Page 32 - 86395_CCB - 2024 Annual Report (web)

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The Bank’s principal risks (continued):

Credit

Description The risk that counterparties fail to meet, in a timely manner, the commitments
into which they have entered. Credit Risk represents a principal risk for Bank.

Governance Board Risk & Compliance Committee Credit Approvals Committee
Credit Committee Model Risk Oversight Committee
Environmental, Social & Governance Credit Risk Management Framework
(ESG) Committee Lending Protocols

Risk Appetite The Bank has a moderate appetite for Credit Risk overall, maintaining conservative parameters
Statement that reflect the prevailing external environment, including a maximum LTV and DSCR, focusing
on relationship management, including annual reviews. The Bank will maintain lending
distribution and product offering within parameters agreed by the Board, diversified by sector
and UK region, with a minimal appetite for ‘speculative’ lending. These ensure that the Bank
concentrates its lending on areas where there are experienced subject matter experts in both
the first and second line of defence, with the necessary operational capacity, systems, and
infrastructure to manage and monitor the loans through their life cycle in an effective manner.
The Bank will operate within protocols, underwriting guidelines, exception limits and regulatory
guidelines and manage the Early Warning Report and Watch List proactively to ensure that
asset quality remains satisfactory. The Bank will not pursue growth at the expense of credit
and asset quality. Although it recognises that through the full range of the economic cycle,
some credit losses are inevitable, the robust underwriting standards aim to minimise them,
with close monitoring of Risk Appetite via the comprehensive suite of KRIs set out below.
Key Mitigants Compliance with detailed Risk Appetite Use of the Credit Grading Models as
and Lending Protocol parameters. part of the approval process, refreshed
Quarterly Stress Testing of the loan portfolio. monthly, allowing the portfolio to be
monitored on an ongoing basis.
Segregation of responsibility for
the management of loans and Conducting annual reviews on borrowers
a program of underwriting from to ensure monitoring throughout the facility
business development and sales. lifecycle as well as regular sector analysis.
Use of seasoned professionals Close monitoring of non‑performing loans,
with deep subject matter expertise, including Early Warning Report, Watch List,
experience, and ongoing training of Forbearance, and management of arrears.
experienced underwriting staff. Detailed provisioning requirements
Independent Quality Assurance checks to and procedures.
ensure adherence to policies and procedures New ECL model launched in H1 2024.
provided by external consultant firm. During the year Management agreed
and progressed membership of
the Lending Standards Board.

Comments Credit Risk is one of the principal risks that the Bank faces, given the nature of
its business. The lending portfolio is closely monitored via a suite of detailed
metrics, including concentration, breaches and exceptions, asset quality and
treasury counterparty indicators, and via the use of credit grading models.
Stress testing is employed to ensure that sufficient capital is maintained.
The Bank continues to assess the potential impact of climate change and the environmental
factors across its loan portfolio as well as undertaking appropriate stress testing.
Lessons learned review undertaken on larger credit loss cases.
The Bank assesses and discusses all individual customer loans in arrears at
the monthly Impairment & Provisions Committee meeting chaired by the CFO.
All cases that are in arrears at month‑end or are on the watch list are reviewed.