The following stepwise activities outline the detail process for arriving at CRG
Step.1. Identify all the principal risk components
Credit risks for
counterparty arises
from an aggregation of the following:
* Financial Risk
* Business/Industry Risk
* Management Risks
* Security Risks
* Relationship Risks
Step ii. Allocate weightages to principal risk components
According to the importance of risks profile, the following weightages are proposed for corresponding principal risks
|
principal risk components |
Weight (%) |
|
*Financial Risk |
50 |
|
*Business/Industry Risk |
18 |
|
*Management Risks |
12 |
|
*Security Risks |
10 |
|
*Relationship Risks |
10 |
Step iii & iv. Establish the key parameters and assign weightge to each
of the key parameters
|
principal risk components |
Key parameters |
Weight (%) |
|
Financial Risk |
50 |
|
|
leverage |
15 |
|
|
liquidity |
15 |
|
|
profitibility |
15 |
|
|
coverage |
5 |
|
|
Business/Industry Risk |
18 |
|
|
Size of business |
5 |
|
|
Age of business |
3 |
|
|
Business outlook |
3 |
|
|
Industry growth |
3 |
|
|
Market competition |
2 |
|
|
Entry/exit barriers |
2 |
|
|
Management Risks |
12 |
|
|
experience |
5 |
|
|
succession |
4 |
|
|
Team work |
3 |
|
|
Security Risks |
10 |
|
|
Security coverage |
4 |
|
|
Collateral coverage |
4 |
|
|
support |
2 |
|
|
Relationship Risks |
10 |
|
|
Account conduct |
5 |
|
|
Utilization of
limit |
2 |
|
|
Compliance of
convenants/condition |
2 |
|
|
Personal deposit |
1 |
|
Step v. input
data to arrive at the score on the key parameters
After the risk identification & weightage assignment process, the next steps will
be to input actual parameter in the score sheet to arrive at the score corresponding
to
the actual parameters.
Step vi. Arrive at
the credit
risk grading based on total score obtained.
|
number |
Risk grading |
Short name |
score |
|
1 |
Superior |
SUP |
*100% cash covered *government guarantee *international bank |
|
|
|
|
guarantee |
|
2 |
Good |
GD |
85+ |
|
3 |
Acceptable |
ACCPT |
75-84 |
|
4 |
Marginal/watchlist |
MG/WL |
65-74 |
|
5 |
Special mention |
SMA |
55-64 |
|
6 |
Sub-standard |
SS |
45-54 |
|
7 |
doubtful |
DF |
35-44 |
|
8 |
Bad & loss |
BL |
<35 |