Credit risk is the risk of losses due to non-fulfillment, delayed or incomplete fulfillment of the financial obligations by borrowers, as stipulated by a credit agreement.
Vozrozhdenie Bank has developed and implemented policies and procedures to avert and minimize losses arising from credit risk. These measures include:
- Regular assessment of the financial standing of borrowers and the economic efficiency of their operations and projects financed;
- Assessment of the sufficiency and liquidity of collateral, adequate evaluation of collateral and its insurance by appraisal and insurance companies (XLS, 30 KB) certified by the Bank;
- Regulation of rating estimation of financial status of insurance companies (DOC, 287.5 KB) participating in insurance of property to be transferred to the bank as a security under loans granted by the bank;
- Ongoing monitoring of the borrower’s fulfillment of obligations to the Bank and actual existence of collateral;
- Assessment of credit quality and the level of risk on loans issued;
- Procedure for creating provisions for possible losses on loans and other operations;
- Procedure for transferring non-performing loans to the Department for Legal Enforcement and follow-up work with them;
- Procedure for stipulating and controlling the lending authorities of branches and management bodies within the Bank depending on the loan size.
- Procedure of granting guarantees carried out on the basis of Regulations “On the procedure of granting the Bank’s guarantees”.
Within the bank there is a Credit and Investments Committee (CIC) with a system of subcommittees which execute the following functions and objectives:
- review and development of the credit policy of the bank within the approved development strategy;
- operational decisions on the diversification of credit risks;
- within the authority set by the Management Board, decisions on the following issues:
- granting of Russian Rouble or foreign currency denominated products with inherent credit risk to the bank’s borrowers;
- purchasing or acceptance of external issuers’ promissory notes;
- setting limits for counterparty banks.
- taking decisions focused at strengthening and modernizing the methodological basis of the bank;
- taking decisions on developing and implementing new types of lending and services in order to expand capabilities and enhance the competitive advantages of the bank on the credit market;
- reviewing and approving new products and services;
- issues relating to writing off uncollectible loans and interest thereon against loan loss provision, overdue loans and debt equivalent to overdue loans, subject to approval by the relevant authorized body of the bank;
- identifying the level of authority of CIC subcommittees, internal divisions of the Head Office of the bank (hereafter — “HO”), managers and individual specialists in business units of the HO, and independent lending authorities of branches with subsequent approval by the Management Board;
- approving the total number of members and membership in the branch credit committees; and
- setting limits for the CIC subcommittees, structural business units of the HO, heads and individual specialists from HO business units on implementing credit programs with subsequent approval by the Management Board.
Credit risk management techniques (in addition to the system of authority and decision taking) also include:
- a centralized system for applying and adjusting interest rates and tariffs (approved quarterly by the Management Board in accordance with the Regulations on Major Principles of the bank’s Rouble and Currency Resource Management which establish underlying interest rates by loan types and borrowers’ categories);
- a system of credit risk limits. General limits aimed at reducing the concentration risk and the related parties risk applied to all loans (irrespective of the client sector to which the borrower belongs) are approved annually by the Management Board in accordance with the Credit Policy of the bank.
Bank sets annually the overall limits by the borrowers’ categories, industries, terms, currencies and regions. The credit risk limits within the authority to take decisions on loan issuance by authorized bodies and internal divisions responsible for providing the bank’s clients with its products exposed to credit risk are quarterly updated and approved by the bank’s Management Board taking into consideration the changes in the economic situation and the business practice of the credit institution.
The responsible units of the Head Office monitor the actual compliance with limits relating to accepted risk as a whole and by each branch.
Recent achievements in credit risk management:
- A division for work with collateral was formed. The new division was created with the aim of reducing credit risks through conducting centralised works on valuation and monitoring of property, accepted as collateral for granted loans.
- A department for large business lending was formed to enhance control and monitoring of credit risks associated with large borrowers. The “Regulation for work with overdue and nonperforming loans of borrowers — individuals (products of retail lending)” was developed and approved for the purpose of unification and centralisation of activities relating to collection of overdue debt and non-performing loans on all retail loans provided to individuals, including credit cards. This will significantly improve the efficiency of debt collection, while reducing the workload of branch employees, eliminating labour-intensive functions.
- “Road construction” and “Vehicle sales” were separated into different industry segments, with appropriate limits being imposed on both, in order to improve the level of diversification within existing industry segments.
- The project for integration of Microsoft Dynamics CRM for corporate business was launched. This will result in the ability to centralise a range of business operations, reducing employee work-load, while increasing the efficiency of attracting clients and the speed of processing of credit and other product applications.
- A plan for the phased transition of Vozrozhdenie Bank to the calculation of credit risk based on internal ratings was developed and its implementation started through the collection of the necessary data. This approach was recommended in the framework of Basel II and the letter of the Bank of Russia #192-T from December 29, 2012. The approach is based on using the information about the impact of a variety of financial and non-financial factors of economic activity on the creditworthiness of the counterparty.