CM-1.3.1

The limits framework must ensure that the granting of credit exceeding certain predetermined levels receives prompt management attention. An appropriate limit system must assist the management in initiating discussion about opportunities and risks, in controlling credit risk exposures and monitoring actual risk taking against predetermined credit risk tolerances.

CM-1.3.2

Conventional bank licensees must receive sufficient information to enable a comprehensive assessment of the true risk profile of the borrower or counterparty. Depending on the type of credit exposure and the nature of the credit relationship to date, the factors to be considered and documented in approving credits must include:

CM-1.3.3

Conventional bank licensees need to understand to whom they are granting credit. As such, prior to entering into any new credit relationship, the licensee must become familiar with the borrower or counterparty and be confident that they are dealing with an individual or organisation of sound repute and creditworthiness. In particular, strict policies must be in place to avoid association with individuals involved in fraudulent activities and other crimes.

CM-1.3.4

Conventional bank licensees must perform their due diligence at the solo entity level to which there is a credit exposure. In evaluating the repayment capacity of the solo entity, licensees can take into account the support of the group and also the potential for the solo entity to be adversely impacted by problems in the group.

CM-1.3.5

In considering potential credit, conventional bank licensees must recognise the necessity of establishing provisions for identified and expected losses and hold adequate capital to absorb unexpected losses. The licensee must factor these considerations into credit-granting decisions, as well as into the overall portfolio risk management process.

CM-1.3.6

Where actual or potential conflicts of interest exist within the conventional bank licensee, internal confidentiality arrangements (e.g. ‘Chinese walls’) must be established and maintained to ensure that there is no hindrance to the licensee in obtaining all relevant information from the borrower.

CM-1.3.7

In order to maintain a sound credit portfolio, conventional bank licensee must have an established formal transaction evaluation and approval process for the granting of credit. Approvals must be made in accordance with the licensee’s written guidelines and granted by the appropriate level of management. There must be a clear audit trail documenting that the approval process was complied with and identifying the individual(s) and/or committee(s) providing input, as well as making the credit decision. Conventional bank licensees must invest in appropriate credit decision making tools and resources so that they are able to make sound credit decisions consistent with their credit risk strategy and meet competitive time, pricing and structuring pressures.

CM-1.3.8

Each credit proposal must be subject to careful analysis by an experienced credit analyst with expertise commensurate with the size and complexity of the transaction. An effective evaluation process establishes minimum requirements for the information on which the analysis is to be based.

CM-1.3.9

Conventional bank licensees must have in place a Board approved policy regarding the information and documentation needed to approve new credits, renew existing credits and/or change the terms and conditions of previously approved credits. The information received will be the basis for any internal evaluation or rating assigned to the credit, and its accuracy and adequacy is critical to the management making appropriate judgments about the acceptability of the credit.

CM-1.3.10

Credit risk officers must have the experience, knowledge and background to exercise prudent judgment in assessing, approving and managing credit risks. The licensee’s credit-granting approval process must establish accountability for decisions taken and designate who has the final or ultimate authority to approve credits or changes in credit terms.

CM-1.3.11

All extensions of credit must be made on an arm’s-length basis. In particular, credits to connected counterparties must be authorised only under exceptional circumstances. Such credits must be monitored with particular care and other appropriate steps taken to control or mitigate the risks of non-arm’s length lending.

CM-1.3.12

Transactions with connected counterparties must be subject to the approval of the Board of Directors (excluding Board members with conflict of interest).

Credit Reference Requirements

Name-lending