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1、,kpmg,HANVIT BANK,Phase IA Deliverable,KPMG LLP,April 1999,Table of Contents,1 Executive summary2Background&Objectives3Credit Risk Management Overview4Commercial Lending5Retail Lending 6Portfolio Management&Total Exposure7Technology8KIS Modules9Summary&Next Steps10As Is Process MappingA.-Commercial
2、Loan Credit ProcessB.-Commercial Credit Risk AnalyticsC.-Information TechnologyD.-Retail Loan Credit Process,1.2.3.4.5.6.Total Exposure7.Technology(IT)8.KIS 9.10.As-Is mapping A.B.C.IT D.,1 Executive SummaryHanvit Bank is the largest commercial bank in Korea after the merger of Hanil Bank and CBK.As
3、 the largest bank in Korea,Hanvit Bank has the responsibility of leading the marketplace in all aspects of its banking operations.Since credit risk management is the most important area of the banks operations,Hanvit has initiated this Credit Risk Management consulting project to provide substantial
4、 improvements in all aspects of credit risk management.As a result of this project,Hanvit Bank will be equipped with an advanced credit risk management system that implements international best practices,adjusted to the unique Korean business environment.This project will be performed in four phases
5、;I.Developing the business requirementsII.Process and systems designIII.Process and systems development,andIV.Implementation.The first half of the Phase I is the diagnostic review of“As-Is”condition of Hanvit Bank credit risk management system.This report documents the results of the“As-Is”diagnosti
6、c on the current environment and our understanding of Korea Information Systems(KIS)applications and modules.Based on our evaluation of the current credit operations the following issues were noted:Recent changes due to the merger:New LOB structure for commercial and retail loans Centralization of c
7、ertain loan approval and administration functions New risk management business unit New credit review function,Executive Summary,1 Executive Summary,continuedWeaknesses noted:Balance between centralization and decentralization Good financial reporting system is needed for the new LOB structure Balan
8、ce between lending and credit strategy Over reliance on collateral in credit decision Heavy reliance on borrowers name,reputation and relationship in credit decision Inconsistencies noted due to the recent mergerIssues to be considered for improvement:Streamline certain credit processes(example,elim
9、ination of informal credit analysis)New relationship manager structure for proper risk management and effective marketingNew loan review function to monitor adherence to policies/proceduresNew performance evaluation system including compensation and incentive programs on the credit analysis and admi
10、nistration New scoring system reflecting primary elements of international best practice Advanced loan grading system;Distinctly defined loan grading system is required to differentiate the loan quality for early detection of potential problem loans and for better valuation of the loan portfolio New
11、 loan pricing system and portfolio management system,Executive Summary,1 Executive Summary,continuedCurrent Hanvit Bank credit structure and processes have a fair amount of characteristics consistent with other well-managed banks in the world.KPMG will design and recommend process improvements and i
12、mplementation of advanced decision-support that will substantially improve on the current approach to credit risk management.The Phase IB effort to follow will develop the detailed vision and functional design to support this improvement effort.No matter how advanced the credit system and the scorin
13、g models are,these tools can not be completely replaced by the skill and judgement of the experienced and qualified credit officers.,Executive Summary,1.Credit Risk Management.4 I.Business II.III.IV.1“As-Is”.:Credit Review,Executive Summary,1():(LOB),:()RM Loan review International Best Practice/Rat
14、ing:,Executive Summary,1().KPMG.1B.,Executive Summary,Table of Contents,1 Executive summary2Background&Objectives3Credit Risk Management Overview4Commercial Lending5Retail Lending 6Portfolio Management&Total Exposure7Technology8KIS Modules9Summary&Next Steps10As Is Process MappingA.-Commercial Loan
15、Credit ProcessB.-Commercial Credit Risk AnalyticsC.-Information TechnologyD.-Retail Loan Credit Process,1.2.3.4.5.6.Total Exposure7.Technology(IT)8.KIS 9.10.As-Is mapping A.B.C.IT D.,2.Background&Objectives,2.1 BackgroundIn January 1999,Hanil Bank and Commercial Bank of Korea joined forces to create
16、 Hanvit Bank,the largest capitalized Bank In KoreaWith combined total assets over 100 trillion Won,Hanvit Bank is set to establish itself as Koreas leading financial institutionThe Bank is undertaking a number of initiatives to create a competitive and efficient bank,addressing weaknesses that gave
17、rise to problems in the pastOne of the Banks key initiatives is to elevate its risk management and credit culture to a higher international standard Another key requirement is to satisfy the FSC MOU guidelines for improving the overall risk management function which are defined by a set of specific
