《德勤-信用风险管理.ppt》由会员分享，可在线阅读，更多相关《德勤-信用风险管理.ppt（35页珍藏版）》请在金锄头文库上搜索。
1、Credit Risk ManagementEnhancing Your Bottom LineEbrahim ShabudinEbrahim ShabudinManaging Director Managing Director Deloitte & Touche LLPDeloitte & Touche LLPThe AFP 23rd Annual Conference New OrleansNovember 3-6, 2002Credit Backgroundl lThorough identification and accurate Thorough identification a
2、nd accurate measurement of credit risk, supported by strong measurement of credit risk, supported by strong risk management can help improve the bottom risk management can help improve the bottom linelinel l.An uncertain and volatile economic .An uncertain and volatile economic environment significa
3、ntly impacts this abilityenvironment significantly impacts this abilityl l.The desire to grow and turn in outstanding .The desire to grow and turn in outstanding results has a tendency to put pressure on the results has a tendency to put pressure on the checks and balances within businesseschecks an
4、d balances within businessesValue PropositionCredit plays a critical role in “selling” products and servicesCredit plays a critical role in “selling” products and services Expands revenue opportunities with creditworthy, incremental Expands revenue opportunities with creditworthy, incremental custom
5、erscustomers Utilizes innovative structures to support business relationshipsUtilizes innovative structures to support business relationshipsEffective credit risk management limits credit losses and provides Effective credit risk management limits credit losses and provides stable cash flows and ear
6、ningsstable cash flows and earnings Marketplace rewards companies exhibiting earnings and cash flow Marketplace rewards companies exhibiting earnings and cash flow stability with higher P/E multiplesstability with higher P/E multiples Marketplace penalizes credit induced volatility and “surprises”Ma
7、rketplace penalizes credit induced volatility and “surprises”Raises questions about quality of managementRaises questions about quality of managementCorporate Credit RiskCompanies are exposed to significant levels Companies are exposed to significant levels of credit risk emanating from different so
8、urcesof credit risk emanating from different sourcesAccounts Receivables Accounts Receivables Other Notes ReceivablesOther Notes ReceivablesBuyer and Franchise FinancingBuyer and Franchise FinancingWith Recourse FinancingWith Recourse Financing Project FinanceProject Finance Structured TransactionsS
9、tructured Transactions Leases with RecourseLeases with RecourseDerivatives Exposures Derivatives Exposures FX, Interest Rate Risk, Commodities etc.FX, Interest Rate Risk, Commodities etc.Collateral RiskCollateral Risk Parent or Third Party Guarantees Parent or Third Party Guarantees Commercial and S
10、tandby Letters of CreditCommercial and Standby Letters of Credit Note also that Critical Suppliers to the company Note also that Critical Suppliers to the company may pose specific credit riskmay pose specific credit riskDSO Impact an exampleActualActualCompany ACompany APeer AveragePeer AverageQ3 A
11、/RQ3 A/R$295,396,000$295,396,000Q3 SalesQ3 Sales$261,201,000$261,201,000 DSOs = DSOs =124*124*51.351.3HypotheticalHypotheticalD D CashCashDSOsDSOs51.351.3Q3 SalesQ3 Sales$261,201,000$261,201,000 Q3 A/R = Q3 A/R =$122,002,230$122,002,230+$173,393,770+$173,393,770 * * Equals 295.4M/261.2M x 90(or numb
12、er of days in sales period)Equals 295.4M/261.2M x 90(or number of days in sales period)Credit as a FacilitatorCredit risk management is important Credit is a facilitator of business growth and Credit is a facilitator of business growth and performanceperformance High business margins tend to attract
13、 lower quality High business margins tend to attract lower quality clients and therefore higher risk profile to manageclients and therefore higher risk profile to manage Clients (buyers) may be concentrated in selected Clients (buyers) may be concentrated in selected industries and provide limited p
14、ortfolio diversification industries and provide limited portfolio diversification opportunityopportunity Poor credit risk management resulting in negative Poor credit risk management resulting in negative impact to bottom-line is heavily penalized by marketsimpact to bottom-line is heavily penalized
15、 by marketsCredit Strategy & Risk ToleranceuSpecific Quantifiable ObjectivesuManagement Review MethodologyuCredit Strategy Statement and Risk ToleranceuCoordination with Business PlanThe business strategies and objectives drive the establishment of creditpolicies and procedures. Measurement and repo
16、rting as well as the use of current technologies enhance credit decision-making and improve risk management. The entire process is continually re-evaluated and improved.Credit Risk Areas to Considerl lCredit PolicyCredit Policyl lCredit Approval Credit Approval AuthorityAuthorityl lLimit SettingLimi
