Monitoring of Credit Exposures and Borrowers

Definition

Monitoring of Credit Exposures and Borrowers is a subset of the Credit Risk Monitoring framework that focuses on the monitoring of outstanding amounts and borrower behaviour.

EBA Requirements

As part of the monitoring of credit exposures and borrowers, institutions should monitor all outstanding amounts and limits, and whether the borrower is meeting repayment obligations, as laid down in the credit agreement, and is in line with the conditions set at the point of credit granting, such as adherence to credit metrics and covenants.

Institutions should also monitor whether the borrower and collateral are in line with the credit risk policies and conditions set at the point of credit granting, e.g. whether the value of collateral and other credit enhancement techniques are maintained, whether any applicable covenants are maintained, and whether there has been a negative development in these factors or in other factors that affect the risk profile of the borrower and/or credit facilities.

Institutions should continuously monitor and assess the quality of credit exposures and the financial situation of borrowers, to ensure that subsequent changes in credit risk, in respect of the initial recognition of the lending exposures, can be identified and quantified.

The ongoing monitoring should be based on internal information regarding the credit facilities and borrowers’ payment practices, as well as the use of external sources (e.g. credit bureaux, directly from the borrower), when relevant.

In addition, institutions should also monitor concentration measures against the values specified in their credit risk appetite, policies and procedures, including, where relevant, by product, geography, industry, collateral features (type, location), and quality of portfolios, sub- portfolios and exposures.

Institutions engaged in syndicating leveraged transactions should implement internal standards and monitoring functions for these activities. Institutions should identify transactions subject to failed syndications — that is, transaction that were not syndicated within 90 days following the commitment date. Institutions should establish a dedicated framework to deal with these ‘hung transactions’ in terms of holding strategy, booking and accounting practices, regulatory classification and subsequent capital requirements calculation.

See Also

• EBA Guidelines on Loan Origination and Monitoring