CM-1.1 CM-1.1 Overview
CM-1.1.1
Credit risk is the likelihood that acounterparty of thelicensee will not meet its obligations in accordance with the agreed terms. The magnitude of thecredit risk depends on the likelihood ofdefault by thecounterparty , and on the potential value of thelicensee 's contracts with thecustomer at the time ofdefault .Credit risk largely arises in assets shown on the balance sheet, but it can also show-up off the balance sheet in a variety of contingent obligations.Added: June 2022CM-1.1.2
The effective management of
credit risk is a critical component of a comprehensive approach to risk management and is essential to the long-term success of any banking organisation.Added: June 2022CM-1.1.3
The lack of continuous loan supervision and effective internal controls, or the failure to identify abuse and fraud are also sources of risk. The overall lending policy of the
licensee should be monitored by a Credit Committee, composed of officers with adequate seniority and experience.Added: June 2022CM-1.1.4
Although specific
credit risk management practices may differ among banks depending upon the nature and complexity of their credit activities, a comprehensivecredit risk management program shall specifically address the following areas (i) establishing an appropriatecredit risk environment; (ii) operating under a sound credit granting process; (iii) maintaining an appropriate credit administration, measurement and monitoring process; and (iv) ensuring adequate controls overcredit risk . These practices should also be applied in conjunction with sound practices related to the assessment of asset quality, the adequacy of provisions and reserves, and the disclosure ofcredit risk .Added: June 2022
