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BIS Regulatory Compliance Functionality

Compliance with the Bank for International Settlements (BIS) II guidelines is mandatory, when adopted by a country's regulatory authorities. CPMS technology helps you to not only meet but enforce these requirements. Superficially meeting these rules could mean winning the battle but losing the war if loan losses and NPLs continue to occur because these rules are not actually being enforced.

Basel II requires a lot of information to be kept, tracked, and managed and CPMS is by far the most comprehensive and powerful solution to meeting these requirements. Simply click on the BIS II topic below for information on how CPMS handles them:

 

       
       
       
       
       
       
       
       
       
       
 

Implement Risk Rating - Financial institutions can develop and utilize internal risk rating systems in CPMS for managing credit risk. They can also implement standard risk rating systems available in the marketplace. Back to Top

Credit Risk Strategy and Policy - The board of directors can approve and periodically review the credit risk strategy and significant credit risk policies of the financial institution. PIA programs these strategies and risk policies into your software to ensure that they are followed. Back to Top

Strategy and Policy Implementation - Senior management can have CPMS implement its approved credit risk strategy and implement policies and procedures identifying, measuring, monitoring and controlling credit risk. CPMS can enforce Senior Management approved credit risk strategy and implement policies and procedures that identify, measure, monitor, and control credit risk. You have your own expert rules to manage by. Back to Top

Credit Risk Identification - CPMS enables a financial institution to identify and manage the credit risks inherent in all risk products and activities. CPMS has powerful monitoring and reporting functionality that can automatically and continually screen for user and bank determined risk factors and report them as soon as they are found. Back to Top

Credit Granting Criteria - CPMS allows financial institutions to operate under sound, well-defined credit-granting criteria, including product and business segment determined filters using unique Risk Asset Filters. Credit authorities and workflows are under the complete control of the financial institution and may be changed at any time in order to meet evolving needs. These may be as simple or complex as required and can be changed by the financial institution itself. Credit scoring, credit committees or a combination of both may be used. Back to Top

Establish and Monitor Overall Credit Limits - With CPMS , financial institutions can establish overall credit limits at the level of individual borrowers and counterparties, groups of connected counterparties, by business segment, by product, by industry or portfolio level that aggregate in a comparable and meaningful manner, different types of exposures. Back to Top

Maintains a Clear Process - CPMS will implement and enforce a clearly established process for approving and managing credits. This may be based on individuals, titles, location, specialty or other factors.

CPMS enforces all of the financial institution's credit lending rules and operational procedures with strict follow-up and on an integrated step-by-step workflow. Furthermore, CPMS validation feature alerts the user to any rule violations or possible policy violations and can prevent credit applications from proceeding to approval for certain rule violations if desired. Back to Top

Enforce “Arm's-length” lending - CPMS can ensure that all extensions of credit are made on an arm's-length basis. Credits to related companies and individuals can be monitored automatically with particular care to ensure that other appropriate steps are taken to control or mitigate the risks of connected lending. Back to Top

Administer your Credit Portfolio - CPMS has a subsystem for the ongoing post-approval administration of your credit risk-bearing portfolios . This ensures that preventable NPLs and losses are, in fact, prevented. Preventable losses have been known to account for as much as 50 to 80% of NPLs and losses in financial institutions every year—a very high cost indeed. Back to Top

Monitor Individual Credits - CPMS has a subsystem for monitoring the condition of individual credits, including determining the adequacy of provisions and reserves. CPMS has features for both scheduled and ad hoc monitoring of all customer loans. Scheduled monitors can be run daily or even continuously. Ad hoc monitors allow authorized users to “ask” the system detailed questions Back to Top

Measure Credit Risk - CPMS has subsystems and analytical techniques that enable management to measure the credit risk inherent in all on- and off-balance sheet activities, portfolio composition and concentrations of risk. Back to Top

