Credit portfolio management – Interactions between risk, finance and business

Credit portfolio management – Interactions between risk, finance and business

By Catherine Keane, Head of Bank and Country risk, Bank of Ireland

Can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

I have spent most of my career at Bank of Ireland with just a few years in the RBS group. Roughly half my career was in front line roles in Corporate Lending, structured derivatives and dealing but my focus for many years now has been on risk management – predominantly credit risk, but also market risk and liquidity risk. I am currently head of Bank and Country Risk at Bank of Ireland and also lecture on the Masters in Risk Management programme in Trinity College Dublin which is the no 1 ranked University in Ireland. My current professional focus is on low default credit portfolios, counterparty credit risk and related capital matters.

What, for you, are the benefits of attending a conference like Risk EMEA 2019 and what can attendees expect to learn from your session?

The benefits of attending conferences like Risk EMEA 2019 are firstly that you get to hear from peer professionals about their concerns and areas of focus and more specifically get ideas about how to better deal with common problems. It Is always interesting to see how common the issues are – differences in scale certainly but in general most of us are facing similar Issues. I would hope that people might identify with some of the issues around portfolio management that I will be highlighting and get some new insights and ideas.

Describe key considerations for effective credit portfolio managements?

One of the key issues is clarity on roles and responsibilities – who decides what size or how risky the various portfolios should be? The trend since the global financial crisis has been to drive this centrally through an effective Risk Appetite process – but is this a bit rigid?  Another key consideration is how you measure the portfolios – and even more importantly how do you measure the relative returns!

What are key roles and responsibilities of the various functions involved – business, risk and finance?

The key roles vary depending on the nature of the organisation but typically It Is the risk function that would manage the risk appetite and limit processes – with businesses challenging for greater limits to grow portfolios in areas where they see opportunity. In many cases – (though not all!) finance has the responsibility of measuring the returns on the various portfolios and engages with the risk function to agree on effective return on capital measures.

What are the key considerations for methodologies, decision matrix and tools for informed decision-making?

I would say the key issue is to have agreement on the methodologies and measurement between all three functions – and this in practice can be very difficult to achieve. Typically senior management will want to allocate capital into areas where the best returns are achieved – but there are other considerations – concentrations are a key issue and the ability to respond to market developments is also critical.

With regards to increasing harmonisation and data quality, how can this occur across departments to less fragmentation and maximise profitability?

As I have already said agreement on measurement is key, and in order to that there has to be harmonisation of data – all parties need to be looking at the same data – albeit there can be issues with definition of measurement – particularly in capital markets where risk, regulatory and balance sheet rules can be different. There has been a lot of progress in this area – partly driven by BCBS 239 – but there Is still room for Improvement.

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