MAS Report on Credit Review Standards of Corporate Lending Business
MAS published a report on the thematic assessment of credit review standards and practices of corporate lending business. The assessment found that the banks had established policies and processes to monitor and manage the exposures of their corporate borrowers. However, there is room to improve the robustness of their credit grading, credit monitoring, and portfolio management processes.
MAS conducted the thematic review between October 2016 and June 2017. The thematic review focused on assessing the following for banks:
- Credit grading standards and practices against the credit grading requirements under MAS Notice 612 on Credit Files, Grading, and Provisioning
- Credit monitoring framework and controls
- Loan portfolio management framework and processes
The review found that while the Notice 612 sets out both quantitative and qualitative criteria for credit grading, there were instances where banks had placed stronger emphasis on quantitative factors, such as repayment conduct, in determining the credit grade without adequate consideration of the qualitative factors. There were also instances of restructured loans not being classified appropriately in line with the requirements of the Notice. The watch-list process could be enhanced for more effective identification and management of accounts, with signs of credit weaknesses.
On portfolio management, some banks did not conduct adequate credit stress tests on a regular and timely basis to assess the impact of economic shocks or worrying trends in the local operating environment. Stress test scenarios should also be enhanced to incorporate macroeconomic and industry trends. Furthermore, as credit grades could be one of the inputs used to determine the amount of loan-loss provisions under FRS 109, banks should ensure that their credit grading standards are sufficiently robust. Notwithstanding that the general credit environment has improved, banks should continue to strengthen their credit review standards and practices.
Additionally, some banks conducted a post-mortem on non-performing loans (NPLs) to identify reasons for their deterioration and determine whether there were preemptive actions that could have been taken before the loans turned non-performing. The post-mortem was generally performed by units that were independent of the business such as internal audit and remedial management. The outcome of the reviews was reported to senior management, which would ensure that appropriate and timely actions were taken to rectify the noted weaknesses.
Keywords: Asia Pacific, Singapore, Banking, NPLs, MAS Notice 612, Stress Testing, Corporate Lending, FRS 109, Credit Risk, Credit Grading, MAS
Featured Experts
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Nihil Patel
Data scientist; SaaS product designer; credit portfolio analyst and product strategist; portfolio modeler; correlation researcher
Previous Article
BoE Publishes Financial Stability Report and Stress Test ResultsRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