Monitor Portfolio Composition and Quality - CPMS can monitor the overall composition and quality of the credit portfolio and manage them within predetermined limits. Back to Top

Stress Testing - Using CPMS , financial institutions can assess their credit risk exposures under stressed conditions, such as collateral value changes. Back to Top

Conduct Credit Review - CPMS can allow reviewers to conduct independent, confidential, ongoing credit reviews and with the results of such reviews communicated directly to the board of directors or senior management. Back to Top

Establish and Maintain Standards and Limits - CPMS ensures that the credit-granting function is being properly managed and that credit exposures are within levels consistent with prudential standards and internal limits. CPMS enforces internal controls and other practices to ensure that exceptions to policies, procedures and limits are reported in a timely manner to the appropriate level of management. Back to Top

Supervisory Management - With CPMS , supervisors can identify, measure, monitor and control credit risk and exposure as part of an overall approach to risk management. They can conduct an independent evaluation of a financial institution's strategies, policies, practices and procedures related to the granting of credit and the ongoing management of a portfolio at any organizational, industry or product level. Back to Top

Review your Credit Risk Policies - CPMS allows a financial institution to approve and periodically review its credit risk policies by the board of directors for effectiveness and then implement them. Back to Top

Target Market Identification and Control - CPMS can enforce target markets and the overall characteristics that the financial institution wants to achieve in its credit portfolio (including levels of diversification and concentration tolerances). This also includes the ability to enforce blacklists and caution lists. Back to Top

Measure and Maintain Risk/Reward Factors - A financial institution can determine the acceptable risk/reward trade-off for its activities, factor in the cost of capital and enforce them with CPMS . Back to Top

Consistency and Continuity - The credit risk strategy of any financial institution should provide continuity and consistency in approach across the entire institution. CPMS enforces this as a financial institution determined expert rules system. This allows the financial institution to exactly fit its rules and strategies to its unique markets. Back to Top

Communicate Strategy and Policy - CPMS effectively communicates and trains staff in the credit risk strategy and policies throughout the financial institution organization through on-line help and feedback messages and validation. All relevant personnel can be held accountable for complying with established policies and procedures. Back to Top

Board Lending - CPMS ensures that once a potential credit to a board member or a related business is introduced, the financial institution's established processes will determine how much and at what terms the credit is granted. Back to Top

Management Control - CPMS ensures that the financial institution's credit-granting activities conform to its established strategy, that written procedures are implemented, and that loan approval and review responsibilities are clearly and properly assigned, implemented and controlled. Back to Top

Implement Approval Authorities - With CPMS you can implement credit policies that can address target markets, portfolio mix, price and non-price terms, the structure of limits, approval authorities, exception reporting, etc. and ensure that staff follow the financial institution's approval authorities, mechanisms and routing. Back to Top

Portfolio Management - CPMS allows financial institutions to establish targets for portfolio mix as well as set exposure limits on single counterparties and groups of connected counterparties, particular industries or economic sectors, geographic regions and specific products. CPMS ensures that a financial institution's own internal exposure limits comply with any prudential (house) limits or restrictions set by the financial institution supervisors (legal lending limits). Back to Top

Manage Each Business Unit - CPMS manages a financial institution's business on a consolidated basis as well as at the level of individual affiliates. In fact, CPMS manages right down to the individual credit facilities, collateral and documents of each client. Back to Top

Manage Country Risk - CPMS monitors country risk factors, such as by currency, by country, etc. Back to Top

New Business Control - CPMS can help a financial institution to ensure that the risks of products and activities new to them are subject to adequate procedures, approvals and controls before being introduced and approved in advance by the board of directors or an appropriate committee. Back to Top

Maintain Review Requirements - CPMS subsystems manage the timing, review cycles and completion of mandatory reviews, as well as other action plan items. Back to Top

Manage Problem Credits - CPMS has a subsystem to manage problem credits and various other watch list and workout situations. If desired, these can be automatically transferred to workout units and have their review cycles automatically changed by CPMS to minimize error. Back to Top

