Credit Risk Culture
Credit Risk Culture denotes the combined set of Corporate Values, norms, attitudes, competencies and behavior related to credit risk awareness (perception of credit risk) and credit risk taking (active business decisions in granting credit) that determine a credit institution's commitment to and style of Credit Risk Management.
Institutions should develop a credit risk culture as part of the overall risk culture through policies, communication and staff training, in accordance with the EBA Guidelines on internal governance.
The credit risk culture should include an adequate tone from the top and ensure that credit is granted to borrowers who, to the institution’s best knowledge at the time of granting the credit, will be able to fulfil the terms and conditions of the credit agreement, and is secured, when relevant, by sufficient and appropriate collateral, where relevant, and considering the impact on the institution’s capital position and profitability, and sustainability, and related environmental, social and governance (ESG) factors.
Institutions should ensure that a credit risk culture is implemented effectively across all levels of the institution, and that all members of staff involved in the credit risk-taking, credit risk management and monitoring processes are fully aware of it and they will be held accountable for their actions.
Institutions should adopt policies and processes to monitor adherence of all staff members involved in credit-granting, monitoring and control processes to the institution’s credit risk culture (e.g. by means of self-assessments carried out by staff members).
In situations in which there are noted deficiencies in the credit culture, evidenced either via an institution’s self-assessment or via supervisory actions, the institution should take well-defined, outcome-driven and timely actions to remediate these deficiencies.
The credit risk strategy, credit policies and procedures should be tailored to mitigate any potential negative effects arising from a poor credit culture.
- EBA, Guidelines on loan origination and monitoring EBA/GL/2020/06