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 1

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 2

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 3

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Elements of a Strong Credit Culture Credit Culture Starts at the Top: 1.  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. 5

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. 6

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. 7

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 8

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 . 9

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. 10

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! 11

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. 12

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. 13

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 opportunities exist. 14

Concluding Comments  Culture = People  Culture = Leadership  Culture = Repetition and Habituation  Culture = Consistency  Culture = Perception 15