ASIAN DEVELOPMENT BANK

ESTABLISHMENT OF AN
INDEPENDENT CREDIT RISK MANAGEMENT UNIT

July 2005
 ABBREVIATIONS

ADB – Asian Development Bank

AfDB – African Development Bank
CRMU – credit risk management unit
EBRD – European Bank for Reconstruction and Development
EIB – European Investment Bank
IADB – Inter-American Development Bank
MDB – multilateral development bank
PAU – project administration unit
PSOD – Private Sector Operations Department
RMU – risk management unit
TD – Treasury Department
TDFP – Financial Policy and Strategic Risk Management Division
 I. INTRODUCTION

1. The proposal to establish an independent credit risk management unit (CRMU) is in line
with the thrust to strengthen credit risk management within the Asian Development Bank (ADB)
and is consistent with best practices of good corporate governance.1

2. CRMU will be responsible for credit risk policy formulation and assessment, which
include the adequacy of equity capital associated with credit risk in ADB’s operations, namely (i)
lending, (ii) equity investments, and (iii) guarantee operations, as well as the calculation of loan
loss provisioning.2 CRMU will assign internal credit ratings to ADB’s borrowing member
countries and assess the credit risk for any/all individual projects, in both public and private
sectors. CRMU will also independently assess the credit risk of any/all individual transactions
and will work with the project teams to mitigate credit risks associated with any of ADB’s
lending, equity investments, and guarantee operations.

3. The separation of the credit risk assessment functions from the operational functions is
also a prerequisite to the introduction, on a pilot basis, of new financing instruments3 under the
innovation and efficiency initiative,4 and is consistent with the recommendation of the
Independent Assessment Panel on ADB’s Reorganization.5

II. BACKGROUND

4. The main financial risks facing ADB are of three types: (i) credit risk (the risk of defaults
or protracted arrears on outstanding loans); (ii) market risk (the risk of losses due to fluctuations
in financial market variables, including interest rate and exchange rate risks relating to ADB’s
investment, borrowing, and loan portfolios); and (iii) operational risk (risks other than market and
credit risks arising from the conduct of ADB’s business). Among these financial risks, credit risk
in ADB’s lending, equity investments, and guarantee operations is the biggest risk faced by
ADB. Market risk, including counterparty credit risk, and operational risk are less critical risks.
These risks are currently being managed and mitigated through existing controls and
procedures. Market risk and operational risk will be reviewed as part of the comprehensive
review of all financial risks (para. 31).

5. Under the existing policy, ADB is required to hold adequate capital to guard against
adverse low-probability credit shocks to its loan and guarantee portfolio for both public and
private sector projects. The Basel II Accord6 establishes best practice guidelines for capital
adequacy rules and requires that banks set aside adequate capital to ensure solvency against

1
The plan to establish an independent, comprehensive credit and financial risk management unit in ADB was
announced by the President during his speech to the Board of Governors at the ADB Annual Meeting held in
Istanbul in May 2005.
2
Credit risk and market risk associated with ADB’s liquidity investment and borrowing activities continue to be
managed by the Treasury Department.
3
These new financing instruments are (i) a multi-tranche financing facility, (ii) a subsovereign and nonsovereign
public sector financing facility; (iii) local currency lending; (iv) a refinancing facility, and (v) financing syndications
and risk-sharing agreements.
4
ADB. 2005. Pilot Financing Instruments and Modalities. Manila (W130-05 and Corrigendum 1).
5
ADB. 2004. Independent Assessment of the Effectiveness of the Reorganization of the Asian Development Bank:
Final Report. Manila.
6
Basel Committee on Banking Supervision. 2004. International Convergence of Capital Measurement and Capital
Standards: A Revised Framework. Switzerland: Bank for International Settlements Press and Communications.
2

unexpected losses due to credit, market, and operational risks. There is therefore a need for an
integrated and independent risk management function within a financial institution. For this
reason, CRMU will also be given the task of paving the way for the eventual establishment of an
independent and integrated risk management function within ADB.

6. Credit risk management in ADB’s operations is currently handled by two departments,

the Treasury Department and the Private Sector Operations Department.

