Building an Effective Credit Culture RMA 2016 Audio Conference - - PowerPoint PPT Presentation

Building an Effective Credit Culture

RMA 2016 Audio Conference Series

Lynne Herndon, Chief Credit Risk Officer, BBVA Compass Meg R. Mueller, SEVP, CCO January 12. 2016

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Introduction

 Credit culture starts with the corporate

culture:

 Can’t have a strong credit culture

without a strong corporate culture

 Vision, Missions and Values  Must be defined  Constantly reinforced  Stakeholders include Clients,

Employees, Community and Shareholders

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The Current Environment

 Energy sector concerns  CRE concentration concerns  Regulatory scrutiny around Leveraged

Lending, HRCI, HVCRE

 Pressure to weaken structure  Pressure to exceed hold limits or

concentration limits

 The Issue: How to maintain and

strengthen Credit Culture in the Current Environment

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Elements of a Strong Credit Culture

1.

Credit Culture Starts at the Top:

 CEO and Exec Management set the

tone

 Frequent communications about Risk

Appetite

 Defer to Risk to set the Risk Appetite  Support in both word AND deed.

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Elements of a Strong Credit Culture

• 2. Everybody Owns Risk:
• Strong reinforcement that everyone in

the lending process owns risk.

• Both internally AND externally focused

lending personnel actively support the Credit Culture.

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Elements of a Strong Credit Culture

• 3. Systems and Processes must be Robust:
• A strong culture is evidenced by

systems and processes that support execellence in execution.

• Controls, validations, and inspections

ensure proper measurement and accountability.

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Elements of a Strong Credit Culture

• 4. There must be room for Good

Judgment:

 While controls are needed, sound

judgement remains paramount

 Over-reliance on models and rules can

lead to negative outcomes

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Elements of a Strong Credit Culture

• 5. There is a commitment to Training and

Education:

 The Lending function must involve

continuous learning.

 Skill refinement, regulatory change

and bank policy need to be part of a rigorous education program.

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Elements of a Strong Credit Culture

• 6. Incentive systems need a Risk

Component:

• Credit Quality measures need to be

included in the incentive plans of revenue generators, not just the credit personnel.

• Measurement of Risk Components, and

all components of the scorecard, needs to be clear and consistent.

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Elements of a Strong Credit Culture

• 7. Core Competencies should be the

Focus:

• Don’t try to be all things to all

borrowers.

• Focus on lending segments in which

core competencies exist.

• If you don’t understand it, don’t do it!

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Elements of a Strong Credit Culture

• 8. The Credit “Message” is Reinforced:
• Persistent and consistent

communication is critical.

• Regular emphasis of the Risk Appetite

in sales roles is necessary.

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Elements of a Strong Credit Culture

• 9. Line of Business growth is managed

prudently:

• “Anything that grows like a weed is

probably a weed.”

• Strong Credit Cultures include robust

portfolio management.

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Elements of a Strong Credit Culture

• 10. Policy and Limits are Followed:
• While exceptions to policy are

sometimes made, they are tracked and documented.

• Limits are followed and not

compromised even when revenue

• pportunities exist.

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Concluding Comments

 Culture = People  Culture = Leadership  Culture = Repetition and Habituation  Culture = Consistency  Culture = Perception

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