Enterprise Risk Management and
Compliance Office
Semi-Annual
Credit Risk Management Meeting
Management, Portfolio
level view
Morning Session
February 10, 2024
By Daniel Kulessa
• Bank’s Vision, Mission and core values
• Concept of Credit risk management and
portfolio
• Purpose of credit risk management with
portfolio level
Outline • Credit Portfolio Management
• Principles of Management of Credit risk
• Challenges of Credit Risk management
• Ways of Credit Risk Management
• Role and responsibility of ERMC
• We value persistence,
• To Become the • We are committed to providing full-
fledged and best quality commercial
• Endurance and tenacity;
• We value customer satisfaction ,
Bank of Your banking services within the pertinent
regulatory requirement with due
• Transparency, integrity and confidentiality;
• uphold spirit and grooming potential
First Choice” diligence to sustainable business while
empowering the missing middle and
successor;
• We value total respect to our customers and
employees,
discharging social responsibility by • We value competitive and motivated human
engaging highly qualified, skilled, resources with ever growing skills;
motivated and disciplined employees • We promote a learning and innovative
and state-of-the- art information organization;
technology, Adding real value to the • We value a sense of belongingness among all
our employees .
shareholders interest and win the • We uphold corporate citizenship
public trust.”
Vision Mission Core values
Concept of Credit Risk Management
Credit risk management refers to the process of assessing and mitigating the
potential risks associated with lending money or extending credit to individuals
or businesses. At its core, it’s about ensuring that borrowers are reliable and
will fulfill their repayment obligations.
Credit Portfolio Management is the practice of managing and monitoring all
aspects of bank’s credit portfolio.
Credit portfolio mean classifying loans and advance based on different
categories like maturity period, economic sector, geographically, credit risk
score or grade, nature of credit products and etc. Properly credit portfolio
management is crucial point to the bank to return profit at adjusted risk.
Cont..
Managing credit risks effectively is critical for banks to minimize losses, protect customer
trust, and ensure compliance with relevant regulations.
Credit risk management can be exercised by:
Developing a comprehensive credit risk management policy
conducting regular credit risk assessments
Implementing robust credit risk mitigation mechanisms,
Providing regular employee training
Developing a comprehensive credit risk response plan
Conducting regular credit risk reviews and
Ensuring compliance with regulations and standards
Purpose of Credit risk management with
Portfolio level
The purpose of managing credit risk are:
To grant loans on a sound and collectible basis.
To invest the bank’s funds profitably for the benefit of
shareholders and the protection of depositors.
Develop good credit culture, creditworthiness and promoting
bank’s profitability
To serve the legitimate credit needs of their communities
Fostering the quality of loans and advances
Diversification of risk and minimize concentration risk
Credit Portfolio Management and practice in OB
CPM is the process of manage credit with portfolio level to respect to loan and advance granted
to the customer by geography, nature of products, maturity period, economic sector, risk rate or
grade and etc.
OB has been set its credit portfolio by classifying with:-
Geographical area such as Regional State and AA City
Maturity period: Short term, medium and long term loans
Economic sectors: Hotel and tourism, manufacturing, transport and
communication, Housing and construction, mining and quarry, agriculture,
DTS, international trade under import and export sub-sector and etc.
Nature of products- Convetionanal and IFB financing products
Risk rate or grade: AAA, AA, A, BBB, BB, B, B- , CCC, CC and etc.
Principles of Management of Credit risk
The major cause of serious banking problems continues to be directly related to lax credit standards
for borrowers and counterparties, poor portfolio risk management, or a lack of attention to changes
in economic or other circumstances that can lead to a deterioration in the credit standing of a bank’s
counterparties.
The principles of credit risk management includes;
Establishing an appropriate credit risk environment
operating under a sound credit granting process
Maintaining an appropriate credit administration, measurement and monitoring process and
Ensuring adequate controls over credit risk.
Accurate supervising
Challenges of Credit Risk Management
Credit risk management is really important for keeping the financial system stable. Major
challenges of Credit risk management;
Cont..
Data quality and accessibility:- Most of the time the data available is not very reliable or easy to get.
Global interconnectedness: Businesses cannot afford to overlook the global landscape they operate in.
Regulatory adherence: the constantly changing regulatory landscape adds complexity to credit risk
management.
Rise of non-traditional lenders: Incorporating these non-traditional approaches while ensuring accuracy
and reliability poses a challenge for risk managers.
Economic volatility: unpredictable economic fluctuations.
Human Factors: Misjudgments, communication breakdowns, or ethical lapses can inject
unpredictability into credit risk management, underlining the importance of strong internal controls.
Ways of Credit risk management
Credit risk can be managed by:-
Appropriately monitoring loans and advances during transaction level- from letter of cred
applicant to end of credit administration process.
Monitoring loans and advances by portfolio level ( loan portfolio diversification
Identifying trigger indicator of credit risk such as internal, external cases and borrower
related issues
Immediately taking remedial action rely on identified triggers; rescheduling, foreclosure,
management intervention, Litigation action, acquired assets and write off after final exhausted .
Credit scoring and Analysis
Risk based pricing loan and stress testing on adverse economic condition.
Early intervention and collection
Risk
Conducting ongoing assessment of the bank’s credit risk management
processes and the results of such reviews should be communicated directly to
the board of directors and senior management.
Preparing bank’s risk tolerance limit and reporting to BOD of director for
approval.
Ensuring that the bank’s credit policy and procedures, circulars, memoranda
and directives are properly implemented.
Checking whether credit processing, disbursing and follow up activities of
each and every credit of the bank have been in line of the bank’s credit policy
and procedure
Ascertaining the appropriateness of deliberation of all credit approving organ
as per Discretionary lending limit of the bank.
Ensuring that the appropriateness of collateral documentation and
registration along with their title deed or ownership booklet.
