OVERVIEW

As with all other areas of a bank's activities, the board of directors has a critical role to play in overseeing the credit granting and credit risk management functions of the bank. Each bank should develop a credit risk strategy or plan that establishes the objectives guiding the bank's credit granting activities and adopt the necessary policies and procedures for conducting such activities. The credit risk strategy, as well as significant credit risk policies, should be approved and periodically reviewed by the board of directors. The board needs to recognize that the strategy and policies must cover the many activities of the bank in which credit exposure is a significant risk. ^[1]

A credit risk strategy should include a statement of the bank's willingness to grant credit based on type (for example, commercial, consumer, real estate), economic sector, geographical location, currency, maturity, and anticipated profitability. This would include the identification of target markets and the overall characteristics that the bank would want to achieve in its credit portfolio (including levels of diversification...