A ssessment of S ubsidiaries L oan P ortfolios A nd C ooperation W ith H ost Supervisors Vienna 21 October 2014 Boris Simunovic CFA FRM OeNB OnSite Banking ID: 541068
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Slide1
Supervisory
A
ssessment
of
S
ubsidiaries
‘
L
oan
P
ortfolios
A
nd
C
ooperation
W
ith
H
ost Supervisors
Vienna, 21.
October
2014
Boris Simunovic CFA, FRM
OeNB
On-Site Banking
Inspections
Division –
Significant
Institutions
Boris.simunovic@oenb.atSlide2
Austrian Banks:
Subsidiaries In More Than 15 CountriesSlide3
Content
Austrian Banks and Their
Subsidiaries
The
Importance
of
On-Site
Loan
Book Assessment
OeNBs
A
pproach
to
S
upervisory
On-Site
C
ooperation
Overview
:
Loan
File Assessment in an IFRS
Context
Loan
Quality Assessment
and
Supervisory
Cooperation
Q&ASlide4
On-Site Look at
Subsidiaries‘ Loan Books I
s
Essential
Loans
are
originated
,
booked
and
serviced
locally
s
ingle-
loan
-information
locally
available
in
greater
detail
h
eterogeneity
:
k
nowledge
of
local
market
conditions
essential
when
assessing
credit
quality
Local
subsidiaries
subject
to
local
as
well
as
IFRS
accounting
m
eeting
local
requirements
naturally
has
a high
priority
for
banks
u
nderstanding
differences
local
vs.
group
(IFRS)
regulation
is
important
Understand
objectives
,
motives
and
concerns
of
local
regulator
h
ow
do
local
specifics
affect
group
steering
(e.g
.
d
ividends
,
products
,
capital
…)
l
ocal
regulatory
information
often
helpful
in
identifying
IFRS
issues
(e.g.
forbearance
)Slide5
All
OeNB On-Site Activity Within Legal Framework
OENB
emphasizes
strong
c
ooperation
with
local
supervisors
p
urpose
and
target
of
examination
shared
in
opening
meeting
with
host
supervisor
i
mportant
to
understand
respective
bank‘s
standing
in
the
local
market
(
strategy
,
issues
…)
Host
supervisors
invited
to
participate
in
examination
l
ocal
supervisors
offered
to
actively
participate
in all
meetings
with
local
bank
l
ocal
supervisors
are
first
reference
regarding
local
specifics
(
language
, legal
framework
…)
Transparency
with
respect
to
results
and
findings
r
esults
about
respective
bank
fully
shared
in
exit
meeting
with
host
supervisor
h
ost
supervisor
recieves
short
summary
report
Slide6
Loan
Book Assessment: What to Look For
Loan
Classification
Default
setting
performing
/
nonperforming
Basel II
compliancerestructuring/forbearanceRating Qualitysegmentation/rating modelfrequency of overrulingssensitivity of rating
Valuation / Provisioning
IFRS
C
ompliance
methodology
and
documentation
NPV
effects
of
restructurings
DCF -
assumptions
Collateral
l
egal
enforcement
c
onsistency
loan
file
/
system
a
ppraisals
and
haircutsSlide7
Loan
Quality Assessment And Supervisory Cooperation
Host
supervisors
helpful
in
selecting
appropriate
loan sample better understanding of local issues (risk-sectors, bank specifics…)concerns of local regulator can be taken into account (large exposures…)Knowledge of local rules
helpful assessing Basel II compliancedefault
classification
can
differ
between
regulatory
systems
: (
eg
.
c
ollateralized
loans
…)
p
ositive
local
rules
sometives
can
be
helpful
identifying
aggressive
forbearance
measures
Information on
local
market
conditions
essential
for
judgement
on
provisioning
levels
e
nforceability
of
legal
claims
,
marketability
of
certain
assets
…
k
nowledge
about
other
local
banks‘
practice
helpful
assessing
adequacy
of
, e.g.
haircuts
… Slide8
Thank
you For your Attention