Annual Report 2012 - National Savings Bank

109ASSESSING AND MANAGING OUR RISK FACTORSRISK MANAGEMENTCREDIT RISKCredit risk is the possibility of lossesarising from the diminution in the creditquality of borrowers or counterpartieswhich could materialise from thebanking book and the trading book andboth on or off balance sheet.For a bank’s stability and continuingprotability, it is crucial that every bankhas a sound credit risk managementsystem integrated into the overall riskmanagement framework. The creditrisk management aims to maximise abank’s risk-adjusted rate of return bymaintaining credit risk exposure withinacceptable parameters. Banks shouldhave a keen awareness to identifymeasure, monitor and control creditrisk and should have adequate capitalto absorb these risks.Ensuring lending staff complies with theset policies, procedures and guidelinesof the Bank and ensuring the existenceof Board approved policies to limit ormanage other areas of credit risk arethe main steps in managing credit risk.As part of the annual planning process,the Board and Management set targetsfor the NSB’s loan portfolio mix andreviews on an ongoing basis to ensurethat the performance meets the Board’sexpectations and the level of risk remainswithin the acceptable limits. Adaptationof standardised lending procedureswhich reduces risk of transactional errorand ensures compliance with regulatoryrequirements are the high priority inBank’s credit process. The Bank appliesKey Performance Indicators (KPIs),Key Risk Indicators (KRIs), StressTesting, Portfolio Review, InternalControl Assessment, Yield Assessmentetc. to monitor the quality of the CreditPortfolio on a quarterly basis.Credit Risk AppetiteThe Bank manages and controls creditrisk by setting limits on the amountof risk it is willing to accept and bymonitoring exposures in relation tosuch limits. The risk appetite of theBank is set by the Board of Directorsand contains a set of credit portfoliomonitoring measures which includetolerable risk levels.Credit Risk ManagementStructureThe Bank has initiated a structure tothe credit risk management process tooptimise the credit risk managementfunctions and identies, assesses,quanties, prices, monitors andmanages credit risk continuously.The Risk & Compliance Divisionconducts two key functions of CreditRisk Management and Credit RiskReview. The functions covered bythe Credit Risk Management are;involvement in assessment of preapprovalstage on large and high riskcredits as per the Integrated RiskManagement Policy, evaluate andcomment on new lending products froma risk perspective, monitor Key CreditRisk Indicators including NPL, monitorand report to the Board of Directorsand Operational Level Committeessuch as Credit Committee (CC), Asset& Liability Management Committee(ALCO) etc. Credit Risk ReviewFunction covers evaluating the portfoliosof different loan categories, evaluatingthe credit process and adequacy ofNATIONAL SAVINGS BANK . ANNUAL REPORT 2012