Lesson 1 of 10
The financial crisis in the US of A in 2007 saw many a stalwart financial institution crumbling under credit losses. Not for want of information or people, but a general deviation from good credit assessment principles. Independent credit risk assessment officers are coming forward to report that they were instructed to inflate valuations and not report lacunae in credit histories of both individuals and corporates alike. It is not for a lack of how to assess credit that these banks faced staggering losses. That said, perhaps now more than ever it is important to understand the role of the credit risk manager.
The primary task of a credit risk manager is to protect her firm from credit losses. Her job responsibilities include:
Ownership of the structure and functions of the various credit risk assessment function. This includes the credit portfolio group, which monitors expected and unexpected losses as well as reviewing provisions. It also includes the credit modelling team which conducts an independent audit of the bank’s credit risk policies. The credit risk policy and reporting teams also come under the purview of the credit risk manager.
Credit Risk Reporting: The credit risk manager is responsible for reporting deviation from set limits. She is also responsible for reporting counterparty ratings, exposures and concentrations.
Face of the institution for external credit regulation and assesment agencies. The credit risk manager is the person regulatory agencies interact with to understand if risk compliance measures are being implemented. She is responsible for ensuring that standards set by Basel II are rolled out.
The Credit Risk Manager is responsible for setting limits, provisioning, scenario testing and stress testing. That is she is responsible for the credit risk processes.
She is also responsible for benchmarking current risk practices against those stipulated within business units.
If these broad responsibilities were to be broken down further into a task list, they would look as follows.
In addition to this the credit risk officer is expected to keep an eye on changes in global scenarios as well as an assessment of credit risk in the long term. The above listed duties are part of the day to day functions of the cedit risk manager.