The effective management of risk is considered critical to the long-term success of Republic Financial Holdings Limited. The Group considers risk to be the potential that a borrower will fail to meet its obligations in accordance with agreed terms. The objective of its risk management function is therefore to maximise the risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters.
HIERARCHY OF DISCRETIONARY AUTHORITIES
The Group’s credit risk management process is based on a hierarchy of discretionary authorities and its risk management function operates independently from the business development aspect of the operations. A Board Credit Committee, led by the Chairman of the Board and including Executive and non-Executive Directors, has the authority to exercise the powers of the Board on all risk management decisions.
The Risk Management department is responsible for the general administration of the Group’s credit portfolio, ensuring that lendings are made in accordance with current legislation, sound banking practice and in accordance with the applicable general policy as outlined by the Board of Directors.
Use of a risk-rating system that groups commercial/corporate accounts into various risk categories facilitates risk evaluation on an individual account and portfolio basis. On the retail side of the business, a computerised Credit Scoring system with preset risk management criteria is in place at all branches to facilitate decision making in the lending process. Trend indicators are used to evaluate risk as improving, static or deteriorating. The evaluation of the risk and trend together informs the credit decision and determines the intensity of the monitoring process.
EARLY DETECTION AND ACTION
The Group’s credit control process is one of early detection of deterioration and prompt implementation of remedial action. If recovery of an outstanding liability appears to be doubtful or unduly delayed, the account is moved from performing to non-performing. Loan loss provisions are set aside to cover any potential loss in respect of debts that are not performing satisfactorily, and these are reviewed quarterly, according to established guidelines. Additional provisions recommended outside of these are submitted to the Board for approval. Non-performing debts recommended for write-off are reviewed annually and action taken in accordance with prescribed guidelines.
REDUCING LEVELS OF EXPOSURE TO RISK
The Group reduces its exposure by placing limits on the level of risk it can accept from borrowers engaged in similar business activities, or activities in the same geographic region or with similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. These levels of risk are controlled and monitored regularly and are subject to annual or more frequent reviews. The Board of Directors approves the limits on the level of credit risk by product, industry, sector, client and geography.