Credit Risk Questionnaire 586

8/6/2019 Credit Risk Questionnaire 586

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Credit Risk Questionnaire

Section 1 Contact Information

To be completed by all credit institutions that have exposure to credit risk.If you do not provide lending facilities please return form appropriately annotated Not applicable

1.1 Licenceholder Name and Address

Name of

Licenceholder

Address

Should you have any queries concerning the completion of this questionnaire, please contact the CreditRisk Project Coordinator, David Clucas, at the Financial Supervision Commission on 689316, or [email protected]@fsc.gov.im

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1.2 Please give the name and contact details of two individuals who will be able toassist in the event of queries.

First Contact Second Contact

Name

Position

Telephone

Fax

E-Mail address
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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Section 2 Background

2.1Total advances (in 000s Sterling

equivalent) $ ( )

a) 31/12/2002

b) 31/12/2003

c) 31/12/2004

d) Forecast 31/12/2005

2.2Principal Types of Lending(in 000s Sterling equivalent)

$ ( )

a) Mortgage - residential

b)Other property related including buy tolet

c)Leveraged or geared lending includingcapital release schemes

d)

e)

f)

g)

2.3 Breakdown of lending portfolio as a % as at 31st December 2004

Category: (in 000s Sterling equivalent) $ ( )

a) Government

b) Commercial (Secured)

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2.0Lending Book:Please provide a copy of your most recent internal audit credit review.

a) Date of last review (DD/MM/YYYY) / /

b) How often do internal audits take place in relation to credit risk/ lending?


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2.3 Breakdown of lending portfolio as a % as at 31st December 2004

c) Commercial (Unsecured)

d) Personal (Secured)

e) Personal (Unsecured)

Totals of each as %

2.4.1 Mortgage Lending: %

What is the average LTV of a loan secured by a residential property? Owner occupier (ifavailable)

What is the average LTV of a loan secured by a residential property? Buy to let (ifavailable)

2.4.2Leveraged or Geared Lending facilities:If you provide leveraged or geared lending please provide the following information: -

a) Minimum LTV %

b) Maximum LTV %

c) Covenant Test - First %

c) Covenant Test - Final %

d) How often are these monitored?

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2.4.3 Introduced business Yes No

a) Is introduced business accepted in respect of mortgage business?

b) Is introduced business accepted in respect of providing geared lendingarrangements or a capital release against investment bonds?

c) Is this on the basis of a fixed fee?

d) Is the interest margin ever shared with the Introducer?

e)Is the share / split arrangement transparent to the customer in respect ofany arrangements?

f) Are regulated mortgage contracts are sold in UK?

g) Has the institution registered with the FSA in UK in respect of the above?

h)Is any other type of introduced business accepted (if yes please insert in3.9)

2.4.4Cash backed arrangements:Approximately what % of the lending book consists of cash backedarrangements?

%

2.4.5 Syndicated Arrangements: Yes No

Are facilities managed on behalf of any third party?

2.5Approval process / discretionary powers:Please provide separately a breakdown of all sanctioning authorities.

Note: Sanctioning authorities should show up to what level a member of staff can lend before theyhave to refer & who is responsible for approval over their approved limit (role).

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Section 3 Control & Monitoring

3.0

Control:In terms of key controls please indicate on the matrixbelow how often reports are produced on the following:-

Daily

Weekly

Monthly

Other Not

produced

a) Out of order positions

b) Delinquent or dormant accounts

c) Asset Quality reports

d) Credit ratings reports

e) Large payments

f) Accounts with large turnover

g) Account/ Limit reviews

h) Details of all limits marked

i) Total Asset Book

3.1Control - continued.Are reports compiled: - Yes No

a) Directly from the mainframe computer?

b) Produced from other system data and entered into a spreadsheet?

c) Manual process?

d) Other? (Pleases specify on 3.9 if appropriate)

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3.2

Monitoring: Please indicate how often the followingtasks are performed.(Whilst reports may be produced in Section 3 this areais designed to ascertain how often some definedas ects are reviewed

Dailey

Weekly

Monthly

Other Not

pplicable

a) Out of order positions

b) Asset Quality trends

c)Review of sanctioned facilities (within approveddiscretions)

d) Exposure positions re sector/ type of lending

e) Loan arrears

f) Potential bad debts / provisions

g) Credit Policy monitoring

h) Credit policy review

.4 Provisioning process: %

a) If there are any general provisions under IAS principals what are the current levelas a % of total book?

b) What are the current level of specific provisions as a % of total book

c) What is the current level of bad debts as a % of total book?

d)How do provisions compare with 18 months ago as a %?+/(-)

3.4.1 Provisioning process - arrears

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3.3 Responsibility for credit monitoring:

a)

Who performs the regular control review

process? (Role)

b)Who performs the regular monitoringoverview process? (Role)

c)How often does the most senior managerreview the monitoring process?