17、t Settingl lPricing Terms Pricing Terms and Conditionsand Conditionsl lDocumentation: Documentation: Contracts and Contracts and CovenantsCovenantsl lCollateral and Collateral and SecuritySecurityl lCollections, Collections, Delinquencies Delinquencies and Workoutsand Workoutsl lExposure Exposure Ma
18、nagementManagement AggregationAggregation ControlControll lPeriodic Account Periodic Account ReviewsReviews Payments/AgingPayments/Aging Credit ConditionCredit Conditionl lCompliance with Compliance with Covenants, TermsCovenants, Termsl lTechnology/ReportsTechnology/Reports Transactions/ Transactio
19、ns/ BookingsBookings Risk-adjusted Risk-adjusted ReturnReturnn nSales Sales ChannelsChannelsn nRisk StrategyRisk Strategyn nUnderwriting Underwriting StandardsStandardsn nCredit Credit ApplicationApplicationn nAnalysisAnalysisuuBusiness/ Business/ IndustryIndustryuuFinancialFinancialuuCreditCreditn
20、nCredit Scoring Credit Scoring and Ratingsand RatingsOrigination/AssessmentAdministrationMonitoring/ControlRiskManagementn nPortfolio Portfolio ManagementManagementn nConcentrationConcentrationn nDiversificationDiversificationn nAllowance for Allowance for Bad DebtsBad Debtsn nRisk Risk MitigationMi
21、tigationn nObjectivesObjectivesn nType of Type of ExposureExposuren nInstruments or Instruments or MethodsMethodsValue CreationBusiness Performance MeasuresPerformance-based management utilizes metrics that measure actual performance against predetermined thresholds. The thresholds are established t
22、aking into account the organizations strategy, operatingenvironment and process controls.The measures drive value creation and should support problem identification and correction.nBusiness StrategySystemsOperationsFinancePerformance ManagementCredit AnalysisCredit DecisionsCollectionsCREDIT POLICYR
23、ISK MANAGEMENTCredit Risk Managements Inter-related ActivitiesComplianceOriginationReportingCredit Policies & Procedures Analysis & RiskManagementGovernance, Controland ImplementationMeasurementMethodologiesTechnology & Data IntegrityCredit Strategy & Risk ToleranceA complete and coherent risk manag
24、ement A complete and coherent risk management framework contains the following elementsframework contains the following elementsCredit Risk ManagementCredit Risk ManagementA New ParadigmA new business paradigm had evolved: causing A new business paradigm had evolved: causing a lack of reliance on go
25、od fundamental analysisa lack of reliance on good fundamental analysisThe idea that stock market values would The idea that stock market values would continue to go up indefinitelycontinue to go up indefinitelyIncreasingly competitive, complex and volatile Increasingly competitive, complex and volat
26、ile market placemarket placeHigher than expected actual debt burdensHigher than expected actual debt burdensExtensive reliance on unrealistic future cash Extensive reliance on unrealistic future cash flowsflowsFailures in corporate governanceFailures in corporate governanceQuestionable personal and
27、corporate ethicsQuestionable personal and corporate ethicsImplications for Corporate GovernanceCurrent organization structures to be revisitedCurrent organization structures to be revisitedClarity around roles and responsibilitiesClarity around roles and responsibilitiesNeed for honesty, integrity a
28、nd independence Need for honesty, integrity and independence (self-regulation)(self-regulation)Technical expertise of people and strong Technical expertise of people and strong management processesmanagement processesImproved disclosure requirementsImproved disclosure requirementsImportance and impl
29、ementation of sanctionsImportance and implementation of sanctionsIncreased legislation and compliance Increased legislation and compliance requirementsrequirements Vision: Vision: Managing Risk/ReturnManaging Risk/ReturnPricing decisions,Performance measurement, business and customer segmentation, c
30、ompensation, etc.A business model view of Credit Risk Infrastructure componentsCredit Risk Management Strategic VisionDevelopment Stages Foundation StageFoundation Stage includes application of risk identification includes application of risk identification methodologies, risk scoring or rating syst
31、ems and strong methodologies, risk scoring or rating systems and strong underwriting standardsunderwriting standards Basic StageBasic Stage tends to include managing on a transactional basis by tends to include managing on a transactional basis by evaluating specific attributes such as structuring,
32、collateral and evaluating specific attributes such as structuring, collateral and pricingpricing Advanced StageAdvanced Stage represents managing on a portfolio basis represents managing on a portfolio basis including aspects such as concentrations, correlations and including aspects such as concent
