Credit and client policy The Group’s overall credit risk is managed according to policies and limits determined and adopted by the Board of Directors. The Board of Directors lays down the general framework for credit granting and the largest exposures are submitted on a regular basis to the Board of Directors for approval or information. Employees with a lending authority may grant approvals. Such authority is adjusted to the employee’s position. The lending author- ity is risk-based, ie a higher risk means reduced lending authority. • maintaining and increasing clients’ business volume with the Group through a balanced composition of: – loans and advances and guarantees – deposits – payment services transactions – trading in securities etc – financial instruments • avoiding/reducing risk of loss by implementing action plans for weak exposures. These action plans involve reducing the Group’s exposure as well as hedging risks by securing additional collateral. Retail clients Credit granting to retail clients is based on the client’s disposable amount, wealth and leverage (defined as total household debt divided by household personal income) as well as knowledge of the client. Risks in connection with lending must be precalculated on an informed and well-founded basis. The Group’s credit exposure is in particular to clients in Denmark and Northern Germany. The objective is that the majority of retail client exposures are approved by the client’s branch and that the remaining client exposures are approved by specially appointed heads of credit. Con- sequently exposures where the client has negative assets of more than DKK 100,000 are approved by heads of credit. Major exposures and exposures with an increased risk are reviewed centrally by Credits. Corporate clients As a rule corporate clients are served by the regional head office or by special corporate departments. The Group’s largest and most complex exposures are handled by Corporate & Institutional Bank- ing. The objective is that all small corporate exposures with satis- factory credit quality are approved at regional level. Medium-size and major exposures are approved centrally by Credits, the Group Executive Management or the Board of Directors. Particular focus is given to weak exposures. The objective is to ensure that the Group’s action plans for these exposures are moni- tored, evaluated and adjusted on an ongoing basis to reduce the risk of loss. Moreover Credits has a department which is assigned to expo- sures with a significant risk of loss. These exposures are closely monitored and Credits is actively involved in preparing solutions to mitigate the Group’s credit risk. On the basis of a risk-based approach Credit Control ensures that procedures and lending authorities are complied with as well as checks the Bank’s systems and business procedures in the credit area. Moreover Credit Control, which is a separate department, follows up that any errors detected are corrected and reports to the Bank’s management about its activities. The Group’s credit-related decisions are based on a systematic and structured review of the client’s circumstances and industry affili- ation. The review is based on all accessible information, including industry analyses and financial analyses, and also comprises an assessment of the client’s forward-looking business plan and its risk and feasibility. Credit activities Credit activities are conducted partly in the retail and corporate departments and partly centrally in Credits. As described below, the Group has developed rating models to assess risks to retail clients, corporate clients and investment clients. The Group’s credit activities are an active element in the Group’s efforts to increase its income by: • maintaining and increasing the portfolio of profitable and promising retail, corporate and investment clients Risk Follow-up Risk Follow-up is part of the division Risk. By means of analyses and random sampling Risk Follow-up monitors the credit quality of exposures, registrations, impairment charge calculations as well as the compliance with policies and business procedures in general. This process involves research and analyses using information from the Group’s database of all exposures. Moreover Risk Follow-up conducts regular credit quality analyses of the Group’s new exposures as well as regular random sampling of the retail and corporate client portfolios. Finally Risk Follow-up evaluates on the basis of a credit expert as- sessment whether the Group’s rating models rank clients correctly. Credit Risk 2021 / SYDBANK 5
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