Sounding Out Risk
12
info exchange
What's NewS Issue 6 June 1997
Managers from five leading international offices in the network
converged on Utrecht in mid-May for a two-day meeting to discuss
topical issues relating to the management of global credit risk.
From left to right, standing:
Flans Hannaart - Singapore,
Cees Struijk - Utrecht, Frans
de Jong - ICD, Roelf
Hagoort - Hong Kong,
Alfons de Weerdt - ICD,
Phil Hislop - Australia, Bert
Sperna Weiland - ISD and
sitting from left to right: Jim
Cunningham - London and
Jaap Slotema - GCRM.
The issues included the methodology for
scoring the credit risk associated with
individual clients and wider portfolios,
issues pertaining to return on
solvency(ROS), and concerns with regard
to the organization of the credit
departments throughout the global
network.
DYNAMIC PROCESS
'Credit risk is a dynamic process and we
are continuously working to adapt our
methodologies to new organizational and
market realities,' explains Bert Sperna
Weiland. 'At the same time, it is essential
that we maintain the highest possible
standards. So it's a balancing act. These
meetings were designed as an opportunity
for the key practitioners to come together,
discuss problems and tradeoffs, and come
to some common understanding about how
to proceed.
For example, there are increasing pressures
RISICO'S
INSCHATTEN
Managers van vijf
toonaangevende
internationale kantoren in het netwerk
kwamen medio mei naar Utrecht voor een
tweedaagse bijeenkomst over het
management van krediet risico op
internationaal niveau. Krediet risico is een
dynamisch proces waarbij voortdurend
bijgestuurd wordt.Volgens Bert Sperna
Weiland moet momenteel bijvoorbeeld
worden opgepast voor ongeremde groei.
to make the most of available capital (or
solvency) within the bank: unconstrained
growth can no longer be the order of the
day. An awareness of both income and cost
are crucial if we are to reach our financial
targets. While it is important that these
targets be met in a responsible way, from
the standpoint of risk, adequate
consideration must be given to long-term
strategie goals. If clients who fall below par
- but there is a desire to nevertheless extend
credit for strategie reasons - then
relationship development plans will
henceforth be required, Frans de Jong
explains.
CALCULATION MODEL
ROS ADD, a recently formulated 'uniform
calculation model,' is intended to indicate
cliënt profitability and return on solvency.
The model has been designed so that
general managers and their teams can
consider historical and projected
performance, local circumstances, and the
importance of a customer relative to the
overall Customer Focus Strategy when they
make their credit decisions. However, as
both Rik van Slingelandt and Arthur
Arnold underlined, the consideration of
these factors should serve to improve the
actual insight in the return on an overall
cliënt but on the other hand should not
lead to an increase in the overall level of
credit risk.
After the previous 'Sounding Board'
meeting, an adjustment in the method for
'scoring' credit risk was implemented
throughout the network. Each cliënt is
scored on a sliding scale from one (which is
unacceptable) to six (at the height of
excellence.) This figure is intended to reflee
a combination of both financial risk and
the estimated yield of collateral in the event
of liquidation. The system makes it possible
to look at development of credit quality
over time, to monitor the total portfolio,
also to set intensity of credit control and
the level at which applications are
approved.
PORTFOLIO MANAGEMENT
Participants in the 'Sounding Board'
sessions discussed increasing the scale from
1 to 10, the proper use of liquidation value
for collateral, and the usefulness of the
system for better portfolio management.
The Credit Risk Score will also be modified
so that it can be plugged into ROS ADD
calculation.
Finally, and most controversially,
participants discussed the organization of
credit risk management overall. Global
Credit Risk Management has been
established as the successor to the former
'Exposure Management' unit in the Central
Banking Section of Rabobank Nederland.
The organizational transformation of
Rabobank International is an ongoing
process, however. Relationship
management of financial institutions, once
coordinated out of Utrecht, has now been
decentralized.
CLEAR SEPARATION
The participants, who included among
others the credit managers from London,
Sydney, Singapore, Hong Kong and Utrecht,
agreed that there is a pressing need to
maintain the clear separation between credit
risk functions and those on the strictly
commercial side of the organization.
In a rapidly changing risk management, the
'Sounding board' meeting on credit risk
policy was regarded by all as an essential
forum for communication and further
evolution.
looking ahead /-
June
25-27 IAMA Conference,
Jakarta
25-27 Europe Bio-Tech
Conference,
Amsterdam
29-3/7 Rl Mission to Ukraine,
Kiev
July
25-27
Finish Tour de France,
Paris
