What is credit portfolio risk management definition?
The purpose of portfolio risk management in banks is to enhance or maintain the value of the existing portfolio through specifically designed activities. This is achieved by incorporating portfolio risk strategy, planning and performance assessment into a comprehensive credit portfolio management process.
In all portfolio management actions, the basic is that core risk management principles should be observed and all actions should be based on proper analysis of risk-reward. Business also need to ensure the analysis is completed based on the portfolio dynamics before any conclusions are made and programs are developed.
Certain portfolio management activities maybe pre-approved. For such programs too, current performance of the portfolio must be considered before offering specific programs.
Portfolio Risk Management Actions
1. Account Management: Renewal, Closure, and Blocking
2. Credit Line Increase and Top - Ups
3. Cross – sell
Portfolio Management Monitoring
- Establish portfolio targets and concentration caps
- Establish minimum risk acceptance criteria and / or Key Success Factors
- Target market definition and track a Target Market
- Monitor portfolio MIS, the portfolio risk profile, concentrations, and economic / market / competitive data
- Define and evaluate goals for risk-adjusted returns
- Set limits for policy exceptions and establish performance-monitoring process for these exceptions