ING Bank Śląski S.A. manages credit risk end-to-end, based on strategic planning and a consistent system of policies and procedures as well as the risk management tools, including risk identification, measurement and control.
The lending policy pursued by ING Bank Śląski S.A. is based on principles of secure and prudent credit risk management. The lending policy is put into practice by the Bank Management Board that established the Credit Policy Committee to take decisions as regards credit risk management on a daily basis.
Risk management strategy sets out short-, mid- and long-term goals for the credit risk management area as well as their accomplishment manner. Risk appetite which translates the Bank’s strategy into a consistent set of portfolio measures, defined as maximum thresholds for the lending portfolio, along with defined early warning brackets, is an element of that strategy. The credit risk management strategy is approved by the Supervisory Board. The Supervisory Board also periodically assesses the degree of accomplishment of strategic goals by the Bank Management Board.
At ING Bank Śląski S.A., the credit risk is defined as the possibility of failure to recover the Bank’s receivables under granted credit products which may result in failure to earn income and/or in a financial loss.
Lending-related losses are a consequence of risk and the Bank’s mitigation actions in that regard. In order to keep the losses at or below the level set in the planning documents, the Bank impacts their level using accepted risk limits, risk exposure amounts plus risk hedging instruments and in case the risk materializes by direct actions reducing the losses.
The credit risk management system used by ING Bank Śląski S.A., including the organisational structure, the lending process framework, the system of internal regulations and the applied tools and models, is verified on an ongoing basis and adapted as needed to ensure that the Bank’s strategy, the risk appetite included, is accomplished. The aim is to ensure that the identification, assessment, measurement, monitoring and management actions taken for the business bearing credit risk are adequate and, at the same time, consistent and compliant with the regulatory requirements.
ING Bank Śląski S.A. manages its credit risk with the use of advanced credit risk assessment models. For the corporate credit portfolio, capital requirements are computed using the Advanced Internal Rating-Based Approach (AIRB). For the retail portfolio, this method is undergoing a use test now. The models applied by the Bank to manage risk are systematically validated and developed.
The Bank actively uses stress tests to manage credit risk on an ongoing basis.
ING Bank Śląski S.A. maintains the credit risk management model based on three lines of defence:
- 1st line of defence: business units – performing commercial operations on a day-to-day basis in line with the approved internal regulations and risk limits while demonstrating adequate awareness and ownership of the risks taken,
- 2nd line of defence: credit risk function – ensuring that actions of business units remain within the approved principles and limits,
- 3rd line of defence: internal audit function – verifying periodically and thoroughly that the actions taken by the 1st and 2nd lines of defence comply with the regulatory requirements and best banking standards.
Credit decisions are taken following a comprehensive transaction risk analysis – in the proper credit approval track, determined by the transaction complexity and amount, including for more automated paths on the basis of clearly defined criteria, including behavioural ones, and based on the credit limit computed automatically using the algorithm approved by the Credit Policy Committee. All transactions are accepted in line with the explicitly defined credit mandate. The persons taking credit decisions are personally liable for them.
The decision-taking powers exercised in respect of sale and risk acceptance for individual credit transactions by business units and transactional credit risk units are separated (also in functional terms) from the activities of the risk policy, modelling and reporting area that shapes the credit policy as well as builds and validates the tools assisting the risk management process.
In 2014, the lending policy of ING Bank Śląski S.A. was modified so as to ensure proper and stable functioning of the credit risk management system in the changing legal, economic and business landscape. The modifications took account of inter alia Poland’s overall economic situation as well as the financial standing of individual groups of borrowers.
The said modifications were oriented at the following in particular:
- making the lending process more effective while ensuring adequate credit risk identification, measurement and control mechanisms,
- making the lending offer of the Bank more attractive for clients on the assumption that the Bank’s credit risk is maintained at an acceptable level,
- adapting the internal regulations of the Bank to, among others:
- the recommendations issued by PFSA,
- Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms, and
- EBA Technical Standards on supervisory reporting on forbearance and non-performing exposures,
- continuing development of credit risk reporting and monitoring systems to support fast and effective risk identification and measurement in the corporate credit portfolio,
- strengthening active sectorial policy management through appropriate diversification of lending policy principles in correspondence with the risk-based industry categorisation: preferred, under watch, and non-preferred industries, and
- enhancing independence of actions on the part of risk control and monitoring for corporate credit exposures from those taken by the sales and risk acceptance functions.