33、rations, correlations and diversificationdiversification The Sophisticated StageThe Sophisticated Stage includes application of highly developed includes application of highly developed measurement techniques for transactions and portfolios, supported measurement techniques for transactions and port
34、folios, supported by decision-making relating to segments or businesses against by decision-making relating to segments or businesses against established hurdle rates.established hurdle rates.Credit Risk ClarifiedCredit risk is defined as the risk of loss or potential Credit risk is defined as the r
35、isk of loss or potential loss resulting from: loss resulting from: Default in contractual obligations by a customerDefault in contractual obligations by a customer Migration in condition and ratingMigration in condition and rating Deterioration in performance Deterioration in performance Credit risk
36、 includes both an expected (predictable) Credit risk includes both an expected (predictable) and unexpected (volatile) loss component.and unexpected (volatile) loss component. Businesses have to contend with Expected and Unexpected LossesExpected LossesExpected Losses AnticipatedAnticipated Cost of
37、doing businessCost of doing business Charged to provisionsCharged to provisions Captured in pricingCaptured in pricing Relatively easier to Relatively easier to measuremeasureAssessing expected loss Assessing expected loss includes determining includes determining exposure, default probability expos
38、ure, default probability and severityand severityl lUnexpected LossesUnexpected Losses Unanticipated but Unanticipated but inevitableinevitable Must be planned forMust be planned for Covered by reservesCovered by reserves Allocated to businessesAllocated to businesses Difficult to measureDifficult t
39、o measurel lAssessing unexpected loss Assessing unexpected loss requires making qualitative requires making qualitative judgments around potential judgments around potential volatility of average lossesvolatility of average lossesCredit Risk Management ExplainedAlthough credit risk may be difficult
40、to measure it is Although credit risk may be difficult to measure it is important to estimate and manageimportant to estimate and manage What does Credit Risk Management mean?What does Credit Risk Management mean? It represents an institutions ability to properly identify It represents an institutio
41、ns ability to properly identify and evaluate the potential risk of default in payment of and evaluate the potential risk of default in payment of obligations of customersobligations of customers It incorporates the firms ability to effectively manage It incorporates the firms ability to effectively
42、manage and control this exposure in a way that is consistent and control this exposure in a way that is consistent with the institutions business strategy, risk appetite with the institutions business strategy, risk appetite and credit cultureand credit cultureImportant Building BlocksEffective Cred
43、it Risk Management requiresEffective Credit Risk Management requires Clear origination and underwriting standards Clear origination and underwriting standards A strong corporate and credit cultureA strong corporate and credit culture Highly developed risk measurement techniques Highly developed risk
44、 measurement techniques Ability to recognize and cover expected and unexpected Ability to recognize and cover expected and unexpected losseslosses Pricing commensurate with risks undertakenPricing commensurate with risks undertaken Methodologies to assess net profit contributions by Methodologies to
45、 assess net profit contributions by customers and appropriate business segmentscustomers and appropriate business segments Proper allocation of capital and management resourcesProper allocation of capital and management resourcesIn order to:In order to: Improve overall corporate performance, measure
46、d by a Improve overall corporate performance, measured by a higher EPS or P/E ratio (or market value)higher EPS or P/E ratio (or market value)Credit Policy and ProcessCredit Policy should be clear and conciseCredit Underwriting Standards must be developed and included in policyCredit Processes shoul
47、d be reasonable and allow quick response to clientsHealthy balance between sales and credit approval should exist and be respectedRisk MonitoringExposure must be complete and currentRegular reporting and updating of clients payment performance Minimum annual reviews of clients should be performedFin
48、ancial conditions should be regularly assessedRequired action must be initiated and follow up must take placeContract Terms and DocumentationContract negotiations must take place at the Contract negotiations must take place at the right level in the organizationright level in the organizationAppropr
