Hedging Credit Risk

• Hedging credit risk

The buyer of a credit default swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the debt security. In doing so, the risk of default is transferred from the holder of the fixed income security to the seller of the swap. For example, the buyer of a credit default swap will be entitled to the par value of the contract by the seller of the swap, should the third party default on payments. By purchasing a swap, the buyer is transferring the risk that a debt security will default.

Trade finance

The financing of international trade. Trade finance includes such activities as lending, issuing letters of credit, factoring, export credit and insurance. Companies involved with trade finance include importers and exporters, banks and financiers, insurers and export credit agencies, as well as other service providers. Trade finance is of vital importance to the global economy, with the World Trade Organization estimating that 80 to 90% of global trade is reliant on this method of financing.

• Responsible for ensuring the implementation and compliance of the credit and risk policies

• Ensure reporting on time

• For PCL numbers
• For LGD grading

• Working closely with the assigned teams in the Commercial and Corporate Lending Department to ensure the portfolio management is in line with the business and risk objectives of the Bank. 
  

• Manage concentration risk – I was involved in this, we were regularly given upper limit for the industry exposure and we were supposed to collaborate to stay within assigned limits.
• Hedging credit portfolio with Credit Default Swap – I was not actively a part of this, but I know how these guys transferred the risk.
• Hold or sell portfolio, when at what cost etc

• Credit risk management
  

• What is Credit Risk
• End to end cycle

• Collect information from client – financial and non-financial
• 5C analysis

• Financial

• Liquidity
• Leverage

• Non-financial

• Quality of management
• Historical performance
• Financials provided on time or not
• Cos performance vs its targets
• How it can respond to financial stress

• Unique about my experience

• Have experience in Indian and Canadian Commercial markets

• How can I contribute

• Quick learner
• Can contribute by combining best of my Indian and Canadian experience.

• Enhanced risk measures and control
  

• Risk identification – Use 5C, financial, non-financial analysis
• Risk mitigation

• Risk based pricing
• Covenants – financial and non-financial
• Credit Insurance and Credit Derivatives
• Diversification
• Deposit Insurance

Stress testing – impact on capital, liquidity

Historical

Effect on variable --- effect on PD and EAD and LGD --- impact on capital

• Basel implementation for the Bank

• Role of credit risk in basel implementation
• My knowledge on basel
• How can I contribute
  

1. Constantly review the assigned portfolio to monitor the credit quality. Report the same to the AVP, Credit Risk on regular basis.

• Review the assigned portfolio – process, examples

• Portfolio composition – how is portfolio monitored, best way

• Report to AVP – what kind of irregularities and information is reported or alerted?

• Prepare example for the end to end process –

2. Carry out credit analysis of lending proposals including commercial and syndication loans.

• Financial analysis – list out parameters

• Non-financial analysis – list out parameters

• Commercial proposals

• Syndication loans

• Pricing

• Covenants

• End to end process examples at Scotia and at India

• End to end process including documentation requirements e.g. lawyers etc

3. Provide research support to AVP, Credit Risk on external developments (industry, sector trends, etc.) and their potential effects on the assigned portfolio.