*Credit Risk Grading (CRG) is a collective definition based on the pre-specified scale and reflects the underlying credit-risk for a given exposure.
*CRG
deploys a number/ symbol as a primary summary indicator
of risks
associated with a credit exposure.
*Credit Risk Grading is the basic module for developing a Credit Risk
Management system.
Function of Credit Risk Grading
Well-managed credit risk grading systems
promote bank safety and soundness by
facilitating informed decision-making. Grading systems
measure credit risk and differentiate individual credits and groups
of
credits by the risk they pose. This allows bank management and examiners
to
monitor
changes
and trends in risk
levels. The process
also allows bank management to manage risk to optimize returns.
What is the uses/ purpose/ importance of CRG
***The Credit Risk Grading matrix allows application of uniform standards to credits to ensure a common standardized approach to assess the quality of an individual obligor and the credit portfolio as a whole. It measure credit risk and differentiate individual credits and groups of credits by the risk they pose. This allows bank management and examiners to monitor changes and trends in risk levels.
***As evident, the CRG outputs would be relevant for
credit selection, wherein either
a borrower
or a
particular exposure/facility is
rated. The other decisions would be related to pricing (credit spread) and specific features
of the credit
facility.
***Risk grading would also be relevant for surveillance and monitoring, internal MIS and assessing the aggregate risk profile of a bank. It is also relevant for portfolio level analysis.