The main modifications of the Bank’s lending policy for corporate clients were as follows:
- updating the general principles for management and mitigation of the credit and market risks at the Bank as well as the rules of supervision over credit risk in subsidiaries belonging to the Bank Capital Group,
- updating management requirements and criteria for the credit exposures used to finance real estate and mortgage-backed exposures, as set out in the PFSA recommendation on the best practices regarding management of mortgage-backed credit exposures,
- implementing the principles of identification and reporting of credit exposures with forbearance in the situation of client experiencing financial problems and reporting of non-performing exposures,
- updating the counterparty risk management principles,
- adapting the Bank’s lending policy to the specific situation of selected groups of clients through modifying general guidelines for the Bank’s lending directions and selected sector guidelines,
- specifying in more detail and extending the list of impairment triggers to ensure their full compliance with the International Accounting Standards and banking supervision requirements,
- particularizing the principles of computation of impairment losses for credit exposures and provisions for off-balance sheet credit liabilities using the discounted cash flow method (ISFA) and introducing the back-testing rules for estimated cash flows used for the ISFA portfolio,
- specifying in more detail the rules for loss reversal, that is client’s exit from the ISFA or INSFA portfolios,
- introducing the obligation to record exceptions from the established rules for identifying credit exposures impairment,
- implementing automated ongoing monitoring for corporate credit exposures in the ING Monitoring application based on the list of warning signals verified using the information available in the Bank’s systems,
- enhancing the quality of credit risk monitoring through modification of the criteria determining the frequency of financial standing monitoring for selected groups of entities,
- implementing modified rules and new tools for assessing social and environmental risks in the lending process,
- implementing updated rules for verifying real property value and collecting data in the real property database, in line with the requirements of Recommendation J on the principles for gathering and processing by banks real property data and on the best practices regarding management of mortgage-backed credit exposures,
- updating the procedures for undertaking fast remedial measures in the event of unpredicted events effecting lower real property value, reviewing and updating the Credit Policy Committee Bylaw,
- reviewing end-to-end and updating the standards of credit analysis, the specimens of full and simplified credit applications included, and
- optimising the rules for approving credit transactions under the fast track procedure, including making limits more available and conditioning their amounts on the internal classification of the client’s sector.
Furthermore, the Bank started to test automated credit risk assessment paths (easy lending process) – within the precisely set limits – for low amounts of transactions made with corporate clients in order to make the lending process more efficient while optimising the risk/reward ratio per transaction or a transaction portfolio.
The main modifications of the Bank’s lending policy for retail clients were as follows:
- extending the pilot programme for simplified assessment of credit capacity under the Recommendation T requirements,
- making the lending offer more appealing to and competitive for the segment of unsecured products for the exposures consolidated from other banks, introducing new offers and making the credit facilities more available as regards the credit amounts attainable for upper segments of clients, expanding the access to the lending offers in the ING BankOnline system, introducing the option to request a loan via the vortal application on the Bank’s website or e-commerce portal, providing a lending offer in the mobile banking application, launching new solutions for preapproved and prescored offers and loosening the document-related requirements for selected income sources,
- changing the approach to the definition of total credit exposure whereby the said notion also includes the ING Bank Śląski S.A. Group members (ING Lease and ING Commercial Finance) other than the Bank,
- updating (raising) the minimum subsistence costs and verifying the ratio accounting for those costs in the credit capacity calculation,
- implementing the principles of identification and reporting of credit exposures with forbearance in the situation of client experiencing lasting financial problems and reporting of non-performing exposures,
- making the lending offer more appealing to and competitive for the segment of entrepreneurs by introducing the option of requesting a credit line by start-ups, introducing new offers and making the credit facilities more available as regards the credit amounts attainable for the selected group of clients, adding to the Bank’s offer the option of increasing the loan amount for credit lines under prescoring, increasing the exposures granted without the spouse’s consent,
- adding a new income criterion to determine the maximum limit amount for unsecured exposures in the segment of entrepreneurs,
- running a pilot study of selling loans to entrepreneurs through the new sales channels of nationwide IFAs and Bank representatives,
- synchronising the monitoring of the financial standing of entrepreneurs with the monitoring of credit line renewals,
- changing the mortgage process by launching a new system for credit application processing for mortgage loans (higher process automation and diversification of the lending policy parameters for mortgage loans) and introducing one-person decision pilot programme,
- suspending the use of bridge insurance for credit facilities/ cash loans and considering bridge collateral being a higher margin in creditworthiness computation,
- incorporating into the mortgage regulations those parts of Recommendation J and Recommendation S provisions that are effective as of 2014,
- providing an option to apply for a mortgage loan through the ING BankOnLine internet banking system,
- introducing rules and running stress tests to verify the value of DTI and LTV parameters for mortgage loans,
- starting using the internal model of real property price change risk assessment as well as the reports showing that risk assessment for housing properties as developed by the AMRON Centre,
- as regards monitoring of short-term repayment arrears, the Bank implemented a new model of cooperation with external entities, launched new tools of communication with clients in the event of acceptance of the declaration to repay and confirmation of repayment made, introduced new handling procedure for higher-risk clients and Personal and Private Banking clients and modified the principles of monitoring instances of balance overdrawing for current accounts,
- as regards the restructuring process – the main change was its adaptation to the EBA Directive defining the types of forbearance available to clients in the event of lasting financial problems.
