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IACPM India
Regional Meeting
February 2, 2017
Credit Risk & Portfolio Management:
Evolving Frameworks
Som-lok Leung
Executive Director, IACPM
About the IACPM
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The IACPM’s Mission
Further the management of credit exposures by providing a forum for member institutions to exchange ideas
Foster research on credit portfolio management
Represent members before regulators and rulemaking bodies (e.g., IASB)
Develop and promote standard practices
98 Member Institutions
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ABN AMRO Bank NV
ABSA Capital
African Development Bank Group
African Export-Import Bank
AIG, Inc.
Allianz
Allied Irish Banks
Al Rajhi Bank
Assenagon Asset Management
Asian Development Bank
ATB Financial
Atradius
Australia & New Zealand Banking Group
AXA Investment Managers
BB&T
Banco Itau
Banco Santander
Bank of America
Bank of Montreal
Bank of the West
Bank of Tokyo-Mitsubishi UFJ
Barclays Capital
BBVA
BLADEX
BNP Paribas
Capital One
China Huarong
Chorus Capital
CIBC World Markets
Citigroup
Citizens Financial Group
Commonwealth Bank of Australia
Credit Agricole CIB
Credit Suisse
DBS Bank Ltd.
Danske Bank
Deutsche Bank
Development Bank of Japan
Elanus Capital Management
European Bank for Reconstruction &
Development
European Investment Fund
Export Development Canada
Export-Import Bank
Fifth Third
First Horizon
FirstRand Bank
Funding Asia Group
GE Capital
Goldman Sachs
Huntington National Bank
HSBC
Inter-American Development Bank
IKB Deutsche Industriebank
ING Group
International Finance Corporation,
Intesa Sanpaolo
JPMorgan Chase
Jyske Bank
KeyCorp
KfW Ipex
Lloyds Banking Group
M&T Bank
Mizuho Bank, Limited
Morgan Stanley
Munich Reinsurance
National Australia Bank
National Bank Financial
Nationwide Insurance
Natixis
Nomura International
Nordea
NordLB
OCBC Bank
Orchard Global Asset Management
PGGM Investments
PNC Financial Services
Prudential
Rabobank
Regions Bank
RBC Capital Markets
Royal Bank of Scotland
Société Générale
Standard Chartered Bank
State Street Bank
Sumitomo-Mitsui Banking Corp
Sumitomo Mitsui Trust & Banking
Sun Life Financial
SVB Financial Group
Swiss Re
TCF Financial
TD Bank
UBS
UniCredit Group S.p.A.
UniCredit Corporate & Investment Banking
United Overseas Bank
UK Export Finance
Westpac
XL Catlin
IACPM Members Around the Globe
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United States
29
Canada
8
Africa
4
South
America
1
Asia
12 Europe
38
Australia
4
Central
America
1
Middle East
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IACPM Board of Directors
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IACPM Officers/Executive Committee
Sean Kavanagh, Citigroup (Chair) Tim Hartzell, Barclays (Vice Chair)
Cam DesBrisay, RBC Capital Markets (Treasurer)
Sarah Cheriton-Jones, Lloyds (Secretary)
Directors
Thomas Alamalhoda, BNP Paribas Som-lok Leung, IACPM
Cheryl Boucher, Bank of America Anthony O’Flynn, Commonwealth Bank of Australia
Chris Camisa, Bank of Tokyo-Mitsubishi UFJ, Ltd. Juan Manuel Prado, BBVA
Anne-Christine Champion, Natixis Derek Saunders, HSBC
Davide Crippa, Standard Chartered Bank Mitchell Smith, JP Morgan Chase
Dell Futch, Regions Bank Seiya Ueno, Mizuho Bank, Limited
Brian Hurdal, Credit Suisse Jeffery J. Weaver, KeyCorp*
IACPM Advisory Council
Andreas Bohn, Managing Partner, SwanCap
Craig Broderick, CRO, Goldman Sachs
Jin-Chuan Duan, Professor of Finance, Natl. Univ. of Singapore
Betsy Gile, Board Member, KeyCorp
Mark Hughes, CRO, RBC Capital
Stuart Lewis, CRO, Deutsche Bank
Mark Midkiff, CRO, GE Capital
Elbert Pattijn, CRO, DBS
Francois Riahi, Global Co-head CIB, Natixis
Sid Sankaran, CFO, AIG
Sir Hector Sants, Vice Chairman, Oliver Wyman & former FSA
Bob Scanlon, former group CCO, Standard Chartered
Nick Silitch, CRO, Prudential Financial
Mark Smith, CRO Standard Chartered
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What We Do
IACPM Sponsored Meetings
- Conferences
- Regional/Interest Group Meetings & Roundtables
- Educational Seminars
Research projects & surveys
Advocacy
Committees and working groups
Development of market practice
Weekly news briefing via email
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Why Credit Portfolio Management?
