Credit Risk Management Herman Mulder Head of Group Risk Management 12 November 2001.
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Transcript of Credit Risk Management Herman Mulder Head of Group Risk Management 12 November 2001.
Credit Risk ManagementHerman Mulder
Head of Group Risk Management
12 November 2001
Credit Risk Management
2
Topic Issues
1 How do we manage risk
2 Profile of our portfolios
Credit Risk Management
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Effective 15 October 2001 Independent risk management (functional line Group CFO/CRO) Group Risk: 100 staff (at Head Office)
C. NorrisEVP
Consumer Credit
M. SeckelEVP Credit
Corporate, FI, Retail
H. ErbeEVP
Portfolio ManagementCountry Risk Policy
TBNEVP
Operational Risk Policy
A.J. van der LindenEVP
Market Risk Policy
H. MulderSEVP
Group Risk Management
T. de SwaanBoard MemberCFO & CRO
Head of Corporate Center
Corporate Centre:Group Risk Management organisation chart
Credit Risk Management
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Meeting 3x per week
Members: Board Member(s), SEVP Group Risk, SEVP RMW, SEVP relevant BU’s
Coverage: risk policy, credit risk, market risk
Approx. number of applications: 1,250 p.a.
WCS Clients: approx. 4,000 relationships/ 12,500 counterpaties
Loan Pricing Tool: Economic Profit / RAROC
General Comments
Group Risk Committee Based on GOOE* (by limits) and UCR** (by counterparty)
Delegated authority: to committees / CRO***
Delegated Authority
Corporate, Financial Institutions, Public Sector: UCR 1-3 1x p.a.; UCR 4-7: 2x p.a.
Country Risk: Whole portfolio bi-monthly
Consumer Products Programs: 1x p.a. product / country specific programs
Risk Review Discipline
Note:* GOOE = Global One Obligor Exposure ** UCR = Uniform Credit Rating*** CRO = Country Risk OfficerBU = Business Unit
Tested, effective commercial banking, relationship driven, risk management process
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F in a n c ia l In d ex F in a n c ia l S u b je c tiv es
O P E R A T IO N S L IQ U ID IT Y C A P IT A L S T R U C T U R E C A S H F L O W & D E B T S E R V IC E
F IN A N C IA L A S S E S S M E N T B u s in e s s A n a ly s is
C o rp o ra te S c o re
F in a n c ia l In d ex F in a n c ia l S u b je c tives F in a n c ia l In d ex F in a n c ia l S u b je c tiv es F in a n c ia l In d ex
In d u s try S e n s it iv it ies M a rke t Co n d itio ns P ro d u c tio n C o n d itio ns S tru c tu ra l C o n d itio ns S a le s M a rke t R isk C o u n try R e s id e n ce R isk
IN D U S T R Y M A C R O E C O N O M IC R IS K IN D IC A T O R
B U S IN E S S A NA L Y S IS
1. Internal rating benchmark tool for commercial credit is a customised version of the "Moody's Risk Analyst”
2. Components are (counterparty) financial assessment (60% impact) and (industry & country) business analysis (40% impact)
3. Business Analysis is based on input from (independent) Economic Department: since 12 months the scores of 70% of all industries have been negative leading to a downgrade of up to 1-2 notches on the overall Corporate Score for counterparties in these industries
4. Credit Committees take final decision on internal rating
UCR 1 > Aa3UCR 2 > A3UCR 3 > Baa3UCR 4 > Ba3UCR 5 > B3UCR 6 > CUCR 7 < C
Stable, transparent, credible internal rating methodology (UCR = Uniform Credit Rating)
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Stable portfolio composition (by outstanding)
Private Loans
0
20
40
60
80
100
120
140
160
180
200
Dec-00 Mar-01 Jun-01 Sep-01
Wholesale C&CC Private Other
Dec 2000
2%
5%
24%
69%
Mar 2001
2%
5%
24%
69%
Jun 2001
68%
25%
5%
2%
Wholesale C&CC PCAM Other
Sept 2001
2%5%
24%
69% 35%
57%
5%3%
NL USBrazil Other
( Eur bn - by outstandings)
Credit Risk Management
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North America29%
Europe 49%
Latin America
6%
Asia Advanced
7%Africa
1%
Eastern Europe
1%
Asia6%
Middle East1%
Wholesale (WCS): Client base predominantly OECD (by limits; September 2001)
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WCS: 5 Client BUs organised globally by sectors (by limits; September 2001)
Financial Institutions
25%
Public Sector7%
Automotive, Consumer, Diversified
36%
Energy, Chemical, Pharma
19%
