The Central Bank of Barbados issues Credit Risk Management Guideline to assist financial institutions in meeting their obligations relating to this key risk area.

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INTRODUCTION

The Central Bank of Barbados (Bank), in furtherance of its responsibility for the regulation and supervision of licensees under the Financial Institutions Act, 1996-16 and the International Financial Services Act, 2002-5, has developed this Guideline to provide guidance to licensees on their obligations as it relates to the management of credit risk.

Credit risk is the current or prospective risk to earnings and capital arising from the failure of a counterparty to meet its contractual obligations. It occurs in both banking and trading book activities, encompassing loans and diverse financial instruments, including bonds, foreign exchange, derivatives, commitments and guarantees. Credit risk can result from either on- or off-balance sheet activities and is often the most significant risk some licensees face and therefore must be well managed. Credit risk cannot be managed in isolation from other risks and its management should therefore be conducted within the context of an enterprise risk management programme that seeks to promote the overall safety and soundness of the licensee and that is appropriate for the nature, complexity and sophistication of the business activities.

This Guideline focuses on sound practices in credit risk management, outlining licensees’ responsibility for managing and controlling exposure to credit risk and setting out the Bank’s expectations in relation to the minimum standards for sound credit risk management by all licensees. While the structure of the Guideline focuses on the credit risk associated with lending, some aspects of the Guideline may also be applicable to other sources of credit risk, including those incurred in investment management.

As part of its ongoing supervisory activities, the Bank will assess licensees’ credit risk management processes i.e. strategies, policies, procedures and practices against the criteria set out in this Guideline. Licensees should be able to demonstrate that they have implemented adequate measures to manage credit risk. Licensees that have a credit risk process that is assessed as less than satisfactory will be required to take appropriate actions to promptly improve their credit risk management process.

Click here for Credit Risk Management Guideline...

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