My first Publication ocbc_ar17_fullreport_english | Page 89

are conducted to assess the potential
impact of emerging risk on our credit
exposures, including interactions among
credit, market and liquidity events where
appropriate. The results of the stress
tests and portfolio reviews are factored
as necessary into the adjustment and
refinement of risk-taking strategies
and credit limits to remain within our
risk appetite.
CREDIT RISK MANAGEMENT APPROACH
Our credit risk management framework
encapsulates the complete cycle of
credit risk management. It covers the
identification, assessment, measurement,
monitoring as well as the control and
mitigation of credit risks. It also articulates
the importance of proactive credit
risk management.
We seek to undertake credit risks that
meet our target market and risk acceptance
criteria, lending parameters and risk-return
expectations for sustainable performance.
As Fair Dealing underpins our commitment
to building long-term relationships with
our customers, complex products are sold
to them only after clearing suitability and
appropriateness assessments. In addition
to effective risk management practices,
the sound judgement of our experienced
credit officers is also key to our successful
risk management.
We have a responsible financing
framework that sets out our overall
approach towards the management of
ESG risks in our lending activities. This
framework aims to fully integrate ESG
considerations into our credit and risk
evaluation process in a more structured
and systematic manner. It is supported
by our responsible financing policy and
relevant sectorial policies that outline
the criteria and guidelines for the ESG
assessment of clients and transactions.
Transactions with high ESG or reputational
risk are escalated to the Reputational Risk
Review Group for clearance. Periodic ESG-
related reporting is made to the BRMC and
CEO on the progress of our responsible
financing implementation. Please refer to
our Sustainability Report in the Annual
Report for more information on our
progress on responsible financing.
Lending to Consumers and
Small Businesses
Credit risks for consumers and small
businesses are managed on a portfolio
basis under credit programmes such as
mortgages, credit cards, unsecured loans,
auto loans, commercial property loans
and business term loans. Credit extended
under these programmes should fall
within the portfolio and transaction
limits, defined target markets, stipulated
lending criteria and acceptable collateral
as well as advance ratios. Systems and
processes such as source identification
of credit origination and independent
verification of documentation are used
to detect fraud. The performance of
the portfolios is closely monitored on
a monthly basis using management
information system (“MIS”) analytics.
Application models are also used in the
credit decision process for most products
to enable objective, consistent and fast
decisions. Behavioural models are used
for early identification of potential
problem loans.
Lending to Corporate and
Institutional Customers
Credit extended to corporate and
institutional customers is individually
assessed, risk-rated and approved by
experienced credit officers. The officers
identify and assess the credit risks of
these customers, including customer
group’s interdependencies, management
quality, ESG practices as well as business,
financial and competitive profiles against
industry and economic threats. Collaterals
and other credit support are also used to
mitigate credit risks. Credit extensions
are guided by pre-defined target market
and risk acceptance criteria. To ensure
objectivity in credit extensions, co-grantor
approvals and shared risk ownership are
required from both business and credit
risk units.
Lending to Private Banking Customers
Credit extended to our wealth
management clients with the Bank of
Singapore is subject to comprehensive
credit assessments, the availability of
acceptable collateral and compliance
with loan advance ratios and margin
requirements. Joint approvals from both
business and credit risk units ensure
objectivity in the credit extensions.
Advance ratios are dependent on the
liquidity, volatility and diversification
of the collateralised portfolio under
stressed conditions. Credit exposures
that are secured by marketable securities
are subject to daily valuation and
independent price verification controls.
Credit Risk from Investment and
Trading Activities
Counterparty credit risks arising from our
trading, derivatives and debt securities
activities are actively managed to protect
against potential losses in replacing a
contract if a counterparty fails to meet
its obligations. Where possible, trading
in OTC derivatives is cleared through
Central Clearing Counterparties (“CCP”).
In most cases, bilateral transactions will
be governed under International Swaps
and Derivatives Association (“ISDA”)
agreements as well as Credit Support
Annexes (“CSAs”) or an equivalent
to allow for close-out netting if the
counterparty defaults. Credit limits are
established for each counterparty based
on our assessment of the counterparty’s
creditworthiness, the suitability and
appropriateness of the product offered
and alignment with approved trading
mandates and investment strategies.
Credit exposures are independently
managed through daily limit monitoring,
excess escalation and approval, and
timely risk reporting. We also have an
established policy and process to manage
wrong-way risk which can occur when
the credit exposure to a counterparty
is adversely correlated with the credit
quality of the counterparty.
Credit Risk from Securitisation
We have limited exposure to asset-
backed securities and collateralised
debt obligations and are not active in
securitisation activities.
INTERNAL CREDIT RATING MODELS
Internal credit rating models are
an integral part of our credit risk
management, credit decision-making
process and capital assessment. These
internal rating models and the parameters
– probability of default (“PD”), loss given
default (“LGD”) and exposure at default
(“EAD”) – are factors used in limit setting,
credit approval, portfolio monitoring and
reporting, remedial management, stress
BUILDING ON OUR CORPORATE STRATEGY FOR SUSTAINABLE GROWTH
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