Credit Risk Questionnaire
Section 1 – Contact Information
To be completed by all credit institutions that have exposure to credit risk.
If you do not provide lending facilities please return form appropriately annotated ‘Not applicable’
1.1
Licenceholder Name and Address
Name of
Licenceholder
Address
1.2
Please give the name and contact details of two individuals who will be able to assist in the event
of queries.
First Contact
Second Contact
Name
Position
Telephone
Fax
E-Mail address
Should you have any queries concerning the completion of this questionnaire, please contact the Credit Risk Project
Coordinator, David Clucas, at the Financial Supervision Commission on 689316, or e-mail [email protected] or
[email protected]
Page 1 of 14
Section 2 – Background
2.0
Lending Book:
Please provide a copy of your most recent internal audit credit review.
a)
Date of last review (DD/MM/YYYY)
b)
How often do internal audits take place in relation to credit risk/ lending?
2.1
Total advances (in 000’s Sterling equivalent)
a)
31/12/2002
b)
31/12/2003
c)
31/12/2004
d)
Forecast 31/12/2005
2.2
Principal Types of Lending
(in 000’s Sterling equivalent)
a)
Mortgage - residential
b)
Other property related including buy to let
c)
Leveraged or geared lending including capital
release schemes
/
/
£
$
€
(
)
£
$
€
(
)
d)
e)
f)
g)
Page 2 of 14
Section 2 – Background
2.3
Breakdown of lending portfolio as a % as at 31st December 2004
Category:
(in 000’s Sterling equivalent)
a)
Government
b)
Commercial (Secured)
c)
Commercial (Unsecured)
d)
Personal (Secured)
e)
Personal (Unsecured)
£
$
€
(
)
Totals of each as %
2.4.1
Mortgage Lending:
%
What is the average LTV of a loan secured by a residential property? Owner occupier (if available)
What is the average LTV of a loan secured by a residential property? Buy to let (if available)
2.4.2
Leveraged or Geared Lending facilities:
If you provide leveraged or geared lending please provide the following information: -
a)
Minimum LTV
%
b)
Maximum LTV
%
c)
Covenant Test - First
%
c)
Covenant Test - Final
%
d)
How often are these monitored?
Page 3 of 14
Section 2 – Background
2.4.3
Introduced business
a)
Is introduced business accepted in respect of mortgage business?
b)
Is introduced business accepted in respect of providing geared lending arrangements or a
capital release against investment bonds?
c)
Is this on the basis of a fixed fee?
d)
Is the interest margin ever shared with the Introducer?
e)
Is the share / split arrangement transparent to the customer in respect of any
arrangements?
f)
Are regulated mortgage contracts are sold in UK?
g)
Has the institution registered with the FSA in UK in respect of the above?
h)
Is any other type of introduced business accepted (if yes please insert in 3.9)
2.4.4
Cash backed arrangements:
Approximately what % of the lending book consists of cash backed arrangements?
2.4.5
Syndicated Arrangements:
Yes
No
%
Yes
No
Are facilities managed on behalf of any third party?
2.5
Approval process / discretionary powers:
Please provide separately a breakdown of all sanctioning authorities.
Note: Sanctioning authorities should show up to what level a member of staff can lend before they have to refer &
who is responsible for approval over their approved limit (role).
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Approval Process:
a)
Are sanction levels reduced/ treated differently with regard to new business?
b)
Are procedures in place to ensure that people making credit decisions have no conflict of
interest?
c)
Is there a process in place to report any unauthorised borrowing above individual levels?
2.7
Staff Experience & Capability:
b)
Are staff that provide lending also responsible for arranging security?
c)
Are staff required to sit professional examinations?
d)
Are staff that manage customer relationships provided with discretion to provide advances?
2.8
Frequency of Training:
a)
Various aspects of the credit risk process
b)
Credit Policy
c)
Money Laundering & KYC training
d)
Complaints and Data Protection training
Half
Yearly
Do relevant staff receive training to provide lending services?
Qtrly
a)
Yes
No
Yes
No
Other
2.6
Annually
Section 2 – Background
Page 5 of 14
b)
Delinquent or dormant accounts
c)
Asset Quality reports
d)
Credit ratings reports
e)
Large payments
f)
Accounts with large turnover
g)
Account/ Limit reviews
h)
Details of all limits marked
i)
Total Asset Book
3.1
Control - continued.
Are reports compiled: -
a)
Directly from the mainframe computer?
b)
Produced from other system data and entered into a spreadsheet?
c)
Manual process?
d)
Other? (Pleases specify on 3.9 if appropriate)
produced
Monthly
Not
Out of order positions
Other
a)
Weekly
3.0
Control:
In terms of key controls please indicate on the matrix below how
often reports are produced on the following: -
Daily
Section 3– Control & Monitoring
Yes
No
Page 6 of 14
a)
Out of order positions
b)
Asset Quality trends
c)
Review of sanctioned facilities (within approved discretions)
d)
Exposure positions re sector/ type of lending
e)
Loan arrears
f)
Potential bad debts / provisions
g)
Credit Policy monitoring
h)
Credit policy review
3.3
Not
applicable
Other
Monthly
Weekly
3.2
Monitoring: Please indicate how often the following tasks are
performed.
