Principles for the Management of Credit Risk

Summary

This is a short guidance notice in which the Commission endorses the Basel Committee's 2000 paper 'Principles for the Management of Credit Risk' as the definitive international standard for credit risk management. It applies to banks licensed in Guernsey and sets expectations for how they should engage with and apply those principles, proportionate to the scale and nature of their business.

• Endorsement: The Commission expects banks to have taken account of the Basel Committee's credit risk principles.
• Proportionality: Banks without credit books or with simpler operations are only expected to adopt principles relevant and proportionate to their activities.
• Staff awareness: Banks with a credit function should ensure appropriate staff have read the Basel paper and adopt relevant principles.
• Supervisory review: Compliance will be assessed during on-site credit reviews, with specific briefings given ahead of such visits.
• Common credit problems: Banks should also pay attention to the Appendix on 'Common Sources of Major Credit Problems', covering concentrations, due diligence failures and inadequate monitoring.

The notice does not impose new formal rules but reissues long-standing guidance, originally issued in May 2003 and reissued in November 2021, confirming it remains current supervisory expectation.

Key obligations

• Banks should ensure that, if they have a credit function, appropriate staff have read the Basel Committee's 'Principles for the Management of Credit Risk' paper.
• Banks should adopt the principles in the Basel paper where appropriate to their business.
• Banks should pay attention to the Appendix on 'Common Sources of Major Credit Problems' when managing credit risk.

Applies to

banks