The Responsibilities of the Credit Risk Officer
The financial crisis in the US of A in 2007 saw many a stalwart financial institution crumbling under credit losses. Not for want of information or people, but a general deviation from good credit assessment principles. Independent credit risk assessment officers are coming forward to report that they were instructed to inflate valuations and not report lacunae in credit histories of both individuals and corporates alike. It is not for a lack of how to assess credit that these banks faced staggering losses. That said, perhaps now more than ever it is important to understand the role of the credit risk manager.
The primary task of a credit risk manager is to protect her firm from credit losses. Her job responsibilities include:
Ownership of the structure and functions of the various credit risk assessment function. This includes the credit portfolio group, which monitors expected and unexpected losses as well as reviewing provisions. It also includes the credit modelling team which conducts an independent audit of the bank’s credit risk policies. The credit risk policy and reporting teams also come under the purview of the credit risk manager.
Credit Risk Reporting: The credit risk manager is responsible for reporting deviation from set limits. She is also responsible for reporting counterparty ratings, exposures and concentrations.
Face of the institution for external credit regulation and assesment agencies. The credit risk manager is the person regulatory agencies interact with to understand if risk compliance measures are being implemented. She is responsible for ensuring that standards set by Basel II are rolled out.
The Credit Risk Manager is responsible for setting limits, provisioning, scenario testing and stress testing. That is she is responsible for the credit risk processes.
She is also responsible for benchmarking current risk practices against those stipulated within business units.
If these broad responsibilities were to be broken down further into a task list, they would look as follows.
- Review strategic credit positions
- Assess Changes in Largest Exposures
- Assess Counterparty Ratings
- Review if there are any pending credits to be cleared by the chief credit officer or board
- Review if there are any credit limit excesses
- Review Credit Limits
- Assess if provisions are up to date
- Review if concentrations are within stipulated limits
- Assess if all credit exposures are covered and mapped
- Check for wrong way positions
- Report all significant risks
- Ensure credit risk reports reach all relevant parties
- Discuss significant credit risks if any with top management
- Conduct stress and scenario testing and analysis of portfolio at global levels
- Ensure no relevant scenarios are missed in testing
- Review past or anticipated changes in provisions
- Review if any changes need to be made in specific provisions
- Ensure all transactions have full and proper documentation
- Review rating triggers and break clauses
- Ensure credit protection is fully understood and utilized
- Explore if there are any further possibilities of exploiting credit protection
In addition to this the credit risk officer is expected to keep an eye on changes in global scenarios as well as an assessment of credit risk in the long term. The above listed duties are part of the day to day functions of the cedit risk manager.
- The Responsibilities of the Credit Risk Officer
- Review of Strategic Credit Positions by Credit Risk Manager
- Credit Limits and Provisions
- Challenges in Managing Credit Exposure
- Key Elements of a Credit Risk Report
- Stress and Scenario Analysis
- Provision for Loan Loss
- Credit Risk Documentation (Specific to Credit Derivatives)
- Credit Protection: Risk or Return, What Matters More?
- Credit Officer: Long Term Tasks