Telecom, Media,
Technology13%
TMT
ECP
ACD
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Food6.5%
Health/pharma2.6%
Agri/raw materials2.0%
Construction4.1%
Retail2.4%
Metals & Mining2.9%
Leisure0.7%
Transport services7.4%
(Non) durables3.3%
Tobacco0.7%
Manuf other transport means1.8%
Automotive (oem+supply)
6.7%
Real estate1.6%
Manufacturing (general)9.3%
Services 3.9%
Chemical4.9%
Utilities10.0%
Oil & gas10.3%
Technology7.0%
Media4.3%
Telecom7.7%
WCS Corporate Exposure (Limits): Well diversified (as of September 2001)
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SOME GENERAL RISK OBSERVATIONS:
ADVERSE MARKET DYNAMICS: Some issues: (working assumption) prolonged US slowdown cum infection worldwide (incl EU); Continued markets’ volatility / nervousness;
reform relapse in emerging markets, bad news travelling slowly; liquidity is key;
CREDIT RISK INCREASING:Some symptoms: missed projections, covenant amendment/waiver requests; CP back-up converted into RC’s, vendor financing, rating downgrades,
more & wider flexing; broad price ranges
Some actions: review + rating discipline, portfolio limits (i.a. sector, UCR4+5), GOOE right sizing/reduction, lower final hold levels, selective portfolio sensitivity-/stress-tests; very cautious strategy on e.g. Leveraged Finance;
REORGANISATION DYNAMICS: Some issues: highly HO controlled reorganisation, build new business disciplines/
routines but no change in risk strategy & provisioning policies, LPG to bring dedicated credit (analysis & structuring) professionalism to client business function; transparent engagement process;
February 2001: Observations underlying risk approval policies
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2.2
2.4
2.6
2.8
3
3.2
Dec-2000 Mar-2001 Jun-2001 Sep-2001
TMT ECP ACD Total ABN AMRO
WCS Portfolio: Effective steps taken since February 2001 (Weighted average UCR by limits)
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Telecom Services7.7% of AAB Portfolio 7.0% of AAB Portfolio
Technology
UCR 1, 2, 3
80%
UCR >=420%
UCR 1, 2, 385%
UCR >=415%
WCS: Corporate exposure for selected sectors(by limits, September 2001)
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Oil & Gas Airlines 10.3% of AAB Portfolio
Utilities10.0% of AAB Portfolio 1.5% of AAB Portfolio (*)
Other secured
6%
Cash / ECA31%
Unsecured13%
Treasury10%
Aircraft secured
40%
UCR >=414%
UCR 1,2,3
86%
UCR >=422%
UCR 1,2,3 78%
(*) Nov. over Sep. portfolio
WCS: Corporate exposure for selected sectors(by limits, September 2001)
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C&CC NL Commerical Portfolio by Product - September 2001
44%
56%
Corporate Clients
SME
C&CC NL Commerical Portfolio by UCR - September 2001
0.5%
42.5%
57.0%
UCR 1, 2 and 3 UCR >= 4 Not rated
C&CC NL portfolio - Outstanding
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UCR >= 435%
UCR 1/2/365%
LaSalle58%
Standard Federal26%
Michigan16%
Asset Quality
0%
10%
20%
30%
40%
50%
60%
70%
80%
Dec-1999 Dec-2000 Mar-2001 Jun-2001 Sep-2001
UC
R P
erce
nta
ge
UCR 1, 2, and 3 UCR >=4
C&CC US portfolio(outstanding by UCR, as per September 2001)
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Car financing43%
Retail40%
Middle Corp17%
Not rated10%
UCR >=427%
UCR 1/2/363%
-
1,000
2,000
3,000
4,000
5,000
Dec.00 Jun.01 Sep.01
Car financing Retail Middle Corp
B
R
L
M
l
n
C&CC Brazilian portfolio(outstanding by UCR, as per September 2001)
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By ProductBy Geography
USA16.5%
Brasil4.4%
Netherlands73.6%
Rest of Latin America0.3%
Rest of Europe,Middle
East,Africa0.9%
Asia4.3%
Other1%
Loans against shares
1%
Overdraft1%
Auto Loans5%
Personal Loans9%
Credit cards1%Mortgage
loans other3%
Mortgage loans USA
14%
Mortgage loans NL
65%
Consumer Credit Outstanding (Sept 2001)
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C&CC Worldwide - Asset Quality
US– Seasoned management teams at LaSalle, Standard Federal and Michigan National.
– Increased provisioning in 2Q01; maintaining conservative standards on new lending in light of market conditions.
– Halted Leverage business (currently, 2.7% of C&CC USA portfolio) and winding down existing portfolio. Possible asset securitisation as market conditions improve.
