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Bank and Building Society Credit Analysis
Analysing Bank and Building Society Credit Risk, (One Day)
Credit exposures are perhaps the greatest risks a treasury can run. That means you have to ask a few simple questions.
- Do you deposit money or have derivative exposures that lead to credit risk on banks and/or building societies?
- Do you have a structured approach for analysing and reviewing credit risk?
- Are you entirely comfortable with the decisions that have been made?
- Can you justify them?
- Are you too reliant on ratings?
This one day "in-house" course is designed for small and medium sized financial insitutions that don't have unlimited resources. It will give you a structured and rigorous approach to analysing financial institutions and monitoring your counterparty risk.
Here are the details:
Morning
What sort of institution are you dealing with?
- Nature of the bank’s activities
- Franchise strength and diversity
- Strategy and risk tolerance
- Management quality/reputation
- Ownership and legal status
- Size and status within domestic market
- Ratings history
Financial Analysis – both absolute and relative to the peer group
Earnings capacity
- Sources of revenue
- Consistency
- Net interest margins – how to judge
- Efficiency
- Impairment risk
Asset Quality
- Composition of loan portfolio, concentrations in regions or sectors
- Growth rates in asset portfolios
- Scale of non-performing loans and reserve coverage
- Quality of non-loan portfolios
Afternoon
Funding and Liquidity
- Mix of funding – retail versus wholesale
- Stability of retail deposit base
- Access to wholesale debt markets – inter-bank borrowing, bonds, securitisation
- Size of liquid assets
Capitalisation
- Capital ratio levels and trends
- Cushion above regulatory minimum requirements
- Access to equity markets
End of workshop and review
Related Documents
Treasury Consulting for Building Societies 
6th August 2010
In the current environment building societies are finding it difficult to keep up with the changes that are affecting them. One area that causes concern is treasury. That's because it's a specialist area and regulation has become much more intrusive. A common difficulty faced by societies when dealing with treasury risk is the limited expertise that is available. This is where consulting can help you. It has a number of advantages:
Treasury Management for Building Societies
Building Society Sourcebook 
Regulation > Consultation Paper 09/17: A Specialist Sourcebook for Building Societies June 2009
1st August 2009
The general thrust of the CP is that Societies must prove that they have both the management and the systems capable of effectively dealing with the risks they face. This is part of the enhanced supervisory approach now adopted by the FSA. It states that systems and controls must match the level of complexity in a firm's business model. The FSA will adopt a more interventionist approach in order to ensure this is the case. The proposal is that building societies and the regulator will determine whether the risk management policies adopted are appropriate. Where they are not the Society can either simplify its business or improve its risk management. The FSA also intends to limit societies diversifying their business without a full assessment of capital adequacy. The FSA has considered applying similar CP 17 guidance to the banking sector but has decided on account of the "lack of homogeneity" that this would not be practical and in their case a firm-by-firm approach is more appropriate. The CP addresses treasury and lending. It contains five approaches to treasury management, three areas of treasury guidance and three approaches to lending. Consultation closes on 5th September 2009 with implementation due in early 2010 when a new Building Societies Sourcebook (BSOCS) will replace IPRU-BSOC.
Credit valuation adjustment 
25th March 2017
Derivatives are traditionally valued by taking the expected future cash flows and then discounting them in accordance with interest rates to give today’s value (present value). Implicit is the assumption that the derivative contract will run to its contractual date and all the cash flows will be paid and received. However, in the real world this may not occur. The counterparty may default.
