IBRC annual report for 2011 - Irish Bank Resolution Corporation ...

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The Credit Policy also:▪ Sets out the process surrounding credit approval;▪ Outlines the manner in which credit risk is managed; and▪ Sets out the context for the Bank's business and how the Bank strives to reduce risk.Strategies and processes - Commercial lendingConsistency of approach to credit risk across the Group in relation to commercial lending is ensured through theimplementation of the Credit Policy and presence of key personnel at all Credit Committee meetings. The Credit Committee isthe most senior forum for approving credit exposures and consensus is required before authorising a credit exposure, with eachindividual credit application approved by a valid quorum composed of business and risk management officers.With regard to the Bank’s transaction approval and review processes, the Credit Risk team, in conjunction with the QualityAssurance team, within Group Risk oversees the Credit Committee meetings and periodic loan reviews. Furthermore, tomonitor the ongoing quality of the loan book, the Credit Risk team undertakes frequent asset quality reviews on significantexposures.The independent credit teams within Group Risk monitor any treasury counterparty exposures which have materiallydeteriorated in credit quality since approval. Such exposures are reported to the Credit Committee on a regular basis, where anaction plan for each case is agreed. This may involve cancelling limits or actively managing down or selling an exposure.To support commercial customers that encounter financial difficulties the Bank has a dedicated unit, Recovery ManagementIreland (‘RMI’), which is responsible for the ongoing assessment and management of certain impaired exposures – principallyIrish impaired loans. The RMI is target driven, with the expressed objective of maximising loan recovery. The unit maintains itsfocus through a systematic loan management process that formulates work plans to achieve timely resolution, and its seniormanagement team is actively involved in all stages of the process to ensure that the agreed plans for resolution are achievedwithin agreed timeframes.A number of potential strategies exist through which the Group can maximise recovery of commercial exposures that areexperiencing financial stress or are impaired. The Group would consider any of these relief options, or a combination thereof,after a thorough review of the underlying business performance of the relevant borrower. These strategies include temporarycovenant relief or amendment of covenants in exchange for revised contractual terms, variation in margin accompanied byrenegotiated facility exit fees, or loan rescheduling to facilitate customer liquidity or refinancing restraints.In addition, lending terms could also be renegotiated to result in a partial or total exchange of debt for equity, or other benefitsharing arrangements. This may occur in circumstances where a viable business exists and projected cash flows fromoperational activities have been assessed to be sufficient to service the revised facility, supported in some cases by theintroduction of additional capital into the business, or an increase in the collateral provided by the customer. This option is onlyutilised when maintaining the customer’s business as a going concern with a manageable level of debt would realise morevalue for the Group than disposal of the underlying assets.In all cases, the Group considers the net present value of alternative recovery strategies in order to maximise the amountrecoverable on a loan.Strategies and processes - Residential lendingSince the transfer of the residential mortgage portfolio from INBS into the Bank, oversight and monitoring have beenundertaken by the CCF. The Bank’s aim in relation to this portfolio is to manage the underlying exposures through theirremaining lifetimes, while assisting customers who experience financial difficulties with measures to ensure the mostappropriate outcome for both the Bank and the customer.The Bank’s Collections and Recoveries Unit ('CRU') for residential mortgages aims to provide a responsive and effectiveoperation for the end to end arrears management process. This encompasses an early communication with those borrowersidentified as experiencing difficulty with their normal payment terms, obtaining their commitment to maintain paymentobligations and re-establishing a regular payment history. The management of arrears includes several activities ranging from,but not limited to, establishing repayment plans (including appropriate forbearance), voluntary sale or surrender of themortgaged property, taking possession and selling mortgaged properties, and ultimately, the closure of customers’ accounts,following an agreed settlement arrangement for any deficit on the mortgage.All requests for alternative repayment arrangements by borrowers are assessed in accordance with the Bank’s RecoveryManagement Policy. Separate procedures are in place for owner occupier and buy to let borrowers. The CRU Underwriting Unitconsiders all applications, with those meeting qualifying criteria sanctioned by an approved panel acting under a delegatedauthority, and those falling outside qualifying criteria but which are accepted for individual underwriting sanctioned by CreditCommittee. The Recovery Management Policy is subject to annual review.107