Enterprise Risk Management at DBS Group
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Case Details:
Case Code : ERMT-026
Case Length : 14 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Statoil
Industry : Oil and Energy
Countries : Norway
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Credit Risk
Credit risk was the potential earnings volatility caused by
an obligor's inability or unwillingness to fulfill its payment obligations.
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Exposure to credit risks arose primarily from lending activities. It also rose
to a lesser extent, from sales and trading activities, derivatives activities
and from participation in payment transactions and securities settlements.
Credit exposure included current as well as potential credit exposure. Current
credit exposure was represented by the notional value or principal amount of
on-balance sheet financial instruments and off-balance sheet direct credit
substitutes, and by the positive market value of derivative instruments.
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Potential credit exposure was related to the remaining term of transactions.
DBS had attempted to integrate risk management into the business management
processes, while preserving the independence and integrity of risk assessment.
Policies and procedures, guided the day-to-day management of credit exposure.
The credit risk management process involved senior management, Group Risk,
Credit Management, Relationship Management, as well as independent credit risk
control functions.
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In 2002, DBS implemented an enterprise-wide Core Credit Risk Policy. It set
forth the principles and policies by which the Bank and its subsidiaries
conducted their credit risk management activities.
The policy attempted to promote consistency across the Group, and provide
guidance to various credit management units in the formulation of supplementary
credit policies specific to their businesses.
Each corporate borrower was assigned a rating under the Counterparty Risk Rating
process. |
The process was further enhanced by the Facility Risk Rating System, which took
into consideration facility specific considerations such as credit structuring,
collateral, third party guarantees, and transfer risks.
These credit risk rating tools were used to assess the credit quality of the
portfolio, so that deteriorating exposures were quickly identified and
appropriate remedial action was taken...
Excerpts
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