A. Treasury Department

7. The Financial Policy and Strategic Risk Management Division of the Treasury
Department (TDFP) is currently responsible for: (i) formulating and maintaining financial policies
on the overall capital adequacy and overall credit risk exposure of ADB, (ii) carrying out periodic
internal credit rating assessments to assign ratings to ADB’s borrowing member countries,
(iii) assessing the quality of ADB’s public sector loan portfolio, (iv) calculating the loan loss
reserve requirement for public sector loans, and (v) assessing the adequacy of ADB’s overall
equity capital and net income for public and private sector loan and guarantee portfolios.7

8. On 19 February 2004, the Board of Directors approved a new income planning

framework that established the equity to loan ratio as the key measure of ADB’s risk-bearing
capacity, replacing the use of the reserve to loan ratio and interest coverage ratio. The
framework relies on a simple internal credit risk model to estimate expected and unexpected
losses and uses this as the basis for determining loan loss reserve and equity capital
requirements. Since January 2005, TDFP has been assessing the creditworthiness of individual
borrowing member countries and monitoring them regularly using a methodology adopted by
the World Bank.

9. TDFP’s overarching objective is to ensure that ADB would maintain its triple A rating
even if it were to experience a large credit shock from its loan and guarantee portfolio. Given
ADB’s limited equity capital resources and the need to maximize the developmental impact of its
activities, efficient use of equity capital is central to the credit risk management performed by
TDFP. It is important to reiterate that, even though TDFP does not determine individual pricing
of private sector transactions, TDFP is responsible for ensuring the adequacy of the overall
equity capital and net income of ADB.

B. Private Sector Operations Department

10. Credit risk management has long been a priority in ADB’s private sector operations,
because private sector projects have no Government guarantee or other form of sovereign
backing. A review of private sector operations in 19988 underscored the need for a risk
management unit (RMU) for ADB’s private sector operations. An RMU was established in early
1999 within what was then the Private Sector Group. Its main functions were to review the credit
quality of each private sector project proposal and to manage impaired assets.9

7
TDFP also handles two other financial policy and planning functions: asset liability management (income projection
and allocation, liquidity policy, borrowing program, etc.) and ADF financial management
8
ADB. 1998. Review of Private Sector Operations, 1995–1997. Manila (para. 101).
9
Recently, the management of some of the impaired assets performed by the RMU has also been assigned to
structured finance specialists within Private Sector Operations Department .
 3

11. RMU’s role was reaffirmed during another review of private sector operations in 2001,10
when the need for dedicated professional staff to manage the risks of the private sector
operations portfolio was acknowledged. The reorganization of ADB11 in 2002 upgraded the
Private Sector Group to the Private Sector Operations Department (PSOD) with two divisions,
headed by a full-time director general. This was done to enable PSOD to effectively fulfill the
new challenges presented by the changing environment, implement its operational strategy,
address the span of control issue, and enable PSOD to respond flexibly to client needs.
Following the reorganization, RMU was retained within PSOD and reported directly to the
director general, PSOD.

12. Loans and equity investments processed by PSOD are subject to a risk management
review at various stages of processing, including a review by the private sector credit
committee.12 Guarantees that are offered together with ADB’s private sector loans are also
subject to risk management review within PSOD. Project loans and equity investments that are
being implemented are reviewed once a quarter by either a private sector investment
management meeting (for projects rated satisfactory to strong) or a private sector portfolio
assessment committee meeting (for projects rated marginal to worse). Both meetings are
chaired by a representative from PSOD and attended by representatives of the Controller’s
Department, the Treasury Department, the Office of the General Counsel, the Central
Operations Services Office, and the Office of Cofinancing Operations.

III. RATIONALE

13. It has been established practice in commercial banks and other multilateral development
banks (MDBs) that the credit risk management function should be centralized and independent
from the business function. This is critical to ensuring the integrity and objectivity of the credit
risk assessment, pricing, and management process and is an important issue for ADB, where
risk management is currently decentralized. Most important is the need to ensure that the credit
risk undertaken by ADB is commensurate with its risk appetite and its capacity to manage such
risk. This requires regular monitoring of both the level of risk and equity capital to ensure that,
even if there were a major credit shock, ADB could sustain the loss incurred and continue to be
an efficient financial intermediary for development financing. Conflicts of interest may arise if
monitoring the level of risk undertaken by ADB is combined with the business function.