49、iate approvals must be obtainedAppropriate approvals must be obtainedInternal or external legal departments must Internal or external legal departments must document completelydocument completelyTerms and conditions should be understood and Terms and conditions should be understood and compliance me
50、chanism put in placecompliance mechanism put in placeExceptions must be reported and managed Exceptions must be reported and managed urgently to resolutionurgently to resolutionRisk Rating System EffectivenessCredit Scoring is generally used to “risk rate” homogeneous portfoliosCredit Scoring is gen
51、erally used to “risk rate” homogeneous portfolios Highest applicability is in consumer and retail portfoliosHighest applicability is in consumer and retail portfolios Some advanced scoring systems are being migrated for use in rating Some advanced scoring systems are being migrated for use in rating
52、 “middle market” clients“middle market” clients Such models are only as good as the underlying assumptionsSuch models are only as good as the underlying assumptionsInternal credit rating systems are difficult to assess and are often not Internal credit rating systems are difficult to assess and are
53、often not independently validatedindependently validated Client relationship may interfere with objective assessment of risksClient relationship may interfere with objective assessment of risks Rating criteria usually a matter of practice rather than written policyRating criteria usually a matter of
54、 practice rather than written policy Ratings are not consistent over timeRatings are not consistent over time Qualitative credit assessments often lag current market informationQualitative credit assessments often lag current market information Institutions often assumeInstitutions often assume a ma
55、pping with external ratings in order to a mapping with external ratings in order to quantify credit riskquantify credit riskEffective Risk Rating Systems Sufficient granularity of risk rating categoriesSufficient granularity of risk rating categories Accurate and timely assignment of ratings Accurat
56、e and timely assignment of ratings Clear and consistent application of default definitionClear and consistent application of default definition Periodic calibration, triangulation and validation of risk Periodic calibration, triangulation and validation of risk ratings ratings Accurate identificatio
57、n of migration of transactions and Accurate identification of migration of transactions and portfolios (as reflected by upgrades and downgrades in portfolios (as reflected by upgrades and downgrades in ratings) ratings) Credit Evaluation: Financial FactorsGet the information you need to make a full
58、analysisSome information will need to be cross-checked and obtained on a regular and timely basisBe constructively cynical: new business models are difficult to pull offBe cognizant of delaying tacticsNumbers dont tell the whole story!Credit Evaluation: Qualitative FactorsEvaluation of subjective fa
59、ctors is often times Evaluation of subjective factors is often times more important than the numerical analysismore important than the numerical analysisPeople make a business: visions, values and People make a business: visions, values and strategies are only words unless people strategies are only
60、 words unless people implement themimplement themManagement, industry, product, geography, Management, industry, product, geography, competition etc. all influence results and must be competition etc. all influence results and must be properly assessedproperly assessedAnalysis-paralysis may lead to
61、wrong decisionsAnalysis-paralysis may lead to wrong decisionsArt and Science of JudgmentGetting access to the best clients and all the relevant information is a challengeEnsuring proper analysis is done requires a strong corporate cultureUtilizing qualified resources both internally and externally e
62、nhances the resultsOften the lack of the will to act is what causes high lossesConcluding CommentsCompanies that measure and manage credit Companies that measure and manage credit risk in a pro-active manner will benefit from a risk in a pro-active manner will benefit from a favorable risk profile r
63、esulting in favorable risk profile resulting in Higher revenueHigher revenue Lower lossesLower losses Improved efficienciesImproved efficiencies Higher EPS, P/E ratios and market valuesHigher EPS, P/E ratios and market valuesConcluding CommentsRisk Assessment and Limit ManagementCredit Infrastructur
64、e and Portfolio ManagementCredit Analytics SupportCredit Technology EnablementCredit QualityCredit UnderwritingRisk Rating System EffectivenessCounterparty and Portfolio LimitsOrganizational Structure Policies and ProceduresTechnology Selection and ImplementationProblem Asset ManagementRisk Rating C