(Whilst reports may be produced in Section 3 this area is designed
to ascertain how often some defined aspects are reviewed)
Dailey
Section 3– Control & Monitoring
Responsibility for credit monitoring:
a)
Who performs the regular control review process?
(Role)
b)
Who performs the regular monitoring overview
process? (Role)
c)
How often does the most senior manager review
the monitoring process?
.4
Provisioning process:
a)
If there are any general provisions under IAS principals what are the current level as a % of total
book?
b)
What are the current level of specific provisions as a % of total book
c)
What is the current level of bad debts as a % of total book?
%
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Section 3– Control & Monitoring
.4
Provisioning process:
d)
How do provisions compare with 18 months ago as a %?
3.4.1
%
+/(-)
Provisioning process - arrears
When is an account deemed to be in default/ arrears?
3.4.2
Provisioning process - general
a)
Are there any specific policies in place in respect of problem advances, including provisions?
d)
Have any specific provisions been made for misselling where there is an underlying loan?
c)
Is any information maintained for the number of loans in arrears that have subsequently
been rescheduled?
d)
Have any exposures that have been written off been recovered in last 18 months?
e)
Is there any ongoing litigation where a provision has not been made?
f)
Have any specific provisions been made against a loan type? (If yes please insert details in 3.9)
3.5
Documentation:
a)
Is a legal opinion ever obtained in respect of any arrangements?
(If ‘yes’ please provide details when this would occur in 3.9)
b)
Is a facility letter prepared for all advances?
c)
Is this a fixed template?
e)
Is the efficacy of any of your products at risk from specific changes in the legal, fiscal or
regulatory requirements of other jurisdictions? (If yes please insert details in 3.9)
Yes
No
Yes
No
Y/N
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Section 3– Control & Monitoring
3.6
Collateral/ security:
a)
Are there any procedures to confirm that security is in order prior to release of funds?
b)
Is there a procedure in place to review security documentation periodically?
c)
Are details of insurance cover obtained for property related exposure?
(If details of insurance cover are obtained in respect of other assets please explain)
c)
Who prepares security documentation? (Position)
d)
Who reviews security documentation?
3.7
Other:
No
Yes
No
Yes
No
(Position)
a)
Does the credit institution lend in any circumstances where interest is paid less frequently
than quarterly? (If ‘yes’ please provide details in section 3.9)
b)
Is there a formal complaints procedure in place for lending related issues?
c)
Does the Bank / business unit have any responsibility for credit card debts?
d)
Are any facilities managed on behalf of any third party including Group?
e)
Does the credit institution provide equity release/ reversionary finance to the over 60’s
3.8
Yes
Risk Profile:
Are your credit risks managed and controlled from the Isle of Man?
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Section 3– Control & Monitoring
3.9
Other information: Where there was insufficient room in previous sections or if there is any some other
information you think is relevant please advise below:
Page 10 of 14
Section 4 – Corporate Governance
b)
Is there a separate credit committee with delegated responsibility?
4.1
Where is the bank’s credit committee located?
a)
Isle of Man, or other (If other please specify)
4.2
Review of policies & procedures:
How often are the following areas reviewed?
a)
Large credit risk reports
b)
Credit Policy
c)
Individual sector / customer exposure
d)
Individual Lending discretions
e)
Provisioning & Bad debts policy
f)
Lending related complaints
g)
Competence and training of personnel
4.3
Credit Risk – Credit Policy: Does credit policy cover: -
a)
Loan grading and risk classification?
b)
Large exposure limits for loans by Region or individual countries?
c)
Large exposure limits for loans by Economic sector?
Yes
Other
(specify)
Does the Board review credit policies?
No
Half
Yearly
a)
Yes
Qtrly
Board Overview:
Monthly
4.0
No
N/A
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Section 4 – Corporate Governance
4.3
Credit Risk – Credit Policy: Does credit policy cover: -
d)
Large exposure limits for loans by Type of client?
e)
Groupings/Related /connected party lending?
f)
Collateral, and when this should be taken?
g)
Minimum interest margin per sector?
h)
Covenant adherence?
i)
Guarantees and other contingent liabilities?
j)
Currency exchange risk?
k)
Complaints procedure re lending related products?
4.4
Yes
Other:
a)
If Lending Management for the bank is performed outside of the Isle of Man are the
appropriate legal agreements in place?
b)
If Credit Management is performed for other parts of the Group (different entity) and/ or 3 rd
parties, are the appropriate legal agreements in place?
c)
Is the other entity’s regulator aware of the arrangement?
d)
Has a disaster recovery plan been agreed?
e)
If ‘yes’ has it been tested?