Brazil– In 2001, major portfolio reviews were done: April 2001 and Aug 2001. An update following Sep. 11th. terrorist strikes was also
conducted.
– Following portfolio reviews outcomes, Brazilian Risk Management actively implemented protection measures. Actions proved to be effective: stable provisions and credit losses are within budget.
– 98% of the credit limits approved with an automated credit scoring system. Behaviour scoring has been introduced to the retail portfolio, for constant monitoring of clients and early actions.
Netherlands– Economic slowdown in NL is leading to increased infection, but not beyond our own scenarios / targets.
– Credit structures in the Netherlands are generally well collateralised.
– Seasoned risk management organisation is able to manage a downturn scenario effectively.
– Dutch mortgage portfolio provides stability.
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Other 38%
Turkey4% Brazil
15%
China / HK17%
India10%
Pakistan0%
Argentina3%
South Korea7%
Thailand4%
Indonesia2%
Large part of ABN AMRO's cross border portfolio is short term, trade related and/or otherwise mitigated, to diverse corporate and consumer borrowers
After Sep 11th, impact analysis on the portfolio was made, followed by reduction and re-evaluation of limits and exposures in Emerging Markets.
The share of exposure on Brazil, Turkey and Argentina (after the recent sale of our consumer business to Banco Galicia) is low and decreasing
Group-wide: Cross-border risk(September 2001)
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Summary of provisioning by SBU
(Including Netherlands BU; EUR million)
SBU 1Q01 2Q01 3Q01 YTD Sept
C&CC 176 220 200 596
WCS 92 40 90 222PCAM 3 -1 1 3
CC / other -4 -6 17 7
Total 267 253 308 828
WCS27%
C&CC72%
PCAM0%
CC / other1%
Annualised Provisioning/ RWA
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
Q1 Q2 Q3 YTD
C&CC WCS ABN AMRO
Net loan loss provisioning 2001
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Net loan loss provisioning:Last 10 years 40 - 45 bps / RWA
(Net provisioning as % gross loans)
0.57% 0.56%0.54%
0.54%
0.24%
0.37%
0.27%
0.42%
0.25%
0.19%
0.29%
0.31%
0.1%
0.2%
0.2%
0.3%
0.3%
0.4%
0.4%
0.5%
0.5%
0.6%
0.6%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2Q01 3Q01
Credit Risk Management
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0.00
1.60
1996 1997 1998 1999 2000
ABN (Net Prov.) Barclays BBVA SocGen Deutsche
Source: Bank Scope
Net loan loss provisioning to loans:Stable performance relative to peers
Credit Risk Management
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-
5.0
1996 1997 1998 1999 2000
ABN Barclays BBVA CITICORP Deutsche
Non-performing loans to loans:Stable performance relative to peers
Source: Bank Scope
Credit Risk Management
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Final remarks
Reality Check
1 Cannot escape macro-economic & business reality
2 Hence: migration in the portfolio
However
3 Well-diversified portfolio by client segments, industry sectors
and countries
4 Proven risk management practices with adequate early warning
systems and effective response
So
5 Will suffer less in downside, will benefit more in upside
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Cautionary Statement regarding Forward-Looking Statements
This announcement contains forward-looking statements. Forward-looking statements arestatements that are not historical facts, including statements about our beliefs and expectations.Any statement in this announcement that expresses or implies our intentions, beliefs,expectations or predictions (and the assumptions underlying them) is a forward-lookingstatement. These statements are based on plans, estimates and projections, as they are currentlyavailable to the management of ABN AMRO. Forward-looking statements therefore speak only asof the date they are made, and we take no obligation to update publicly any of them in light ofnew information or future events.
Forward-looking statements involve inherent risks and uncertainties. A number of importantfactors could therefore cause actual future results to differ materially from those expressed orimplied in any forward-looking statement. Such factors include, without limitation, the conditions inthe financial markets in Europe, the United States, Brazil and elsewhere from which we derive asubstantial portion of our trading revenues; potential defaults of borrowers or tradingcounterparties; the implementation of our restructuring including the envisaged reduction inheadcount; the reliability of our risk management policies, procedures and methods; and otherrisks referenced in our filings with the U.S. Securities and Exchange Commission. For moreinformation on these and other factors, please refer to our Annual Report on Form 20-F filed withthe U.S. Securities and Exchange Commission and to any subsequent reports furnished or filedby us with the U.S. Securities and Exchange Commission.
The forward-looking statements contained in this announcement are made as of the date hereof,and the companies assume no obligation to update any of the forward-looking statementscontained in this announcement.