14. The current decentralized credit risk management structure has so far been adequate to
manage and mitigate the credit risks facing ADB. Although ADB does not differentiate the
individual borrowers in its public sector portfolio from a purely credit risk perspective, it regularly
measures and prices credit risk at the aggregate portfolio level. In the case of private sector
operations, which by nature call for credit risk management at both project and portfolio levels,
project processing follows a well-established due diligence process and the current credit risk
management function follows a relatively cautious and uniform provisioning policy.13 However,
all credit-related activities are conducted by PSOD and thereby lack independence. Since
private sector operations currently represent less than 5% of the total ADB loan and equity

10
ADB. 2001. Private Sector Operations Strategic Directions and Review. Manila.
11
ADB. 2001. Reorganization of the Asian Development Bank. Manila.
12
The private sector committee consists of the (i) President as chairman, ex-officio, (ii) Vice President, Operations
(Group 1 or Group 2, as applicable) as Vice-Chairman; (iii) Director General, RSDD, (iv) Director General, Regional
Department, (v) Director General, PSOD, and (vi) General Counsel.
13
The 8% general provisioning for PSOD loans is not based on credit risk methodologies where probability of default
and loss given default are defined.
4

investment portfolio, the credit risk exposure of private sector operations is relatively limited.
However, with the recent rapid expansion in private sector operations,14 the current credit risk
management structure and capacity will need to be strengthened to safeguard ADB’s assets
and protect its capital exposed to private sector risk.

15. An internal review of the implementation of the 2002 reorganization of ADB was
conducted in 2003, followed by a further review by an Independent Assessment Panel in 2004.
The final report of the Independent Assessment Panel concluded that the current location of the
RMU for private sector operations needs to be reconsidered because (i) PSOD is not an
autonomous entity, but a department within ADB; (ii) industry best practices suggest that risk
management must be independent of the risk-taking operations; and (iii) PSOD staff who have
developed expertise in risk management could be moved outside the department to provide the
independent risk management function. For these reasons, the Independent Assessment Panel
suggested that RMU be made separate from and independent of PSOD.

16. Several initiatives are now underway in ADB’s operations that will make credit risk
management even more important. In particular, the innovation and efficiency initiative’s
proposal to pilot new financing instruments and modalities (footnote 4) will require an improved
credit risk assessment as a condition precedent. Such new financing instruments and modalities
will expose ADB to additional credit risks that need to be closely managed and mitigated if
ADB’s current superior financial standing is to be maintained. A project-by-project risk
assessment will determine the risk profile of each transaction, including its lending spread. The
assessment will be commensurate with the borrower’s credit risk and the market in which it
operates. Lending under these modalities will therefore require a sound evaluation of the
sponsor, the project, and the commercial risks, in order to determine the appropriate financing
structure and risk mitigation measures. Once the project is approved, project credit exposure, in
particular nonrecourse or limited recourse lending and local currency financing, needs to be
regularly monitored and reflected in a loan loss reserve account. In such cases, there is a need
for an unbiased opinion on the degree of risk ADB is subjecting itself.

17. The creation of a credit risk management unit that is separate from operations is
therefore necessary. The separation of credit risk management functions from operational
functions is also consistent with the recommendation of the Independent Assessment Panel on
the reorganization (para. 15).

IV. CREDIT RISK MANAGEMENT AT OTHER MULTILATERAL DEVELOPMENT

BANKS

18. Credit risk management at other multilateral development banks (MDBs) is briefly
reviewed below.

19. At the World Bank, risk management is centralized under the Vice President for
Strategy, Finance and Risk Management, where asset liability management and credit risk
management reside. The World Bank’s finance and risk management reports to the Chief
Financial Officer. As part of finance and risk management, a country credit department
undertakes internal rating and exposure analysis.

14
Volume of approved private sector operations increased from $67.9 million for six projects in 2001 and $240.5
million for eight projects in 2002, to $807.2 million for 16 projects in 2004. As of 31 March 2005, total exposure to
PSOD projects amounted to $1.4 billion.
 5

20. Both the European Bank for Reconstruction and Development (EBRD) and the
European Investment Bank (EIB) centralized their risk management function in 2003 at the vice
president level, reporting to the President. At EIB, the Credit Risk Department analyses and
makes independent recommendations on pending loan transactions to a management
committee. There is also a credit risk committee that reviews loan credit risk. At EBRD, two
teams manage credit. One is in charge of transactional risk analysis and makes an independent
recommendation of proposed loan transactions to the operations committee. The other is
responsible for portfolio review by carrying out post-transaction monitoring and analysis of
banking transactions, from a portfolio perspective. This second team maintains an internal credit
rating system. Projects are reviewed and recommended to the Board by the operations
committee.

21. At the Inter-American Development Bank (IADB) and the African Development Bank
(AfDB), risk management is centralized at the department level, reporting to the vice president
finance equivalent. At AfDB, the Credit Risk Management Division handles country risk
assessment (including an internal country risk rating system), project risk rating, limit setting,
and compliance monitoring.

