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37. FINANCIAL RISK MANAGEMENT POLICIES (CONT’D)
Credit risk management (cont’d)
Approach and risk strategy (cont’d)
• Regular credit review is perform as an effective tool to constantly evaluate the quality of credits given and adherence to
the credit process;
• The composition and quality of the Group’s and the Bank’s credit portfolio are constantly monitored to identify and
manage concentrations risk; and
• Conduct stress testing on the Group’s and the Bank’s credit portfolio to identify possible events or future changes in
economic conditions that could have favourable effects to its credit exposures and assess the Group’s and the Bank’s
ability to withstand such changes.
Risk identification
The Group and the Bank take into account the sources of credit risks identified from all lines of business on a bank-wide basis
such as direct financing risk, contingent financing risk, issuer risk, pre-settlement risk and settlement risk.
As a development financial institution, the Group and the Bank are expected primarily to fill the gaps in the supply of financial
services that are not normally provided by other banking institutions. Therefore, the Group and the Bank are exposed to
credit risk mainly from credit facilities to finance and support exports and imports of goods, services and overseas projects
with emphasis on non-traditional markets, provision of export credit insurance services, export financing insurance, overseas
investment insurance and guarantee facilities. The Group and the Bank are also exposed to credit risk from investment in
securities and other financial market transactions.
Measurement
The Group and the Bank monitor actual exposures against established limits and have in place procedures for the purpose
of monitoring and taking appropriate actions when such limits are breached. If exceeded limits, such occurrences must be
reported to the MRC and subsequently, corrective measures are taken to avoid recurrence of such breaches.
Internal credit rating system is an integral part of the Group’s and the Bank’s credit risk management. It provides a good
means of differentiating the degree of credit risk in the different credit exposures of the Group and the Bank. This will allow
more accurate determination of the overall characteristics of the credit portfolio, concentrations, problem credits and the
adequacy of allowances for losses on loans, advances and financing.
Impairment of financial assets
The Group and the Bank individually assesses its financial assets for any objective evidence of impairment as a result of one
or more loss events that occurred after the initial recognition. In determining that there is objective evidence of an impaired
loss, the Group and the Bank adopted a systematic mechanism for a prompt trigger of impairment test whereby the triggers
are based on obligatory and judgmental event triggers.
When there is objective evidence of impairment of the financial assets, the classification of these assets as impaired shall be
endorsed and approved by Management Committee (“MC”). Impairment losses are recorded as charges to the statements of
income. The carrying amount of impaired loan on the statement of financial position is reduced through the use of impairment
allowance account. Losses expected from future events are not recognised.
EXIM Bank Annual Report 2013
169