PROGRAM OVERVIEW
This course is designed for credit practitioners from front, middle and back office units who are confronted with credit risk in their work activities. This program will offer insights into credit risk modelling, risk calculation, stress testing, concentration.
LEARNING OUTCOMES:
• Understand the key drivers for credit loss and learn about efficient and practical risk management tools at portfolio level
• Credit Risk – Capital Calculation and use of Risk Adjusted Return on Capital approaches in credit decisions
• Concentration Risk – Exposure Limits, Sector Concentration, Rating Risk Limits etc.
• Credit Risk Stress Testing – Credit Portfolios and Aggregate Group Basis
• Gain a deeper understanding of international supervisory requirements on credit risk management
WHO SHOULD ATTEND?
• Credit Risk Analysts
• Credit Risk Managers
• Risk Management Staff across the board
• Senior Relationship Managers
TRAINING METHODOLOGY
This is an online programme with active involvement encouraged from participants throughout the programme which will consist of:
• Formal presentations to explain key issues
• Discussion to clarify points raised in the presentations
• Exercises and case studies to illustrate key issues in a practical way
If required pre and post course tests can also be provided
KNOW ABOUT YOUR TRAINER
Our trainer was the head of the European leverage finance and corporate teams at UFJ Bank and managed a book of over USD2 billion in assets. Overall, he has in excess of 30 years banking experience in the international markets and has spent 25 years working in the syndicated loan market gaining a wide range of experience across risk management, particularly credit risk and distressed debt in major banking organisations including Barclays, Tokai and UFJ banks.
DAY 1 – CREDIT PORTFOLIO RISK &
SUPERVISORY ROLE
Bank Strategy
• Credit risk appetite – influences on the portfolio
• Risk Taking Capacity – an instrument for overall bank risk management
• Linkage to ERM
Regulation
• Basel – key issues and current developments
• Understanding the main pillars and parameters of prudential regulation
Capital
• Appreciate the importance of Capital components and linkage between portfolio management and impact
on financial performance in creating shareholder value
• Understand the different categories of capital and how these relate to the Basel III guidelines
• Distinguish between provisioning and capital to understand their key purposes in enhancing overall safety of
an institution. IFRS9 and CECL rules will be analysed and discussed
• Appreciate the complementary relationship between economic and regulatory capital and how the two
complement each other for strategic decision making
A first look at Portfolio Approach
• Discussion of rating, scoring and the mathematics of credit risk management (PD, EAD, LGD, migration matrix)
with its limitations
• Risk adjusted performance measuring (RAROC, ROE etc)
• Calculation of bank-wide capital demand
Location and types of Credit Risk in Financial Products
• Loans and overdrafts
• Government and corporate bonds
• Mezzanine debt
• Credit derivatives
• Counterparty exposure from
• Trade finance
• Credit card
Monitoring and Assessing
• Monitoring Exposures
• Portfolio reviews
• Documentation reviews
• Security/collateral insurance issues
• Assessing Exposures
Overview of Credit Portfolio Risk
• Evolution of different philosophies of credit portfolio
management
• Categories of credit risk
• Banking book v market book
DAY 2 – BUILDING UP A CREDIT
PORTFOLIO APPROACH
Quantifying Portfolio Risk
• Loss distributions and loss tails
• Quantifying expected and unexpected losses
• Credit v market risks
• Credit risk concepts
• PDs, LGDs, EoDs
Credit Portfolio Models
• Statistics for risk management: Volatility,
correlation, use of copula functions
• Alternative modelling approaches
• Risk Rating Systems
Consideration of which Models to Use
• Key advantages and disadvantages of each model
• Uses of a portfolio credit models
• Dealing with expected Loss Metrics for the
Credit Portfolio
• Considering implications of accounting asymmetry
Using Stress Tests in Portfolio
Management
• Benefits of stress testing
• The approaches – quantitative and qualitative
• Characteristics and goals of successful
stress testing
• Creating stressed scenarios and correlations
and evaluating impact
• Sensitivity of key inputs: probability of default,
number of rating scales etc
• Role of scenario analysis within the stress testing
framework
• Decision-making and communication of stress test
results
Applying Credit Risk Mitigation
Strategies
• Structuring credit exposures: diversification and
correlations; Ranking
• Portfolio management and techniques to
manage risk
Syndication
Credit derivatives
Securitization
• Balancing risk appetite and diversification to
maximise risk adjusted returns
Managing Complexity
• Credit portfolio management – location within
firm and role
• Practical issues and uncertainties to consider
when managing credit risk:
• Allowance Setting
• Coping with privileged information and
price-sensitive information