The changing face of credit portfolio management at banks

The final Basel III framework is ushering in changes that will require banks to rethink capital allocation and risk transfer strategies in light of new rules on calculating risk-weighted assets, an increased emphasis on the standardised approach and a new leverage ratio. Credit portfolio management (CPM) will be at the centre of efforts to mitigate some of the impacts of these rules, helping to reduce potentially crippling capital charges.

Additionally, economic uncertainty and market volatility are adding another dimension to CPM, elevating its importance as a more strategic function supporting business decisions. As well as grappling with longer-term and emerging risks, such as climate risk, credit portfolio managers are now exploring the application of new technologies that could support more sophisticated CPM strategies than ever before.

Against this backdrop, credit portfolio managers need to review portfolios and come up with strategies for optimising risk and return.