22. The credit risk management structures presented above reflect the banks’ belief that risk
management functions can be better performed when separated from operational functions.
Credit functions in these banks are well established and their respective credit units are involved
in the review of project proposals, ensuring that projects approved for further review meet the
established guidelines for country limits, sector limits and single obligor limits, among others.

V. SCOPE OF WORK AND FUNCTIONS OF CRMU

23. While regional and private sector operations departments will retain primary
responsibility for assuring the quality of and for managing the portfolios originating from their
operations, CRMU will develop appropriate credit risk assessment and management policies,
methodologies, and procedures. CRMU will also ensure through independent oversight that
credit risks are identified, evaluated, monitored, and reported within the established credit risk
management framework. The scope of work and functions of CRMU fall into four groups:15

(i) credit policy, methodology, and the information system,

(ii) credit risk assessment,
(iii) credit portfolio monitoring, and
(iv) review of problem accounts16 and the workout.

24. CRMU will combine the credit risk policy and assessment functions currently performed
separately for the public and private sector loan portfolios. It will independently assess the risk
profile (including sponsor risk, commercial risk, project structure risk, and sovereign risk) of a
transaction once the due diligence of the project proposal has been substantially completed.
CRMU will be granted full access to information used by project teams during due diligence,
including proposed term sheets, financial analysis results, and other information available
before the credit committee meeting. CRMU will make recommendations to the project team on

15
The new CRMU is expected to perform the expanded functions of the RMU at PSOD and the credit risks functions
currently carried out at the Treasury Department. Treasury counterparty credit risk management is not included.
16
Problem accounts are accounts that have been classified with a risk rating of substandard, doubtful, or loss.
6

risk mitigation measures, including suggestions on specific loan covenants, a security and/or
collateral package, and suitable financing structures to ensure that ADB and its cofinancing
partners are protected. CRMU will make independent recommendations to the credit committee
and/or Management. This will be documented through a sign-off.17 The head of CRMU or
his/her designate will be a member of the credit committee, guarantee committee, and interest
rate committee. As part of its functions, CRMU will also regularly monitor the existing credit
portfolio (for both public and private sector projects) and assign a credit risk rating that reflects
the credit quality of the portfolio and the ability and willingness of borrowers to service their debt
obligations. As specialists within PSOD and regional departments are involved in project
implementation, the day-to-day administration and management of individual accounts will
remain with the project administration units (PAUs) within regional departments and PSOD. The
management of problem accounts (including problem loans, impaired investments, and
guarantee claims) will continue to be handled by the operations departments, although CRMU
will review and recommend appropriate corrective actions on the workout of these problem
accounts. It is important to emphasize that the key role of CRMU is to provide an independent
view on the acceptability of a proposed risk exposure and to assist the project teams in
mitigating risks to ensure that ADB’s interests are protected. CRMU will provide advice to help
address critical credit and risk concerns relating to countries, sectors, and/or specific projects.

25. More detailed terms of reference and functions of CRMU are provided in Appendix 1. It
is important to note, however, that these are preliminary and are not exhaustive. Once the
CRMU is established and the head is in place, he or she will further review the terms of
reference and the current credit process, taking into account the governance structure, internal
control system, and efficiency, and recommend changes to Management, as appropriate.

VI. STRUCTURE, STAFFING AND RESOURCE REQUIREMENT

26. The organizational structure of CRMU takes into account the need for independence.
Several options were considered with regard to the location of the new unit. CRMU needs to be
located outside the Operations 1, Operations 2, and Knowledge Management and Sustainable
Development groups where Office of Cofinancing Operations (involving guarantee operations)
resides.18 Since the Treasury Department already reports to Vice President Finance and
Administration and is a profit center, if CRMU were to handle risk management and report to the
same vice president this might be considered a conflict of interest. Therefore, to be consistent
with good governance and for the unit to be fully independent, it is proposed that CRMU, which
will be led by a unit head, should report directly to the President. As noted above, the practice
at other MDBs varies from risk management being centralized at vice president equivalent level,
reporting to the President (EIB, EBRD), to department level reporting to the vice president or
equivalent (World Bank, IADB, and AfDB). Both EIB and EBRD created a new vice president
level position for risk management in 2003.

