Bank Credit Risk Management
Table of contents
List of figures ii
Executive Summary iii
1 Introduction 1 1.1 Purpose 1 1.2 Scope 1 1.3 Methodology 1 1.4 Limitations 1
2 Theory of bank credit risk management 2 2.1 Components of credit risk 2 2.1.1 Definition 2 2.1.2 Types of credit risk 2 2.2 Credit risk analysis and measurements 3 2.2.1 Expert systems 3 2.2.2 Risk Premium analysis 4 2.2.3 Multidiscriminant model 4 2.2.4 Hybrid system 5 2.3 Credit risk management 8 2.3.1 Limits Systems 8 2.3.2 Risk Quality and Ratings. 9 2.3.3 Credit Enhancement 10
3 Credit risk management adopted by ANZ bank 10 3.1 Industry concentration of credit risk 10 3.2 Impaired asset 15 3.3 Write-offs 19 3.4 Credit recovery 21 3.5 Securitization 24
4 Conclusion and Recommendations 27
Appendix 1 28
References: 30
List of figures
Figure 1: Credit risk concentration by industry on average (2002-2006) 13
Figure 2: Major industry concentration (2002-2006) 14
Figure 3: Total impaired assets (on and off balance sheet) 16
Figure 4: ANZ 's impaired assets and provisions (2002-2006) 16
Figure 5: Banks: Impaired assets 17
Figure 6: ANZ 's provision (2002-2006) 18
Figure 7: Total specific provision as percentage of total impaired assets 18
Figure 8: ANZ 's total write-offs (2002-2006) 19
Figure 9: Write-offs by real estate-mortgage sector and real estate-construction sector as the percentage of total write-offs by industries. 20
Figure 10: ANZ’s total recoveries 2002-2006 22
Figure 11: ANZ relative values of recoveries 2002-2006 22
Figure 12: Special Purpose Entities’ assets 2002-2006 26
Executive Summary
The report aims at providing theoretical underpinnings relating to Bank’s credit risk management and examining the role of credit risk management in ANZ bank’s operation, critically analyze the measures having been taken by the bank to manage risk, using five-year
List of figures ii
Executive Summary iii
1 Introduction 1 1.1 Purpose 1 1.2 Scope 1 1.3 Methodology 1 1.4 Limitations 1
2 Theory of bank credit risk management 2 2.1 Components of credit risk 2 2.1.1 Definition 2 2.1.2 Types of credit risk 2 2.2 Credit risk analysis and measurements 3 2.2.1 Expert systems 3 2.2.2 Risk Premium analysis 4 2.2.3 Multidiscriminant model 4 2.2.4 Hybrid system 5 2.3 Credit risk management 8 2.3.1 Limits Systems 8 2.3.2 Risk Quality and Ratings. 9 2.3.3 Credit Enhancement 10
3 Credit risk management adopted by ANZ bank 10 3.1 Industry concentration of credit risk 10 3.2 Impaired asset 15 3.3 Write-offs 19 3.4 Credit recovery 21 3.5 Securitization 24
4 Conclusion and Recommendations 27
Appendix 1 28
References: 30
List of figures
Figure 1: Credit risk concentration by industry on average (2002-2006) 13
Figure 2: Major industry concentration (2002-2006) 14
Figure 3: Total impaired assets (on and off balance sheet) 16
Figure 4: ANZ 's impaired assets and provisions (2002-2006) 16
Figure 5: Banks: Impaired assets 17
Figure 6: ANZ 's provision (2002-2006) 18
Figure 7: Total specific provision as percentage of total impaired assets 18
Figure 8: ANZ 's total write-offs (2002-2006) 19
Figure 9: Write-offs by real estate-mortgage sector and real estate-construction sector as the percentage of total write-offs by industries. 20
Figure 10: ANZ’s total recoveries 2002-2006 22
Figure 11: ANZ relative values of recoveries 2002-2006 22
Figure 12: Special Purpose Entities’ assets 2002-2006 26
Executive Summary
The report aims at providing theoretical underpinnings relating to Bank’s credit risk management and examining the role of credit risk management in ANZ bank’s operation, critically analyze the measures having been taken by the bank to manage risk, using five-year
References: ANZ Banking Group, Annual Report from 2002 to 2006, available from Monash Australian Prudential Regulation Authority, 2007, APRA Insight: Issue 1, viewed 26 Sep Bessis, J. 2002. Risk Management in Banking, John Wiley & Sons Ltd., England. Caouette, J.B., Altman, E.J. & Narayanan, P., 1998, Managing credit risk: The next great financial challenge, John Wiley and Son, USA. Evanoff, D.D. & Kaufman, G.G., 2005, Systemic financial crises: Resolving large bank insolvencies, World Scientific, USA. Fry, K., 1997, “Credit assessment in retail banking – a portfolio management perspective” in Credit risk in banking, eds. Gray, B. & Cassidy, C., Bank Supervision Department, Reserve Bank of Australia. Gallati, R.R., 2003, Risk management and capital adequacy, McGraw-Hill Professional, USA. Lucia, R. D. D. & Peters, J., 1998. Commercial Bank Management, Thomson Professional Information Asia Pacific Ltd., Australia. Maginn, J. L., Tuttle, D.L., Mcleavey D.W., & Pinto J.E., 2007, Managing investment portfolios: a dynamic process, 3edn., John Wiley and Sons, USA. Penza, P., Bansal, V. K., 2001. Measuring Market Risk With Value At Risk, Jonh Wiley & Sons, Inc., Canada. Sathye, M., Bartle, J., Vincent, M. & Boffey, R. 2003. Credit Analysis & Lending Management, John Wiley & Sons Australia Ltd., Australia. Weaver, P.M. & Kingsley, C.D., 2001, Banking and lending practice, 4edn., Thomson Learning, NSW, Australia.[pic] -----------------------