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Credit risk is different
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There’s more than one business in credit
“Origination”
Specialization
Expertise
Relationships
Volume
“Portfolio”
Diversification across industry
Diversification across geography
Limited concentrations
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Getting Started with CPM
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Develop
business plan
for credit
portfolio
management
Recognition by senior
management of need for
change
(Originate & hold vs. CPM)
Improve measurement and
management of credit risk
(Use of models and market
data)
Educate the organization,
change culture
Agreement on mandates
and objectives for CPM
Core & Related
CPM Support
Functions
Back end
control levers
Front end
control levers
Control Levers
Front end control
Policy, limits
Deal/credit committee input
Pricing tools (RAROC, etc.)
Syndications
Back end control
Loan sales, distribution
Insurance products
Single name hedges
Securitizations (cash, synthetic)
Macro hedges (tranches, baskets, etc.)
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Credit Portfolio Management
The State of the Practice
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Firms Apply CPM to Different Asset Mixes
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Source: IACPM 2015 Principles & Practices in CPM Survey
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Firms Build Unique CPM Organizations
Source: IACPM 2015 Principles & Practices in CPM Survey
Not involved
Advisory role
Co- responsibility
Full and sole responsibility
Does not apply
Origination
Function
Transfer pricing of assets
from origination function to
portfolio function
Transaction origination and
vetting (e.g., pricing, hold
amount, approval)
Market
Tools
Portfolio CDS hedging
strategy and/or execution
CPM research (dedicated sector/name
research within CPM)
Portfolio secondary sales
Portfolio securitization
Investing via a "long book"
for diversification and/or to
fund hedging/sales
Portfolio
Reporting/
Modeling
Portfolio reporting and data
analysis
Quantitative modeling and
analytics (e.g., development,
validation, stress testing,
economic capital, risk/
return, PD, LGD)
Problem loan management
CPM Mandate Can Vary By Firm
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Source: IACPM 2015 Principles & Practices in CPM Survey
Selected CPM Mandates by Region
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Source: IACPM 2015 Principles & Practices in CPM
External Drivers of Current CPM Mandates
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Focus on B/S and
sustainability of
business model
Focus on execution
and implementation
of CPM model
Changed customer behavior 22%
Additional regulatory pressure 85%
Existing balance sheet
constraints 86%
Cost/margin pressure 59%
Increased market volatility 41%
Changed instrument set/
illiquidity in secondary markets 32%
SOURCE: IACPM/McKinsey survey 2015 on "The evolving role of Credit Portfolio Management within the enterprise"
CPM Control Levers
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Back End Control Levers Front End Control Levers
Credit insurance 37%
Financial guarantees 46%
Linkages with insurance
companies/asset managers 39%
32% Single-name CDS
37% Securitizations
17% Index tranches, baskets,
options
71% Loan sales/purchases
Pricing analytics 59%
Credit analysis 78%
Economic capital
measurement tools 68%
Transfer pricing 29%
Portfolio capital
allocation or planning 66%
Portfolio perspective in
deal decision of
institution 73%
Concentration limits 88% Regulatory capital
measurement tools 88%
SOURCE: IACPM/McKinsey survey 2015 on "The evolving role of Credit Portfolio Management within the enterprise"
CPM Continues to Increase in Importance
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Source: IACPM 2015 Principles & Practices in CPM
Resources
IACPM website: www.iacpm.org
- Principles & Practices in CPM 2015 (repeating soon)
- “The Evolving Role of Credit Portfolio Management
Within the Enterprise” – research with McKinsey
- Sound Practices in Credit Portfolio Management
IACPM Weekly Smartbrief: www.smartbrief.com/iacpm
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