18、milestones,2.1 1999 1,.100.,.,2.1 Background(continued)In connection with this initiative,Hanvit Bank has selected KPMG to assist it in enhancing its credit risk management processes and skills,and implementing credit risk applications in:Credit analysis,scoring and risk rating for commercial loans;
19、Credit scoring for retail loans;Ongoing credit quality monitoring and early warning;andTotal credit risk exposure controlThe Bank has also selected Korean Information Systems(KIS)as the primary vendor for the credit risk management system,2.Background&Objectives,2.1 applications KPMG.-,scoring,ratin
20、g-scoring-monitoring-Total credit risk exposure()primary vendor,2.Background&Objectives,2.2 Overview of the project Pursuant to our project presentation and plan,KPMG is approaching this engagement in four phasesPhase I-Developing the Business Requirements;Phase II-Process and Systems Design;Phase I
21、II-Process and Systems Development;andPhase IV-ImplementationIn order to ensure that the Phase I business requirement analysis is appropriately focused,we divided Phase I into 2 partsPhase IA-“As-Is”diagnostic;andPhase IB-“To-Be”requirements definition,2.2 KPMG 4.-1:-2:-3:-4:1 1A 1B 2.-1A:As-Is-1B:T
22、o-Be requirement,2.Background&Objectives,2.2 Overview of the project(continued)The Phase IA diagnostic is designed to establish an appropriate starting point for refining the proposed credit risk management framework,project objectives and prioritiesIn order to develop an understanding of the Bank f
23、or preparation of this deliverable,we:Teamed with 14 professionals from the Bank dedicated to this project to begin the knowledge transfer processDivided the KPMG/Bank teams into four sub-teams to focus the investigation and planning efforts around wholesale,retail,analytics(models)and technologyCon
24、ducted over 40 interviews of individuals from various lines of business,credit,operational and technology functions,2.2 1A,.-14-KPMG 4,()IT.-,40.,2.Background&Objectives,2.2 Overview of the project(continued)Developing an understanding of the Bank-continued:Collected and reviewed a substantial amoun
25、t of information including:organization chartsmanagement reportscredit policies and procedurescredit and lending related formssample credit analysis and loan write-upssample credit filestechnology architecture schematicsKIS system and model descriptionsPWC merger integration reportsConducted worksho
26、p sessions with KIS and the Bank,2.2-(sample)(sample)KIS PWC-KIS/,2.Background&Objectives,2.2 Overview of the project(continued)Developing an understanding of the Bank-continued:Prepared detailed process flows for:Wholesale and retail lending processesBank credit risk applications including scoringK
27、IS credit scoring modelsLending and Credit related technology environment,2.2-Scoring application-KIS scoring model-,2.Background&Objectives,2.2 Overview of the project(continued)This report represents the deliverables from Phase IA work:It summarizes our understanding of the current and proposed;or
28、ganization structurefunctional responsibilitiescredit policies and processeslending and credit process flowscredit risk systems and modelstechnology environmentIt also presents key issues and implications for the project in establishing the proposed credit management frameworkFinally,it summarizes o
29、ur understanding of the KIS application and modules,2.2 Phase 1A-.-KIS application.,2.Background&Objectives,2.2 Overview of the project(continued)This report is organized as follows:Executive SummaryBackground and ObjectivesCredit Risk Management OverviewCommercial LendingRetail LendingPortfolio Man
30、agement and Total ExposureTechnology IssuesKIS ModulesSummary and Next StepsAs-is Process maps depicting retail,wholesale,analytic applications and IT systems,2.2-Total Exposure-IT-KIS-As-Is map,Table of Contents,1Executive summary2Background&Objectives3Credit Risk Management Overview4Commercial Len
31、ding5Retail Lending 6Portfolio Management&Total Exposure7Technology8KIS Modules9Summary&Next Steps10As Is Process MappingA.-Commercial Loan Credit ProcessB.-Commercial Credit Risk AnalyticsC.-Information TechnologyD.-Retail Loan Credit Process,1.2.3.4.5.6.Total Exposure7.Technology(IT)8.KIS 9.10.As-
32、Is mapping A.B.C.IT D.,3.1 Credit strategy,organization and direction3.1.a ObservationsHanvit is a full service bank offering credit related services to domestic and international customers in commercial(corporate and SME)and retail(personal loans and credit card)These services are provided through
33、a combined branch network of over 800 branchesServices are also provided through overseas offices located throughout Asia,the US and Europe/Middle EastCommercial loans represent approximately 85%of all loan activityCorporate loans represent approximately 50-60%of commercial loan activitySME represen