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When is an account deemed to be in default/arrears?

3.4.2 Provisioning process - general Yes No

a)Are there any specific policies in place in respect of problem advances,including provisions?

d)Have any specific provisions been made for misselling where there is anunderlying loan?

c)Is any information maintained for the number of loans in arrears that havesubsequently been rescheduled?

d)Have any exposures that have been written off been recovered in last 18months?

e) Is there any ongoing litigation where a provision has not been made?

f)Have any specific provisions been made against a loan type? (If yes pleaseinsert details in 3.9)

3.6 Collateral/ security: Yes No

a) Are there any procedures to confirm that security is in order prior to releaseof funds?

b) Is there a procedure in place to review security documentation periodically?

c) Are details of insurance cover obtained for property related exposure?(If details of insurance cover are obtained in respect of other assets pleaseexplain)

c) Who prepares security documentation?(Position)

d) Who reviews security documentation?(Position)

3.7 Other: Yes No

a)Does the credit institution lend in any circumstances where interest is paidless frequently than quarterly? (If yes please provide details in section 3.9)

b) Is there a formal complaints procedure in place for lending related issues?

c) Does the Bank / business unit have any responsibility for credit card debts?

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3.5 Documentation: Yes No

a)

Is a legal opinion ever obtained in respect of any arrangements?

Y/N(If yes please provide details when this would occur in 3.9)

b) Is a facility letter prepared for all advances?

c) Is this a fixed template?

e)Is the efficacy of any of your products at risk from specific changes in thelegal, fiscal or regulatory requirements of other jurisdictions? (If yes pleaseinsert details in 3.9)


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3.7 Other: Yes No

d) Are any facilities managed on behalf of any third party including Group?

e)Does the credit institution provide equity release/ reversionary finance to

the over 60s

3.8 Risk Profile: Yes No

Are your credit risks managed and controlled from the Isle of Man?

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3.9Other information: Where there was insufficient room in previous sections or if there isany some other information you think is relevant please advise below:

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Section 4 Corporate Governance

4.0 Board Overview: Yes No

a) Does the Board review credit policies?

b) Is there a separate credit committee with delegated responsibility?

4.1 Where is the banks credit committee located?

a) Isle of Man, or other (If other please specify)

4.2Review of policies & procedures:How often are the following areas reviewed?

Mon

thly

Qtrly

HalfY

early

Other

ecify)

a) Large credit risk reports

b) Credit Policy

c) Individual sector / customer exposure

d) Individual Lending discretions

e) Provisioning & Bad debts policy

f) Lending related complaints

g) Competence and training of personnel

4.3 Credit Risk Credit Policy: Does credit policy cover: - Yes No N/A

a) Loan grading and risk classification?

b) Large exposure limits for loans by Region or individual countries?

c) Large exposure limits for loans by Economic sector?

d) Large exposure limits for loans by Type of client?

e) Groupings/Related /connected party lending?

f) Collateral, and when this should be taken?

g) Minimum interest margin per sector?

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Section 4 Corporate Governance

4.3 Credit Risk Credit Policy: Does credit policy cover: - Yes No N/A

h) Covenant adherence?

i) Guarantees and other contingent liabilities?

j) Currency exchange risk?

k) Complaints procedure re lending related products?

4.4 Other: Yes No

a)If Lending Management for the bank is performed outside of the Isle of Manare the appropriate legal agreements in place?

b)If Credit Management is performed for other parts of the Group (different

entity) and/ or 3rd

parties, are the appropriate legal agreements in place?

c) Is the other entitys regulator aware of the arrangement?

d) Has a disaster recovery plan been agreed?

e) If yes has it been tested?

Thank you for completing this questionnaire

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Section 5 Guidance notes

Guidance notes for completion of Credit Questionnaire

If you do not provide Lending services then this questionnaire does not apply but toenable us to keep a track of responses please return the form appropriately annotatednot applicable.

It is also not required in respect of interbank placements and deposits.

