Credit Risk Management: Strategic Credit Risk Management

At a strategic level, bank management seek to deliver consistent performance while ensuring that the balance sheet is robust should adverse events occur. This requires a clearly-defined credit risk appetite, which must not be overly-focused on short-term returns. It also requires an appropriate and effectively implemented credit risk management framework to ensure that credit risks are accepted and managed within credit risk appetite. Alongside this robust credit risk management framework a strong credit culture is needed. Here we describe in detail the requirements for banks to manage credit risk at a strategic level and some of the challenges that banks face in that regard.