65、alibrationTransaction Pricing, Structure and SupportDefault Probability and Recovery CalibrationCredit Reserve MethodologyRisk Based Pricing ModelsRisk Adjusted Return AnalysisPortfolio Value MeasurementCredit Risk MeasurementCredit Performance Scorecards Internal Software Internal Software External
66、 Vendor SoftwareExternal Vendor SoftwareAppendix: Business Proposal ChecklistBusiness Proposal SummaryBusiness Proposal Summary Customer, Rating, Legal Status, Line of BusinessCustomer, Rating, Legal Status, Line of Business Guarantor, if anysameGuarantor, if anysame Collateral, if anytrue value exp
67、lainedCollateral, if anytrue value explained Other Support, if any. Legal or moral onlyOther Support, if any. Legal or moral only The Transactionrisks and mitigationThe Transactionrisks and mitigation Amount, purpose, terms and conditionsAmount, purpose, terms and conditions Sources of repayment cle
68、arly identifiedSources of repayment clearly identified Client payment history and relationshipClient payment history and relationshipAppendix: Business Proposal ChecklistRationale and AnalysisRationale and Analysis Customer, Guarantor, Collateral, SupportCustomer, Guarantor, Collateral, Support Faci
69、lity DescriptionFacility DescriptionAmount, purpose, tenor, pricing, terms, conditions, Amount, purpose, tenor, pricing, terms, conditions, covenants, restrictions etc.covenants, restrictions etc.Consider affect on above e.g. new leverageConsider affect on above e.g. new leverageFacility Rating?Faci
70、lity Rating? Repayment CapacityRepayment CapacityFuture cash flow, conversion of assets etc.Future cash flow, conversion of assets etc. Consistency with Credit Strategy and PolicyConsistency with Credit Strategy and PolicyConfirm, and identify any exceptions to policy, underwriting Confirm, and iden
71、tify any exceptions to policy, underwriting standards, or processstandards, or processRisk adjusted return acceptability Risk adjusted return acceptability Appendix: Business Proposal ChecklistClient RelationshipBusiness strategy: increase, maintain or Business strategy: increase, maintain or decrea
72、se exposure or exit relationshipdecrease exposure or exit relationshipConsider relation to rating, latest risk profile Consider relation to rating, latest risk profile and payment performanceand payment performanceCustomer profitability: risk adjusted return, Customer profitability: risk adjusted re
73、turn, revenue, fees, direct and allocated costs etc.revenue, fees, direct and allocated costs etc.Any conflicts of interest or special concernsAny conflicts of interest or special concernsAppendix: Business Proposal ChecklistMacro AnalysisBusiness Environment ReviewBusiness Environment ReviewCustome
74、rs competitive market position and future Customers competitive market position and future industry prospects: size, cycle, volatility, new industry prospects: size, cycle, volatility, new entrantsentrantsStrength of customers business and financial Strength of customers business and financial strat
75、egiesstrategiesManagement Evaluation: competency, Management Evaluation: competency, experience and effectivenessexperience and effectivenessAppendix: Business Proposal ChecklistCustomer AnalysisCustomer Analysis Company history, background, objectives and Company history, background, objectives and
76、 performanceperformance Relevance and strength of future business plansRelevance and strength of future business plansConsider seasonality and scenario analysisConsider seasonality and scenario analysis Primary and secondary sources of repaymentPrimary and secondary sources of repayment Historical f
77、inancial capacity and analysis of future Historical financial capacity and analysis of future performance: sales, profitability, working capital, performance: sales, profitability, working capital, liquidity, cash flow, leverage, tangible net worth etc. liquidity, cash flow, leverage, tangible net w
78、orth etc. Quality of earnings Quality of earnings Absolute and ratio analysisAbsolute and ratio analysisPeer comparisonsPeer comparisonsAppendix: Business Proposal ChecklistStrengths, Weaknesses and RecommendationStrengths, Weaknesses and Recommendation Key factors that could jeopardize collection:
79、Key factors that could jeopardize collection: environment or company specificenvironment or company specific Any mitigating factors Any mitigating factors Consider probability and impactConsider probability and impact Consider all sources of repayment: primary, Consider all sources of repayment: primary, secondary and tertiary, including access to capital secondary and tertiary, including access to capital markets, refinancing etc.markets, refinancing etc. Summarize strengths and weaknesses and conclude Summarize strengths and weaknesses and conclude with a recommendationwith a recommendation
