The Sophisticated Stage includes application of highly developed measurement techniques for transactions and portfolios,supported by decision-mak

21、ing relating to segments or businesses against established hurdle rates.Credit Risk ClarifiedBusinesses have to contend with Expected and Unexpected LosseslExpected Losses Anticipated Cost of doing business Charged to provisions Captured in pricing Relatively easier to measurelAssessing expected los

22、s includes determining exposure,default probability and severitypUnexpected LossesnUnanticipated but inevitablenMust be planned fornCovered by reservesnAllocated to businessesnDifficult to measurepAssessing unexpected loss requires making qualitative judgments around potential volatility of average

23、lossesCredit Risk Management ExplainedlAlthough credit risk may be difficult to measure it is important to estimate and manage lWhat does Credit Risk Management mean?It represents an institutions ability to properly identify and evaluate the potential risk of default in payment of obligations of cus

24、tomers It incorporates the firms ability to effectively manage and control this exposure in a way that is consistent with the institutions business strategy,risk appetite and credit cultureImportant Building BlockslEffective Credit Risk Management requires Clear origination and underwriting standard

25、s A strong corporate and credit culture Highly developed risk measurement techniques Ability to recognize and cover expected and unexpected losses Pricing commensurate with risks undertaken Methodologies to assess net profit contributions by customers and appropriate business segments Proper allocat

26、ion of capital and management resourceslIn order to:Improve overall corporate performance,measured by a higher EPS or P/E ratio(or market value)Credit Policy and ProcesslCredit Policy should be clear and conciselCredit Underwriting Standards must be developed and included in policylCredit Processes

27、should be reasonable and allow quick response to clientslHealthy balance between sales and credit approval should exist and be respectedRisk MonitoringlExposure must be complete and currentlRegular reporting and updating of clients payment performance lMinimum annual reviews of clients should be per

28、formedlFinancial conditions should be regularly assessedlRequired action must be initiated and follow up must take placeContract Terms and DocumentationlContract negotiations must take place at the right level in the organizationlAppropriate approvals must be obtainedlInternal or external legal depa

29、rtments must document completelylTerms and conditions should be understood and compliance mechanism put in placelExceptions must be reported and managed urgently to resolutionRisk Rating System EffectivenesslCredit Scoring is generally used to“risk rate”homogeneous portfolios Highest applicability i

30、s in consumer and retail portfolios Some advanced scoring systems are being migrated for use in rating“middle market”clients Such models are only as good as the underlying assumptionslInternal credit rating systems are difficult to assess and are often not independently validated Client relationship

31、 may interfere with objective assessment of risks Rating criteria usually a matter of practice rather than written policy Ratings are not consistent over time Qualitative credit assessments often lag current market information Institutions often assume a mapping with external ratings in order to qua

32、ntify credit riskEffective Risk Rating Systems Sufficient granularity of risk rating categories Accurate and timely assignment of ratings Clear and consistent application of default definition Periodic calibration,triangulation and validation of risk ratings Accurate identification of migration of t

33、ransactions and portfolios(as reflected by upgrades and downgrades in ratings)Credit Evaluation:Financial FactorslGet the information you need to make a full analysislSome information will need to be cross-checked and obtained on a regular and timely basislBe constructively cynical:new business mode

34、ls are difficult to pull offlBe cognizant of delaying tacticslNumbers dont tell the whole story!Credit Evaluation:Qualitative FactorslEvaluation of subjective factors is often times more important than the numerical analysislPeople make a business:visions,values and strategies are only words unless

35、people implement themlManagement,industry,product,geography,competition etc.all influence results and must be properly assessedlAnalysis-paralysis may lead to wrong decisionsArt and Science of JudgmentlGetting access to the best clients and all the relevant information is a challengelEnsuring proper

36、 analysis is done requires a strong corporate culturelUtilizing qualified resources both internally and externally enhances the resultslOften the lack of the will to act is what causes high lossesConcluding CommentslCompanies that measure and manage credit risk in a pro-active manner will benefit fr

37、om a favorable risk profile resulting in Higher revenue Lower losses Improved efficiencies Higher EPS,P/E ratios and market valuesConcluding CommentsRisk Assessment and Limit ManagementCredit Infrastructure and Portfolio ManagementCredit Analytics SupportCredit Technology Enablement Credit Quality C

38、redit Underwriting Risk Rating System Effectiveness Counterparty and Portfolio Limits Organizational Structure Policies and Procedures Technology Selection and Implementation Problem Asset Management Risk Rating Calibration Transaction Pricing,Structure and Support Default Probability and Recovery C

39、alibration Credit Reserve Methodology Risk Based Pricing Models Risk Adjusted Return Analysis Portfolio Value Measurement Credit Risk Measurement Credit Performance ScorecardsAppendix:Business Proposal ChecklistlBusiness Proposal Summary Customer,Rating,Legal Status,Line of Business Guarantor,if any

40、same Collateral,if anytrue value explained Other Support,if any.Legal or moral only The Transactionrisks and mitigation Amount,purpose,terms and conditions Sources of repayment clearly identified Client payment history and relationshipAppendix:Business Proposal ChecklistlRationale and Analysis Custo

41、mer,Guarantor,Collateral,Support Facility DescriptionlAmount,purpose,tenor,pricing,terms,conditions,covenants,restrictions etc.lConsider affect on above e.g.new leveragelFacility Rating?Repayment CapacitylFuture cash flow,conversion of assets etc.Consistency with Credit Strategy and PolicylConfirm,a

42、nd identify any exceptions to policy,underwriting standards,or processlRisk adjusted return acceptability Appendix:Business Proposal ChecklistlClient Relationship Business strategy:increase,maintain or decrease exposure or exit relationship Consider relation to rating,latest risk profile and payment

43、 performance Customer profitability:risk adjusted return,revenue,fees,direct and allocated costs etc.Any conflicts of interest or special concernsAppendix:Business Proposal ChecklistlMacro Analysis Business Environment ReviewlCustomers competitive market position and future industry prospects:size,c

44、ycle,volatility,new entrantslStrength of customers business and financial strategies Management Evaluation:competency,experience and effectivenessAppendix:Business Proposal ChecklistlCustomer Analysis Company history,background,objectives and performance Relevance and strength of future business pla

45、nslConsider seasonality and scenario analysis Primary and secondary sources of repayment Historical financial capacity and analysis of future performance:sales,profitability,working capital,liquidity,cash flow,leverage,tangible net worth etc.lQuality of earnings lAbsolute and ratio analysislPeer comparisons