We have seen till now that a credit officer’s tasks include daily monitoring of limits and provisions and scanning other risks and their impact. There are some tasks which he needs to undertake only on an annual basis, but are important nevertheless.
Strategy Review: A credit officer reviews strategic positions on a daily basis, but review of the strategy the bank is following is usually done once a year. These questions could include – do we want to be in X business? Do we need to play the role of the originator more and arbitrager less? Naturally these questions are many a time met with resistance. Answering these questions though keeps the team vigilant about the direction the business is taking and if it is on course.
Review of Credit Models: Basel II has come up with guidelines to test the robustness of internal risk models. The credit officer too is particularly keen to check the calibrations of the internal models. This ensures that credit is given based on proper information. This also ensures that the bank calculates provisions based on realistic default probabilities and loss given default values.
Review of Credit Process: The review of the credit process may be triggered off by events rather than being a specific time bound exercise. These events could be a new CEO, an unforeseen loss, new guidelines or a new credit officer. This leads to a review of the credit process and a better blending in of new businesses into the existing credit framework.
Review of Stress Testing: External and independent global business watchers like economists are valuable in understanding the current global economic scenario and if there is cause for alarm. Credit officers from time to time need to attend such meets and keep abreast of any such warning signs or volatility in the world markets.
The credit officer is after all a critical person who helps in the defense of the bank. He keeps a keen eye for any changes in positions and ensures adjustments are made where needed. He does not look from the perspective of profit maximization, but rather from the point of containing risk.
Credit officers are increasingly becoming more active participants in managing risk. The credit and trade teams can work together on options to optimize return vs. risk. The credit officer also can serve as an independent oversight of credit risk.