Performance Measurement/Accountability - It is critical that senior management determine that the staff involved in any activity where there is borrower or counterparty credit risk, be fully capable of conducting the activity to its highest standards and in compliance with the financial institution's policies and procedures. CPMS has compliance enforcement capabilities to ensure that this is measured and managed, and can inform management of any violations. Back to Top

Mandatory Data Collection - CPMS ensures that mandatory BIS factors are considered and documented in approving credits:

    • the purpose of the credit and source of repayment;
    • the integrity and reputation of the borrower or counterparty;
    • the current risk profile (including the nature and aggregate amounts of risks) of the borrower or counterparty and its sensitivity to economic and market developments;
    • the borrower's repayment history and current capacity to repay, based on historical financial trends and cash flow projections;
    • a forward-looking analysis of the capacity to repay based on various scenarios;
    • the legal capacity of the borrower or counterparty to assume the liability;
    • for commercial credits, the borrower's business expertise and the status of the borrower's economic sector and its position within that sector;
    • the proposed terms and conditions of the credit, including covenants designed to limit changes in the future risk profile of the borrower; and
    • where applicable, the adequacy and enforceability of collateral or guarantees, including under various scenarios. Once credit-granting criteria have been established, it is essential for the financial institution to ensure that the information it receives is sufficient to make proper credit-granting decisions. This information will also serve as the basis for rating the credit under the financial institution's internal risk rating system. Back to Top

Group Lending - Financial institutions identify situations where, in considering credits, it is appropriate to classify a group of obligors as connected counterparties and, thus, as a single obligor. These are defined, managed and controlled automatically by CPMS to local standards. Back to Top

Account Profitability - Financial institutions should assess the risk/return relationship in any credit as well as the overall profitability of the account relationship. This can be recorded and distributed by CPMS and can be used to do “what if” scenario analysis for business purposes. Back to Top

Loan Provisioning - Financial institutions must recognize the necessity of establishing provisions/reserves for expected losses and holding adequate capital to absorb risks and unexpected losses. Reserving can be implemented by CPMS and projected automatically based on risk ratings. Back to Top

Collateral Management - Financial institution policies covering the acceptability of various forms of collateral, procedures for the ongoing valuation of such collateral, and a process to ensure that collateral is, and continues to be, enforceable and realizable are implemented by CPMS . This includes daily margin control and the ability to restrict the acceptability of collateral using collateral portfolio limits. Back to Top

“Chinese Walls” - Internal confidentiality arrangements (e.g. “Chinese walls”) can be established with CPMS to ensure that there is no hindrance to the financial institution obtaining all relevant information from the borrower within regulatory limits. Back to Top

Enforced Diversification - Limits can be established and enforced for particular industries or economic sectors, geographic regions, specific products, business units and collateral. Back to Top

Exposure Monitoring - Financial institutions can monitor actual exposures (both risk asset and collateral) against established limits and take appropriate action as these limits are approached. Back to Top

Group Decision-Making - Financial institutions can choose to assign responsibilities and workflows in different ways and coordinate the efforts of various individuals to ensure that sound credit decisions are made in the manner in which the financial institution wishes them to be made. Back to Top

Audit Trails - CPMS has a clear audit trail and audit reports 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. Back to Top

Specialist Lending - Financial institutions can use CPMS to allow specialist lending groups analyze and approve credits related to specialized product lines, risky credit facilities, or industrial and geographic sectors. These may be made an automatic part of the approval chain when these types of facilities are being proposed. Back to Top

Credit Files - CPMS credit files can include required current financial statements, financial analyses and internal rating documentation, internal memoranda, reference letters, appraisals, basic customer information, call reports and marketing/account plans as well as credit applications themselves. These are set up to exactly match those used by the financial institution for each type of business that it conducts. CPMS will also produce the exact forms that the financial institution uses for those businesses as well. Back to Top

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