Risk Management Case Study
Fullerton Credit Limited (FCL), headquartered in Chengdu, Sichuan, was set up by Fullerton Financial Holdings (FFH) in 2008 to provide financial services to Self Employed Mass Market (SEMM) and Small and Medium Enterprises (SME) in middle and western areas of China. As the targeted customer segments and regions are less developed and underserved by the financial industry, there are abundant financing opportunities for FCL. While the growth rate of the China economy has stabilized at single digit, those of the western provinces have shown more resilience, maintaining their double-digit GDP growth rate in the last few years. As such, SEMM and SME in these areas continue to enjoy good business opportunities and performances.
Integrated Risk Management Framework
FCL has adopted FFH’s robust risk management practices in lending to small enterprises in Asia’s emerging markets. Given the different local regulations and operating environment in China, FCL has customised and developed policies and processes to suit the local market. The objective of the risk framework is to ensure that FCL is on the path of long term sustainable growth, having registered impressive growth in the last few years and expanded its network to Chongqing and Hubei province.
At the core of the credit risk management function is the Integrated Risk Management Group, headed by the Chief Risk Officer, who is responsible for overseeing and managing FCL’s credit risk holistically across all businesses, products and processes. The CRO is also responsible for the management of market & liquidity risk, operational & fraud risk as well as ensuring the Entity’s compliance with local regulations.
FCL adopts an independent approval process through the use of customer selection criteria (CSC) to assign each customer a credit grade and credit acceptance criteria (CAC) to determine the maximum exposures and required terms and conditions for each tier and grade of the customer. This allows each customer to be independently assessed based on both financial and non-financial measures. Loans are approved based on a delegated credit approval authority matrix with higher loan amounts and higher risk customers approved by senior approvers in the Risk chain. As part of integrated risk management, all accounts are subject to pre-screening and contact point verification for KYC and fraud prevention purposes.
After a loan is booked and disbursed, FCL monitors each customer closely through proactive early warning process performed by a dedicated team. Once an account which exhibits signs of weakness is identified, the early warning team will involve the rehabilitation team. The rehabilitation team will immediately be in touch with the customer to independently assess the situation, with an aim of proposing a restructuring plan to allow the customer time to gradually repay as well as enhance FCL’s security position. Collections team will also be involved if it is assessed that restructuring of the account is not feasible or when the borrower is uncooperative.
FCL has relationship officers and credit officers responsible for sales and credit risk management. A three-line of defence risk management framework has been adopted where business and operational units are the first line of defence, Risk Management and Compliance are the second line of defence, with Audit as the third line of defence. Every employee in FCL has the responsibility in risk management. Systematic and proactive risk management differentiates FCL from its peers and local banks.
Embedded in Community
FCL aims to be a community service provider. The SEMM and SME business models adopt a de-centralized approval process whereby the branches and regions are close to the targeted customers thereby allowing quick response time and staying in close contact with them.