34、ts approximately 40-50%of commercial loan activityCommercial customer exposure can exist across loans,trust loans,bonds and equities,3.Credit Risk Management Overview,3.1,3.1a(,),800,/85%-5060%-4050%,.,3.Credit Risk Management Overview,3.1 Credit strategy,organization and direction(continued)3.1.a O
35、bservations(continued)The Bank intends to fundamentally shift its banking focus into the following areas:Wholesale:Focus on select institutions and top end of middle marketDevelop investment banking focused on fee generation vs.interest generationInternationalFocus on serving the Banks Korean client
36、 baseRetailDevelop specific value products and services for the up-scale marketFocus and enhance fee generating activities,both in-house and through alliancesDevelop wider set of channels to serve mass market,3.1,3.1a-,/-/,3.1 Credit strategy,organization and direction(continued)3.1.a Observations(c
37、ontinued)Hanvit is changing from a branch to a line-of-business(LOB)structureCredit-related LOBs include Retail and CorporateRetail includes consumer banking and credit cardCorporate includes large corporate,SME and internationalMany credit-related functions and activities are being centralizedLarge
38、 Corporate will be centralized in Head OfficeSMEs will be centralized in a regional hub-and-spoke organizationRetail credit approval and administration will be centralizedBank Card credit approval will be centralized New credit related functional responsibilities are being organized and definedRedef
39、ined Credit Management Business UnitNew Risk Management Business UnitNew credit and risk management committeesNew independent credit review function,3.Credit Risk Management Overview,3.1,3.1 a LOB-LOB:,:,-head office hub-and-spoke-,credit review,3.Credit Risk Management Overview,3.1 Credit strategy,
40、organization and direction(continued)3.1.a Observations(Continued)The regulatory environment is also evolving and becoming more demanding:Federation of Korean Banks is developing a draft report on international best practices in lendingFSS is introducing a new loan classification systemFSS is reduci
41、ng banks legal lending limits to individual borrowersThe MOU requires that the bank achieve a specific set of milestones for improved risk management,3.1,3.1 a-International Best Practice-MOU,3.1 Credit strategy,organization and direction3.1.b Issues for considerationAlthough KPMG is not directly in
42、volved in the LOB reorganization,we offer the following observations for the Banks considerationThe LOB structure is consistent with the direction of many best practice banksThe Hanvit organization structure and functional responsibilities are still evolving and not yet well understoodChange of this
43、 magnitude has been accompanied by concern for some undergoing changes in responsibilitiesShift from branch to LOB lending and credit organization must be well managed and effectively communicatedThe Bank must take care to strike an appropriate balance between centralization for purposes of consiste
44、ncy and efficiency,and decentralization needed to meet customer expectations and perception of service qualityCore financial reporting systems will need to be re-aligned to support the LOB organization and customer and product profitability analysis,3.Credit Risk Management Overview,3.1,3.1 b KPMG L
45、OB,.LOB Best Pracice.LOB-LOB,.,3.1 Credit strategy,organization and direction3.1.b Issues for consideration(continued)It will be essential for the Bank to strike an appropriate balance between lending and credit strategyLending strategy tends to be shorter-term driven by market demandsCredit strateg
46、y takes a longer-term view aimed at achieving desired portfolio mix and optimal profitability Without appropriate balance,lending tends to be reactive rather than proactive aimed at capitalizing on opportunities in the market while avoiding inappropriate concentrations or problematic portfolio segme
47、ntsWhile the proposed CRMS will improve quality and consistency of credit decisions,it is not sufficientNo system can compensate for ineffective processes and poor skillsCredit training is essential to elevate the lending and credit skillsThe lending and credit process must strike an appropriate bal
48、ance between decision support and skilled,experienced judgment,3.Credit Risk Management Overview,3.1,3.1 b-.-,.-,.CRMS.,-.-,.-system.,3.Credit Risk Management Overview,3.1 Credit strategy,organization and direction(continued)3.1.b Issues for considerationAn independent loan review function is a nece
49、ssary addition to the credit processLoan Review is generally viewed as one of the most critical mechanisms to provide proper checks and balances in the credit risk management processThe Banks credit policies and procedures must continue to evolve with continued change in the strategy,organization,fu
50、nctional responsibilities and regulatory environment,3.1,3.1 b loan review-loan review.,.,Table of Contents,1Executive summary2Background&Objectives3Credit Risk Management Overview4Commercial Lending5Retail Lending 6Portfolio Management&Total Exposure7Technology8KIS Modules9Summary&Next Steps10As Is