27. The initial staff of CRMU will consist of five professional staff, including the unit head
(level 9), and four professional staff (three positions at levels 5 or 6). While the overall
requirement for national officer and administrative staff to support the new unit will need to be
further assessed, CRMU will initially be provided with three national officers, two analysts, and

17
In cases where CRMU does not endorse a project, the concerned operations department will need to seek the
President’s approval should it decide to hold a Credit Committee meeting.
18
The Office of Cofinancing Operations (involving guarantee operations) resides in Knowledge Management and
Sustainable Development.
 7

two administrative staff. Given the importance of this new unit to the overall lending and
guarantee operations of ADB, as well as the need for the vision and strategy necessary to move
ADB to an integrated risk management platform, the unit head requires highly specialized skills
and experience. Therefore, the unit head will be recruited externally through a careful selection
process. Three professional staff, comprised of (i) two professional staff positions under the
RMU of PSOD, and (ii) one professional staff under TDFP, will be directly transferred to the new
unit. Two new positions will be created, including the head.19

28. It should be noted that the initial staffing levels are considered the minimum required
during the pilot implementation stage of the new financing modalities and to oversee the credit
risks associated with ADB’s existing lending and guarantee operations. Given that (i) the CRMU
staff will have to establish new polices, methodologies, and procedures for nonrecourse and
limited recourse transactions while performing their normal duties; and (ii) the pilot
implementation of new financing instruments under the innovation and efficiency initiative may
generate new projects requiring credit assessment, it is very likely that additional professional
staff and national officers will be needed in the future based on any revision to the scope and its
implications on the workload. Additional staffing need will be addressed by the head of CRMU
once the unit is established.

29. Given the above structure, the creation of CRMU will mainly involve: (i) transferring the
risk management unit and its functions from PSOD to CRMU; (ii) transferring the credit risk
assessment and management functions, but not the counterparty risk assessment and
management function, from TDFP to CRMU; and (iii) transferring concerned professional and
national officer positions currently in PSOD and TD to CRMU. Depending on the timing of the
selection of the head of CRMU, an officer-in-charge will be appointed by the President to ensure
a smooth transition and coordination of initial work among PSOD, regional departments, the
Treasury Department, and CRMU. New and enhanced business processes for credit risk
management will be developed, based on current policies, procedures, and operations and risk
management manuals.

30. The resource requirements for CRMU will be reviewed and linked with its work program.
Details of the creation of CRMU will be worked out by the Budget, Personnel, and Management
Systems Department in consultation with PSOD, the Strategy and Policy Department and the
Treasury Department under the guidance of Management. CRMU’s proposed organization
structure is provided in Appendix 2.

VII. EFFECTIVITY AND FURTHER STEPS

31. Given that credit risks are the most prominent risks for ADB’s operations, a credit risk
management unit as a first step is a feasible interim solution. The new CRMU will be
established on 1 August 2005. Once the unit has been established and a head appointed, the
Strategy and Policy Department and the new CRMU will accelerate the efforts to undertake a
comprehensive review of all financial risks, including credit, market and operational risks, in
ADB operations. The review will also take into account market practice and practice at other
MDBs and will recommend options for an integrated risk management facility in ADB.

19
These two positions will be provided to CRMU through ADB-wide redeployment.
8 Appendix 1

CREDIT RISK MANAGEMENT UNIT

PROVISIONAL TERMS OF REFERENCE

1. The principal responsibilities of the Credit Risk Management Unit (CRMU) are listed
below.

A. Credit Policy, Methodology, and Information System

2. The principal responsibilities of the CRMU under the credit policy, methodology, and
information system are as follows:

(i) establish policies, methodologies, guidelines and procedures for determining:

(a) risk ratings for recourse, nonrecourse, and limited recourse financing,
(b) risk classifications for equity investments,
(c) pricing of such financing,
(d) capital adequacy levels, and
(e) the loan loss provisioning requirement.

(ii) set portfolio objectives and risk tolerance limits;

(iii) recommend credit risk pricing consistent with the level of the risk undertaken,
capital allocation, and loan loss reserve requirement;

(iv) assess equity capital adequacy for credit risk of recourse, nonrecourse, and
limited recourse financing;

(v) work closely with the asset and liability management unit of Treasury Department
Financial Policy and Strategic Risk Management Division (TDFP) to determine
ADB’s capital adequacy for all risks (credit, market, counterparty credit and
operational), and to assess adequacy of net income and loan charges;

(vi) ensure compliance of policies on eligibility criteria and limit of exposures;

(vii) assess borrowers’ credit risk ratings (public and private sectors) and credit risk
profiles of borrowers that are not rated;

(viii) subject portfolio to stress tests;