Credit risk measurement and monitoring tools
In 2014, ING Bank Śląski S.A. remained unwaveringly compliant with the requirements of the Advanced Internal Rating-Based Approach (AIRB) under Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and – as far as applicable – under PFSA Resolution 76/2010 of 10 March 2010 on the Scope and Detailed Principles of Capital Requirement Determination for Individual Risk Types. As part of those actions, among other things:
- the model management process was systematized by introduction of the comprehensive “Risk Model and Valuation Models Management Policy” and “Risk Model Validation Policy at ING Bank Śląski S.A.”,
- updated credit risk models, PD and LGD models for SME assets included, were gradually rolled out together with ING Group,
- the methodology for developing credit risk models was supplemented with the aspects of diversification of the approach to point-in-time (PIT) and through-the-cycle (TTC) modelling,
- the process of periodical analysis of adequacy of the loss identification period used to calculate provisions for corporate and retail IBNR portfolios was regulated,
- the methodology of economic (internal) capital estimation for credit risk was expanded at ING Bank Śląski S.A. with the economic capital requirement for credit risk due to the credit valuation adjustment (CVA), due to central counterparty exposures and due to other non-credit assets,
- the methodology of economic (internal) capital estimation was updated by introducing the downturn LGD parameter to replace the LGD parameter estimated using average losses sustained by the Bank during the full economic cycle,
- as regards the methodology of forming impairment losses (provisions) for impaired exposures for IBNR and INFSA portfolios, an approach based on the LGD parameter being dependent on the period of exposure default using the data available for current period was implemented, and
- the manner of corporate portfolio’s credit risk reporting was modified with special focus placed on changes to risk-weighted assets (RWA) and identification of risk parameters impacting the said changes.
Organisational changes in the Risk Management area:
In 2014, there were two areas separated within the Credit and Market Risk Management Division:
- corporate clients’ transactional risk area – performing the functions:
- acceptance of risk rating and acceptance of credit risk as well as risk management for individual credit exposures and supervised portfolios, and
- credit risk management for irregular portfolio, including restructuring and debt recovery of problem loans,
- the area of credit risk policy, modelling and reporting – performing the functions:
- determination of the credit risk management policy as well as supervision and control of its performance, implementation of credit risk management policies and procedures as well as guidelines on lending directions,
- implementation, development and management of regulatory credit risk models compliant with the regulators’ requirements and internal standards of the Bank, development of prognostic and predictive models used to support risk assessment and boost bank products sales, and
- credit risk measurement and reporting.
Furthermore, the functions of credit risk policy, modelling and reporting that were earlier performed by separate organisational units for retail and corporate lending portfolios were merged within competent departments to enhance consistency and obtain synergy of actions taken to manage credit risk in both areas.
Quality of lending portfolio and provisioning
As at the end of December 2014, the loans and cash advances granted to the ING Bank Śląski S.A. Capital Group clients (including leasing and factoring receivables, corporate bonds and municipal bonds) totalled PLN 58,750.4 million gross.
Impaired loans were worth PLN 2,379.4 million versus PLN 2,314.6 million as at the end of 2013. Thus, the share of the impaired portfolio in the entire lending portfolio of the Bank Capital Group went down from 4.6% in December 2013 to 4.1% as at the end of December 2014.
It should be noted that the quality of lending portfolios of the ING Bank Śląski S.A. Capital Group (both retail and corporate) is still significantly better than the average in the entire banking sector. The share of impaired receivables as at the end of December 2014 was 7.0% in the sector.
As at the end of December 2014, the ING Bank Śląski S.A. Capital Group had PLN 1,553.0 million worth of provisions for the lending portfolio. The impaired portfolio provisioning ratio was 65.3%.
Quality of portfolio of loans and cash loans extended to ING Bank Śląski S.A. Capital Group clients (PLN million)38
|Impairment loss and provisions||1,738.5||1,567.9||1,446.3|
|Non-impaired portfolio loss||167.3||151.4||128.4|
|Impaired portfolio loss||1,553.0||1,403.0||1,295.6|
|Provisions for off-balance sheet liabilities||18.2||13.5||22.3|
|Share of impaired portfolio||4.1%||4.6%||4.1%|
|Impaired portfolio provisioning ratio||65.3%||60.6%||68.4%|
|Exposure – Corporate Banking||36,781.0||31,476.7||29,877.7|
|Impairment loss and provisions||1,171.9||1,081.0||975.8|
|Non-impaired portfolio loss||79.5||47.9||58.0|
|Impaired portfolio loss||1,074.2||1,019.6||895.5|
|Provisions for off-balance sheet liabilities||18.2||13.5||22.3|
|Share of impaired portfolio||4.9%||5.8%||4.6%|
|Impaired portfolio provisioning ratio||59.7%||56.2%||65.0%|
|Exposure – Retail Banking||21,969.4||18,505.5||16,632.0|
|Non-impaired portfolio loss||87.8||103.5||70.4|
|Impaired portfolio loss||478.8||383.4||400.1|
|Share of impaired portfolio||2.6%||2.7%||3.1%|
|Impaired portfolio provisioning ratio||82.6%||76.5%||77.3%|
38 Including leasing and factoring receivables as well as corporate and municipal bonds.