Problem Exposures

47. An Authorised Person should have processes for the timely identification and management of problem Exposures. These processes should be described in the Credit Risk policy.
48 An Authorised Person involved in Providing Credit should establish a dedicated unit to handle the recovery and work-out of problem loans and should establish policies for the referral of loans to this unit.
49. An Authorised Person should ensure that its loan portfolio is properly classified and has an effective early-warning system for problem loans.
50. An Authorised Person should develop and implement internal risk rating systems for managing Credit Risk. The rating system should be consistent with the nature, size and complexity of the Authorised Person's activities. In using internal risk ratings, an Authorised Person should seek to achieve a high granularity in the rating system and adopt multiple grades for loans that are not yet irregular and to develop the ability to track the migration of individual loans through the various internal credit ratings.
51. Depending on the size and nature of the Authorised Person, it may be appropriate for problem Exposures to be managed by a specialised function, independent of the functions that originate the business or maintain the on-going business relationship with the Counterparty.
52. Exposures identified as problems or potential problems should be closely monitored by management, and an Authorised Person should set out, for example, whether a loan grading system or a watch or problem list is used and, in the latter case, the criteria for adding an asset to or taking an asset off that list.
53. It is recommended that Authorised Persons establish a dedicated unit to handle the recovery and work-out of problem loans and put in place policies for the referral of loans to this unit.
54. An Authorised Person should have adequate procedures for recovering Exposures in arrears or those which had provisions made against them. These should allocate responsibility both internally and externally for its arrears management and recovery and define the involvement of the Authorised Person's solicitors.
55. Requirements relating to provisioning against loss on problem Exposures are covered in Chapter 4.