2012 Annual Report & Financial Statements - UBA Plc

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General risk rating process
United Bank for Africa adopts a two-dimensional approach to the assessment of credit risk in the Risk Rating Process for all Businesses. The core
tenets of the two-dimensional approach are shown below:
AAA
Low Risk:
Fast Decision Track
Focus is on Accurate Obligor
Rating and Covenants
Obligor
Rating
C
Focus is on Collateral Value
and Enforceability
Low
Facility Risk Rating
High Risk:
Rejection, Exit
High
All Obligors and Facilities are assigned a risk rating. Obligors are assigned an Obligor Risk Rating (ORR) while a Facility Risk Rating (FRRs) is
assigned to facilities.
Credit rating of counterparty/obligor
In measuring credit risk of loans and advances to various counterparties, Credit Officers/Risk Measurement ensure that the following components
are considered:
i. character and capacity of the obligor to pay or meet contractual obligations;
ii.
iii.
iv.
current exposures to the counterparty/obligor and its likely future developments;
credit history of the counterparty/obligor; and
the likely recovery ratio in case of default obligations-value of collateral and other ways out.
All risk rating processes are reviewed and validated periodically to ensure relevance to business realities. At a minimum, the risk rating process
must be re-approved at least once every three years, unless more frequent review is specified as a condition of the approvals above. The Risk
Rating buckets and definitions are as highlighted below:
UBA risk buckets and definition
Description Rating Bucket Range of Scores Risk Range
Extremely Low Risk AAA 1.00 – 1.99 90% – 100%
Very Low Risk AA 2.00 – 2.99 80% – 89%
Low Risk A 3.00 – 3.99 70% – 79%
Risk Range
(Description)
Low Risk
Range
Acceptable Risk BBB 4.00 – 4.99 60% – 69% Acceptable
Moderately High Risk BB 5.00 – 5.99 50% – 59%
Risk Range
High Risk B 6.00 – 6.99 40% – 49% High Risk
Very High Risk CCC 7.00 – 7.99 30% – 39%
Range
Extremly High Risk CC 8.00 – 8.99 0% – 29%
High likelihood of default C 9.00 – 9.99 Below 0%
Default D Above 9.99 Below 0%
Unacceptable
Risk Range