{"id":6433,"date":"2020-05-20T04:43:41","date_gmt":"2020-05-20T04:43:41","guid":{"rendered":"https:\/\/sunoida.com\/?page_id=6433"},"modified":"2023-08-07T13:30:11","modified_gmt":"2023-08-07T13:30:11","slug":"credit-risk-management-2","status":"publish","type":"page","link":"https:\/\/sunoida.com\/vision-erm\/credit-risk-management-2\/","title":{"rendered":"Credit Risk Management"},"content":{"rendered":"\t\t
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Vision ERM Risk Manager is a one stop, powerful\nplatform for all regulatory and enterprise risk reporting\nneeds, enabling banks to adequately cover credit,\nmarket and operational risk calculations<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Vision ERM Risk Manager Modules: Explore them here<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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  • \n \n \"a1\n \n Market Risk Management<\/span> \n <\/li>\n
  • \n \n \"a2\n \n Credit Risk Management<\/span> \n <\/li>\n
  • \n \n \"a3\n \n Operational Risk Management<\/span> \n <\/li>\n
  • \n \n \"a3\n \n BASEL & Capital Adequacy Compliance<\/span> \n <\/li>\n
  • \n \n \"infographic\"\n \n Value at Risk Calculator<\/span> \n <\/li>\n
  • \n \n \"a6\n \n Balance Sheet Stress Testing Engine<\/span> \n <\/li>\n
  • \n \n \"a7\n \n Asset Liability Management (ALM)<\/span> \n <\/li>\n
  • \n \n \"a8\n \n Limits Manager<\/span> \n <\/li>\n
  • \n \n \"a9\n \n Reports & Dashboards<\/span> \n <\/li>\n
  • \n \n \"a1O\n \n Future Proof Configuration Design<\/span> \n <\/li>\n <\/ul>\n <\/div>\n \n
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    \"a1<\/p>

    Market Risk Management<\/span><\/h3>

    How do you really measure market risk? The theoretical way to answer this question is to list the many risk metrics centered around market risk and price. The unconventional way is to quote Michael Lewis from The Big Short about the usage of price risk and volatility in risk models, “The risk is the stupid trade that should have never happened”.<\/p>

    As a practitioner both responses leave a bit to be desired. The theoretical approach is fraught with issues and can lead to uncomfortable silences in boardrooms. The Lewis approach is a great one liner but has no follow through process that can be implemented.<\/p>

    A practical approach sits somewhere in between the two responses. A focus on metrics and measures that track volatility and positions combined with a focus on exposures, limits and reporting hierarchies that allows senior management team to keep an eye on the sensitivity of their P&L to volatility and market price movements.<\/p>

    Which is where the Sunoida Risk Manager Platform comes in. In addition to meeting regulatory compliance requirements, our platform focus on tools and infrastructure required to graduate from just compliance to risk management.<\/p>\t\t\t\t <\/div>\n\t\t \n

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    \"a2<\/p>

    Credit Risk Management<\/span><\/p>

    From policy to proposal, from proposal to approval, from approval to disbursement, from disbursement to analytics, the credit management function seems to have its fingers everywhere. If you run the credit management function you need to be comfortable with all the dimensions of the function.<\/p>

    The challenge in credit risk however is the inherent conflict built in the nature of these dimensions. Proposals and approvals are market driven. Documentation and charges are legal. Analytics are performance and behavior driven. Provisions, recoveries and special assets use a completely different language and rely on negotiations, positions, etc. Hence the requirement for the head of credit risk to come with experience in both business development and corporate banking as well as special assets and credit administration. To this mix add technology and analytics.<\/p>

    Credit Analytics<\/span><\/p>

    Our credit analytics include:<\/p>

    • Breakdown by product, region, branches and segments of the days a payment is overdue (days past due or DPD analysis) across the entire banking franchise and how it compares with the overall industry average<\/li>
    • Client or industry specific credit downgrade by internal or external credit rating systems<\/li>
    • Changes in sector, segment, region provisions or loan classifications<\/li>
    • Changes in recoveries and write offs<\/li>
    • Bank exposures concentration across sectors, segments, products, markets and clients<\/li><\/ul>

      The DPD tracking piece is the most crucial analytic generated by the credit management function. It is used not just in collections tracking and client management but also in provisions projections and capital management. But the source and control of DPD data is crucial. If the credit management function relies on branches to generate and compile DPD data they are just asking for trouble. For DPD data to be reliable and effective it should be generated automatically without manual intervention by any concerned or related party.<\/p>

      Credit Risk Management in Vision ERM<\/span><\/p>

      The Vision ERM platform offers two separate components:<\/p>

      • A BASEL II calculation engine that supports simplified, standardized and Internal Ratings Based (IRB) approach for calculation of capital adequacy. Features include risk weight configuration, risk calculation parameters and exposure tracking across categories<\/li>
      • A DPD and Provisions tracking calculator used for calculation of PD, LGD and EAD estimates<\/li><\/ul>\t\t\t\t <\/div>\n\t\t \n
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        \"a3<\/p>

        Operational Risk Management<\/span><\/p>

        Integrating Capital Adequacy Ratio Calculations<\/span><\/p>

        Our Capital Adequacy Ratio (CAR) dashboard pulls together CAR estimates by combining approved methods for Credit, Market and Operational Risk. On a single screen you can easily see the impact of your selection of methods on risk capital and capital adequacy ratios. In addition, it is also possible to compare 8 different combination of CAR figures created by mixing allowed approaches across credit, market and operational risk capital calculations.<\/p>

        Estimating Operational Risk Capital<\/span><\/p>

        The final step in the capital adequacy ratio estimation calculation is incorporating the impact of risk capital allocated to operational risk. The Vision ERM platform supports two operational risk capital calculation methodologies. Inclusion of Operational Risk Capital allows for the integrated calculation of capital adequacy ratio for the bank on one comprehensive platform.<\/p>

        The Basic Indicator Approach<\/span><\/p>

        Banks using the Basic Indicator Approach must hold capital for operational risk equal to the average over the previous three years of a fixed percentage (denoted alpha) of positive annual gross income. Figures for any year in which annual gross income is negative or zero should be excluded from both the numerator and denominator when calculating the average<\/p>

        The Standardized Approach<\/span><\/p>

        In the Standardized Approach, banks’ activities are divided into eight business lines: corporate finance, trading & sales, retail banking, commercial banking, payment & settlement, agency services, asset management and retail brokerage.<\/p>

        Within each business line, gross income is a broad indicator that serves as a proxy for the scale of business operations and thus the likely scale of operational risk exposure within each of these business lines. The capital charge for each business line is calculated by multiplying gross income by a factor (denoted beta) assigned to that business line. Beta serves as a proxy for the industry-wide relationship between the operational risk loss experience for a given business line and the aggregate level of gross income for that business line. It should be noted that in the Standardized Approach gross income is measured for each business line, not the whole institution, i.e. in corporate finance, the indicator is the gross income generated in the corporate finance business line.<\/p>

        The total capital charge is calculated as the three-year average of the simple summation of the regulatory capital charges across each of the business lines in each year. In any given year, negative capital charges (resulting from negative gross income) in any business line may offset positive capital charges in other business lines without limit. However, where the aggregate capital charge across all business lines within a given year is negative, then the input to the numerator for that year will be zero.<\/p>\t\t\t\t <\/div>\n\t\t \n

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        \"a4<\/p>

        BASEL & Capital Adequacy Compliance<\/span><\/p>

        Our BASEL II compliant risk management solution is comprised of two components:<\/p>