No
N/A
Yes
No
Thank you for completing this questionnaire
Page 12 of 14
Section 5– Guidance notes
Guidance notes for completion of Credit Questionnaire


If you do not provide Lending services then this questionnaire does not apply but to enable us to keep a
track of responses please return the form appropriately annotated ‘not applicable’.
It is also not required in respect of interbank placements and deposits.
The purpose of the questionnaire is to provide a high level overview of a Licence holder’s attitude to credit risk.
Whilst every effort has been made to keep the questionnaire as simple as possible it is accepted that some
institutions may have lending responsibilities split between different departments. In these cases it might actually be
easier for the institution to provide a structure chart & a broad overview to support answers to some of the
sections as detailed below.
The intention is that once the information has been assessed a focus visit will follow and the aim is to keep this to a
day, or day and a half maximum. With this in mind it would be appreciated if a consolidated picture could be
presented wherever possible.
The questionnaire is intended to be self-explanatory but the following notes are to provide some guidance.
Section 2: Background
2.0 It is quite possible where lending responsibilities are split across the business that more than one internal credit
audit has been done and a copy of the relevant report may have already been sent to the Commission. Apologies if
this is the case but it would be extremely useful to have a copy of the latest internal credit audit reports for the
purpose of this exercise. The background information will provide an overview of the organisation and the depth of
the review process.
2.1 The data for the completion of the questionnaire should be 31st December but if your accounting period is
different please provide this information instead.
2.2 There is a perception that a few areas are dominant in the lending arena and this section is designed to ascertain
exposure to these and there are spaces for including other types of significant exposures, if applicable. (See also
2.4.1 – 2.4.3).
2.3 This is designed to show how the lending book is composed between primarily commercial and personal and
also currency exposure. Column 4 in brackets is designed for any other material currency exposure and if more
space is required provide brief details in 3.9 and we will discuss. For purposes of this (and provided management
information permits) put ‘buy to let’ mortgages in commercial.
2.4.1 This should be the average LTV of a residential mortgage advance for owner-occupier & buy to let if available.
2.4.2 The minimum and maximum LTV should be provided from cases agreed over the last 6 months. There may
also be a range of covenant tests in respect of various schemes. Provide the parameters that apply to your current
scheme but if there is ‘material’ exposure elsewhere please provide brief details in 3.9
2.4.3 It is expected that most introduced business will be mortgages, both buy to let and owner-occupier, plus
geared facilities that includes traded endowments and capital releases against investment bonds. If introduced
business in respect of capital releases or reversionary advances to the over 60’s are provided, and these are material
please advise details in 3.9. We are aware that some licence holders have registered with the FSA in order to
promote regulated mortgage contracts in the UK and expect to be will be liasing with them at some stage in respect
of this activity.
2.4.4 / 2.4.5 If cash backed or syndicated arrangements are provided to group or beyond it would be expected that
there is a service level agreement in place.
2.5 With some of the larger institutions there may be separate reporting lines in respect of different parts of the
organisation and it might be easier to provide this information separately. As the note advises, the
Page 13 of 14
Section 5– Guidance notes
purpose of this is to understand the hierarchical structure and who takes responsibility for approval over a
prescribed limit. This should include on and off Island sanctioning levels.
2.6 If there are exceptions because different parts of a group deal with matters in a different manner then annotate
the box for the aspect that would normally apply. This will be discussed in more detail if necessary as part of the
visit programme.
2.7 / 2.8 This is intended to establish the ‘norm’ and a broad overview only. It is accepted that some staff will be
qualified as a result of many years experience.
Section 3: Control & Monitoring
3.0 – 3.3 Some reports may be produced more often than one of the frequencies mentioned, in which case annotate
more than one box. There may be systems in place that enables monitoring to be done by someone different to the
person who actions the reports. This may be done remotely and should be evidenced by an audit trail.
3.4 Under International Accounting Standards (‘IAS’) principles a general provision should only now be made when
there is historic data or other business reason to justify, consequently the Commission would expect to see
information to support any significant alteration from any previous year. Specific provisions could be against a
customer or group of customers where normal avenues of recovery suggest there may be a shortfall. This is
required as a percentage.
3.5 Different organisations have different policies when it comes down to a legal opinion may be requested. Whilst a
yes/no option does not give any scope to advise that this is sometimes obtained - it is the norm that we are looking
to and this will be picked up later from a testing exercise later on.
Example: Where borrowing has been agreed for a Company / Trust in one jurisdiction for the liabilities of a Company / Trust /
individual in another and where the security is, say an investment bond we would like to establish if a legal opinion would /
would not be considered.
3.7 Other aspects that are considered important as they could have a material affect on a licenceholders operations.
Section 4: Corporate Governance
This is designed to ascertain if appropriate control and governance is exercised.
If there is any aspect that has not been covered in these notes please telephone David Clucas on 689316.
Page 14 of 14