SAARC FINANCE,
REGIONAL SEMINAR, ISLAMABAD
12
Embedding &
Establishing the Risk Appetite
Classification
by key Risk type
Boundaries
have to be set for the following Risk types.
Credit,
Liquidity , Fraud , Operational, Compliance, Reporting and People Risks
We will
Cover Credit Risk
Given the nature of our businesses,
credit risk is a major risk for Banks.
While we are able to manage this in normal times, Management must ensure that there is
enough buffer and loss absorption
capacity in times of severe
stress. Investors expects its investee
to preserve the capital of the Bank by building margins and controls to limit damage on account of unexpected events
or severe shocks.
Some
Credit Risk Parameters
Indicators
Parameters
Portfolio Concentration
Risks
Portfolio % split between
Corporate/Consumer and SME businesses
Business wise Exposures
Corporate and
Commercial businesses
Industry Concentration
limits, Single Obligor Limit, Group Obligor limits, Target Weighted Average
Loss norms,
Portfolio PDs, EADs and LGDs
Consumer
Secured Vs. Unsecured
portfolio mix, Segment target mix (Salaried vs. self employed)
Loss Absorption Abilities
Minimum Risk Adjusted
Yeilds – Product wise
Minimum Cost of Credit
Rate for any segment and product
Minimum LAR for any
segment / product