The purpose of the questionnaire is to provide a high level overview of a Licence holdersattitude to credit risk. Whilst every effort has been made to keep the questionnaire as simpleas possible it is accepted that some institutions may have lending responsibilities splitbetween different departments. In these cases it might actually be easier for the institution toprovide a structure chart & a broad overview to support answers to some of the sections asdetailed below.

The intention is that once the information has been assessed a focus visit will follow and theaim is to keep this to a day, or day and a half maximum. With this in mind it would beappreciated if a consolidated picture could be presented wherever possible.

The questionnaire is intended to be self-explanatory but the following notes are to providesome guidance.

Section 2: Background

2.0 It is quite possible where lending responsibilities are split across the business that morethan one internal credit audit has been done and a copy of the relevant report may havealready been sent to the Commission. Apologies if this is the case but it would be extremelyuseful to have a copy of the latest internal credit audit reports for the purpose of thisexercise. The background information will provide an overview of the organisation and thedepth of the review process.

2.1 The data for the completion of the questionnaire should be 31st December but if youraccounting period is different please provide this information instead.

2.2 There is a perception that a few areas are dominant in the lending arena and this sectionis designed to ascertain exposure to these and there are spaces for including other types ofsignificant exposures, if applicable. (See also 2.4.1 2.4.3).

2.3 This is designed to show how the lending book is composed between primarilycommercial and personal and also currency exposure. Column 4 in brackets is designed forany other material currency exposure and if more space is required provide brief details in3.9 and we will discuss. For purposes of this (and provided management information permits)put buy to let mortgages in commercial.

2.4.1 This should be the average LTV of a residential mortgage advance for owner-occupier &buy to let if available.

2.4.2 The minimum and maximum LTV should be provided from cases agreed over the last 6months. There may also be a range of covenant tests in respect of various schemes. Providethe parameters that apply to your current scheme but if there is material exposureelsewhere please provide brief details in 3.9

2.4.3 It is expected that most introduced business will be mortgages, both buy to let and

owner-occupier, plus geared facilities that includes traded endowments and capital releasesagainst investment bonds. If introduced business in respect of capital releases or reversionaryadvances to the over 60s are provided, and these are material please advise details in 3.9.We are aware that some licence holders have registered with the FSA in order to promote

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regulated mortgage contracts in the UK and expect to be will be liasing with them at somestage in respect of this activity.

2.4.4 / 2.4.5 If cash backed or syndicated arrangements are provided to group or beyond itwould be expected that there is a service level agreement in place.

2.5 With some of the larger institutions there may be separate reporting lines in respect of

different parts of the organisation and it might be easier to provide this informationseparately. As the note advises, the

purpose of this is to understand the hierarchical structure and who takes responsibility forapproval over a prescribed limit. This should include on and off Island sanctioning levels.

2.6 If there are exceptions because different parts of a group deal with matters in a differentmanner then annotate the box for the aspect that would normally apply. This will bediscussed in more detail if necessary as part of the visit programme.

2.7 / 2.8 This is intended to establish the norm and a broad overview only. It is accepted that

some staff will be qualified as a result of many years experience.

Section 3: Control & Monitoring

3.0 3.3 Some reports may be produced more often than one of the frequencies mentioned,in which case annotate more than one box. There may be systems in place that enablesmonitoring to be done by someone different to the person who actions the reports. This maybe done remotely and should be evidenced by an audit trail.

3.4 Under International Accounting Standards (IAS) principles a general provision shouldonly now be made when there is historic data or other business reason to justify,

consequently the Commission would expect to see information to support any significantalteration from any previous year. Specific provisions could be against a customer or group ofcustomers where normal avenues of recovery suggest there may be a shortfall. This isrequired as a percentage.

3.5 Different organisations have different policies when it comes down to a legal opinion maybe requested. Whilst a yes/no option does not give any scope to advise that this is sometimesobtained - it is the norm that we are looking to and this will be picked up later from a testingexercise later on.Example: Where borrowing has been agreed for a Company / Trust in one jurisdiction for theliabilities of a Company / Trust / individual in another and where the security is, say aninvestment bond we would like to establish if a legal opinion would / would not be considered.

3.7 Other aspects that are considered important as they could have a material affect on alicenceholders operations.

Section 4: Corporate Governance

This is designed to ascertain if appropriate control and governance is exercised.

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If there is any aspect that has not been covered in these notes please telephone David Clucason 689316.

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Credit Risk Questionnaire 586

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