Credit Risk is the risk of loss due to default by a counterparty on its contractual obligations, or as a result of reduction in the credit quality of the counterparty.
Credit Risk can be classified in the following way:
- Credit Default Risk - the risk of loss when the bank considers that the obligor is unlikely to pay its credit obligations in full or the obligor is more than 90 days past due on any material credit obligation. Default risk may impact all credit-sensitive transactions, including loans, securities and derivatives;
- Concentration Risk - the risk associated with any single exposure or group of exposures with the potential to produce large enough losses to threaten a bank's core operations. It may arise in the form of single name concentration or industry concentration;
- Country Risk - the risk of loss arising when a sovereign state freezes foreign currency payments (transfer/conversion risk) or when it defaults on its obligations (sovereign risk).
Credit Risk specialists are responsible for portfolio/transactional management, including:
- assigning ratings and coordinating the rating override process;
- monitoring of credit risks and defining related strategies;
- defining and controlling credit risk limits;
- assessing/evaluating large credit transactions;
- enforcing limits within the approved Risk Appetite;
- developing credit risk measurement methodologies;
- formulating Group Rules on credit risks;
- managing credit process harmonization among legal entities;
- performing credit stress tests;
- participating in the credit risk regulatory process.
A separate, independent group of specialists manage the Special Credit process, being responsible for:
- directing the restructuring and workout activities for the Group;
- setting Special Credit policies and guidelines;
- managing Group-wide default propagation processes.