(ix) keep abreast of and analyze critical developments in developing member

countries and major sectors that could affect operations of approved projects as
well as prospects of project proposals;

(x) establish information systems to perform the above tasks;

(xi) review the existing credit approval and review process, taking into account the
governance structure, the internal control system, and efficiency, and
recommend changes to Management as appropriate; and

(xii) liaise with other financial institutions to obtain best practices on credit
management policies and guidelines.
 Appendix 1 9

B. Credit Risk Assessment

3. The principal responsibilities of the CRMU under credit risk assessment are as follows:

(i) assess the quality and completeness of all relevant data and information needed
to analyze a new credit proposal;

(ii) identify, assess, and quantify key transaction risks, covering, inter alia, sponsor,
commercial and project structure risks inherent in a given transaction. This task
includes ensuring that the quality of the assumptions are tested against due
diligence carried out by the ADB project teams and qualified independent experts
engaged by ADB on technical, commercial, legal, regulatory, financial,
institutional, governance, managerial, safeguards, fiduciary and capacity
considerations;

(iii) provide project teams and Management with an outline of key risk profiles and
recommend appropriate risk mitigation measures;

(iv) provide input to the project teams on the terms and conditions of loan, equity
investment, and guarantee proposals, including pricing, security packages and
specific loan covenants;

(v) evaluate the valuation methodologies and the exit strategy for equity investment
proposals;

(vi) in the case of state-owned enterprise financing, assess the value of the entity in
question, the quality of the investment program or stand-alone project proposed,
the existing debt structure, the strength of the income stream, the suitability of
the tariff regime and the formulas for changing it, and the specific security
package to safeguard the interests of ADB;

(vii) in the case of local government finance, assess the quality of the financial data
and the strength of income streams, and assess the quality of the security
package in conjunction with legal counsel. The assessment will also focus on the
quality of a reform package, the central government clearance or no-objection1
and on the negative pledge;

(viii) coordinate with the credit policy, methodologies, and information system function
to determine suitable provisioning requirements;

(ix) ensure compliance with portfolio management objectives with respect to

exposure limits, diversification and/or concentration; and

(x) provide a credit opinion to Management and sign-off as a prerequisite to credit

committee meetings.2

1
The need for clearance or no-objection from the central government depends on the legal requirements in the
developing member country.
2
The head of CRMU or his/her designate will participate as one of the members of the Credit Committee, Guarantee
Committee and Interest Rate Committee.
10 Appendix 1

C. Credit Portfolio Monitoring

4. Under credit portfolio monitoring, the CRMU will:

(i) establish a system for ongoing monitoring of aspects of sectors or industries that
may have an impact on credit of various portfolios;

(ii) monitor borrowers’ financial health in particular with respect to their ability and
willingness to service debt obligations through market intelligence and reviews of
project administration unit’s monitoring reports3;

(iii) establish a system to assess borrowers’ credit ratings and perform assessments
and updates on a regular basis, prepare quarterly update reports for
Management;

(iv) alert Management of imminent default or nonperforming of debt service

obligations by borrowers;

(v) assess regularly the fair value of collaterals posted by borrowers;

(vi) measure the credit risk inherent in all on- and off-balance sheet items including
identification of concentration of risk;

(vii) ensure adequacy of loan loss provisioning (together with the credit policy and
methodology functions); and

(viii) calculate return on risk-adjusted basis.

D. Review of Problem Accounts and the Workout

5. In reviewing and responding to problem accounts (problem loans, impaired investments,

and guarantee claims), the CRMU will:

(i) establish an early warning system to identify any deteriorating credit exposures,
the rating should be used as a trigger to classify an account as a problem
account;

(ii) determine causes and symptoms of problem accounts; and

(iii) review work-out action plans and processes.

3
CRMU will be represented at PSOD’s Private Sector Investment Management meetings and Private Sector
Portfolio Assessment Committee meetings held on a quarterly basis.
 PROPOSED ORGANIZATION CHART AND REPORTING LINE OF
THE CREDIT RISK MANAGEMENT UNIT (CRMU)

President

Head
CRMU

Executive Assistant

Credit Policy, Methodology Credit Risk Assessment Credit Portfolio Monitoring

and Information System 2 Risk Management Specialists and Review of Problem
1 Risk Management Specialist (Risk Evaluation) Accounts and Workout
(Credit Policy) 1 Credit Officer 1 Risk Management Specialist
1 Credit Officer 2 Credit Analysts (Portfolio Monitoring)
1 Credit Officer

Appendix 2
11
1 Administrative Assistant