Credit decision-making
Institutions should establish a clear and well-documented credit decision-making framework that should set out a clear and sound structure for the credit decision-making responsibilities within an institution, including a description of the hierarchy of the credit decision-makers and their allocation within the institution’s organisational and business structure and their reporting lines.
The structure of credit decision-makers should be in line with and integrated into credit risk appetite, policies and limits and reflect the business model of the institutions. The allocation of credit decision-makers to the organisational and business structure should reflect the cascading credit risk appetite and limits within an organisation and be based on objective criteria, including risk indicators.
The credit decision-making framework should clearly articulate the decision-making powers and limitations of each decision-maker and of any automated models for credit decision-making purposes, in line with the criteria for such models set out in Section 4.3.4. These powers and limitations should account for the characteristics of the credit portfolio, including its concentration and diversification objectives, in relation to business lines, geographies, economic sectors and products, as well as credit limits and maximum exposures. Where relevant, institutions should set time limits for the delegated powers or the size of delegated approvals.
When delegating credit decision-making powers, including limits, to members of staff, institutions should consider the specificities of the credit facilities subject to this individual decision-making, including their size and complexity, and the types and risk profiles of borrowers. Institutions should also ensure that these staff members are adequately trained and hold relevant expertise and seniority in relation to the specific authority delegated to them.
The credit decision-making framework should account for the risk perspective in the decision-making. It should also take into account the specificities of credit products and borrowers, including the type of product, the size of credit facility or limit, and the risk profile of the borrower.
The framework should also specify the working modalities of the credit committees and the roles of their members, including, when applicable, aspects such as voting procedures (unanimity or simple majority of votes).
If the institutions grant specific veto rights in relation to positive credit decisions to the head of the risk management function, institutions should consider granting such veto rights to additional staff members within the risk management function for specific credit decisions, to ensure that such a veto can be exercised, if appropriate, at all levels of the credit decision-making framework below the management body. Institutions should specify the scope of these veto rights, the escalation or appeal procedures, and how the management body will be involved.
4.4.1Objectivity and impartiality in credit decision-making
Institutions should ensure that decisions taken by credit decision-makers are impartial and objective and not adversely affected by any conflict of interest, in line with the EBA Guidelines on internal governance. More specifically, for the purposes of these guidelines, institutions should ensure that any individual involved in credit decision-making, such as members of staff and members of the management body, should not take part in credit decisions if any of the following occurs:
any individual involved in credit decision-making has a personal or professional relationship (outside the professional relationship when representing the institution) with the borrower;
any individual involved in credit decision-making has an economic or any other interest, including direct or indirect, actual or potential, financial or non-financial, associated with the borrower;
any individual involved in credit decision-making has undue political influence on or a political relationship with the borrower.
Notwithstanding the governance structures implemented in institutions to operationalise the credit decision-making framework, institutions should have policies, procedures and organisational controls in place that guarantee and ensure objectivity and impartiality in the credit decision-making process. These policies, procedures and organisational controls, including any mitigating measures, should be clearly defined and understood, and should address any potential conflicts of interest. Institutions should ensure effective oversight of the decisions taken by credit decision-makers, including credit granting, to ensure their objectivity and impartiality.