Credit risk management

      The bank understands credit risk as existing or potential risk to the bank's earnings or capital as a result of its borrowers defaulting on their loans or failing to fulfill other commitments.

The process of Credit Risk Management represents an organized sequence of actions comprising the following stages:

• Risk taking
  (in order to understand the risk we are taking, we identify risk factors, estimate the risk level, and choose a strategy)
   
• Determining the price of risk
  (the interest policy is built in such a way as to include a risk premium in the prime cost of a loan)
   
• Optimizing portfolio risk
  (diversifying the portfolio, forming reserves, limitations, a thought-out collateral policy, a comprehensive selection of loan products and their clear descriptions)
   
• Managing credit risk
  (analysis of concentrations, monitoring and controlling the level of risk, a system for identifying doubtful loans at the early stages of loan life – "early response system")

The Credit Committee is tasked with managing credit risk.
      The bank's credit committees operate at three levels: the Big Credit Committee of the Head Office, the small credit committee for the corporate business and the small credit committee for the retail business, Credit Commissions at the bank's offices, and Credit Commissions for micro-lending. The bank has started forming its own database of default and incident statistics in order to be able to model and estimate credit risk in the bank's economic capital and calculate VAR.  The bank is implementing risk-adjusted return on risk-adjusted capital (RARORAC) methods.

      The bank has developed a borrower rating system comprising an extended rating scale, increased the number of positions analyzed, and introduced an integrated coefficient.
The system for calculating independent lending limits is based on qualitative and quantitative characteristics of the credit portfolio of a particular branch and its position in the region.

The process of estimating credit risk is divided into individual risk measurement (corporate customers, counterparty banks) and portfolio risk measurement (overall credit portfolio, retail customers). 

      Portfolio risk is manifested in reductions in the value of the bank's assets. A source of portfolio risk is the combined debt to the bank on operations carrying credit risk, i.e., a portfolio of similar credit operations. Estimating portfolio credit risk involves estimating the concentration and diversification of the bank's assets.

      To minimize credit risk, the bank has developed a limitation system for credit operations, which comprises limits of three levels:
 

• Limits on individual credit risk
• Limits on portfolio credit risk
• Limits on authority.

Sector risk

      Sector risk means uncertainty connected with adverse economic conditions in a particular sector of the economy, which may result in an overall worsening of the credit portfolio's quality. The bank monitors and controls credit investments in different sectors of the economy on a monthly basis.

   
Credit risk of interbank operations

      Finance & Credit Bank is an active player on the interbank market. In its interbank operations the bank assumes credit risks (unsecured credit, swap operations in which the bank is the first to make the swap payment, and suchlike). To limit such credit risks, the Risk Management Department proposes to the Credit Committee to establish limits for counterparty banks based on a comprehensive assessment of the bank's financial status and non-financial factors that may affect the counterparty bank as a whole. Limits on interbank operations are revised on a monthly basis. When there is information of a worsening or probability of a worsening of the financial status of a counterparty bank, the Risk Management Department promptly suspends the unsecured credit limit and brings this to the attention of the bank's management.