Promoting Honest Lending

Promoting Honest Lending

Taipei Fubon Bank
  • Comprehensive credit approval procedures and lending monitoring help maintain and bolster asset quality, promote sound banking operations, and help enterprises maintain steady operations, thereby ensuring the security of credit assets and indirectly safeguarding the rights and interests of depositors.

Management Strategy

Strategy for Institutional Credit Management

  • Establish a credit evaluation system
  • Conduct independent reviews
  • Exposure limit management
  • Implement Credit Administration (CA)
  • Establish an early-warning system for problem loans
  • Strengthen non-performing-loan Management

Credit Management Strategy for Retail Banking

  • Manage approval authorities and procedures for authorized exceptions
  • Optimize ratings/rating models and collateral management
  • Monitor, manage, and verify credit ratings and rating models
  • Monitor subsequent credit risk after finalizing a deal

Sustainability and Risk Management Strategies

  • Integrate core concepts of the Equator Principles
  • Incorporate CSR issues such as climate change, environmental pollution, and labor-management relations into credit evaluation criteria

Capital Investment

Financial Capital

  • TWD Customer Deposits: NT$1.141 trillion
  • Foreign Currency Customer Deposits: NT$514 Billion

Human Capital

  • Integrated revisions to internal credit risk models
  • Revamped the Sustainability Risk Assessment Approval Form
  • Incorporated the Equator Principles into credit evaluation procedures in order to reinforce sustainability and risk management

Capital Output

Financial Capital

  • Interest income on loans: NT$30 billion
  • LDR for TWD accounts: 81.8%
  • LDR for foreign currency accounts: 37.1%
  • Interest spread: 1.34%
  • NPL ratio: 0.2%

Intellectual Capital

  • Increased modeling accuracy (achieved a model prediction rate of 86.8%–89.7% as of year-end 2016)
  • Incorporated ESG guidelines into evaluation criteria on a case-by-case basis

Natural Capital

  • Provided a total of NT$9.89 billion in outstanding loans to green industries, accounting for 1.89% of all outstanding loans to enterprises
  • Fubon's credit card rewards program for promoting sales of green energy products resulted in total cash rewards of NT$128,700

Executive Summary

Taipei Fubon Bank's lending policy is characterized by a commitment to our Honest Lending strategy, which emphasizes comprehensive credit approval procedures and lending monitoring to help maintain and increase asset quality, promote sound banking operations, and help enterprises maintain steady operations, thereby ensuring the security of credit assets and indirectly safeguarding the rights and interests of depositors.

Establishment of Working Teams and Major Items of Discussion in 2016

In 2015, Fubon Financial Holdings established the Corporate Governance and Sustainability Committee, under which the ESG Task Force was set up and overseen by an independent director. The Committee also includes the Responsible Finance team (credit), which is tasked with promoting the Honest Lending program and mainly consists of members drawn from the Institutional Banking Department, Retail Lending Department, and Credit Card Division. Senior executives are also appointed to serve as working team committee members and are responsible for summarizing the process of responsible lending initiatives put in place by relevant departments and reporting their findings to the ESG Task Force on a regular basis.

To respond to global trends in sustainable lending and further fulfill the Taipei Fubon Bank's corporate social responsibility, meetings were held by the ESG Task Force in 2016 to discuss topics and issues related to the Equator Principles, the Responsible Finance team (credit) conducted research on relevant rules and frameworks of the Equator Principles, and an assessment on joining the Equator Principles Association was made. In the future, Fubon will seek a goal to join the Equator Principles Association in order to increase our positive influence in the financial industry.

Formulating and Promoting Effective Management Policies

Taipei Fubon Bank's credit risk strategies for overseas branches place an emphasis on comprehensive credit approval procedures and lending monitoring to help maintain and increase asset quality and reduce losses arising from non-performing loans and investment positions. In addition to setting up risk management units at each branch, dedicated staff are assigned to handle various tasks including credit analysis, review procedures, post-loan reviews, collection, and claims management. Furthermore, to respond to heightened concerns among global institutional investors regarding whether companies account for sustainability risk from sources such as climate change, environmental degradation, labor-management disputes, and other CSR issues, Taipei Fubon Bank has also moved to incorporate environmental, social, and governance (ESG) guidelines into its evaluation criteria. Taipei Fubon Bank conducts its credit-related business based on the five basic principles of security, liquidity, equality, revenue, and growth along with the five principles of credit analysis: people, purpose, payment, protection, and perspective (the 5 Ps).

Credit risk management strategies for institutional banking include the following

(1) Establishing a credit evaluation system:
Inspections are regularly conducted to examine the validity of the Taipei Fubon Bank internal credit risk models and expert scoring forms and applicability of the internal credit evaluation system, and inform ongoing adjustments to the credit evaluation mechanism. Meanwhile, critical concepts such as probability of default (PB), loss given default (LGD), and credit exposure limit (CEL) are incorporated into routine risk management for greater effectiveness.

(2) Conducting independent reviews:
To maintain the quality of credit assets and adhere to the 5 Ps of credit analysis, approving supervisors (senior-level) go beyond segmenting customers and conducting separate reviews at the Bank’s head office. They are also assigned to regional centers to make their review more efficient and enhance the professional competencies of their loan officers. This rigorous top-down monitoring process has helped manage credit risk more effectively.

(3) Coordinating exposure limit management:
In order to comply with the regulations stipulated under the Banking Act of the Republic of China and to avoid concentration risk arising from an over-concentration of credit assets, the Bank set loan ratio limits for single institutions, affiliates, and group enterprises and formulated lending restrictions based on industry type, country, and property development financing. These measures also serve to reduce the risk of negative chain reactions that could be caused by a single incident or a potential economic downturn.

(4) Implementing a credit administration system:
The implementation of a credit administration (CA) system provides a control and responsibility-based framework for handling outstanding loans, thereby reducing associated lending risks.

(5) Establishing early-warning indicators for problem loans:
In order to effectively implement control measures for outstanding loans, the Bank has established rules for follow-up reviews and early-warnings. The rules require follow-up reviews to be conducted on a regular basis and outline reporting procedures for major adverse events to prevent or quickly identify changes in the quality of credit assets.

(6) Non-performing-loan management:
Aside from collection processes for routine cases, collections personnel provide support services during the initial debt recovery process in the form of legal advice and negotiation assistance to help sales units resolve problem accounts.

To achieve more comprehensive risk assessments and fulfill the Bank's corporate social responsibility, Taipei Fubon Bank continued reinforcing relevant rules and regulations in 2016, incorporated ESG guidelines into evaluation criteria on a case-by-case basis, and made revisions to internal credit risk models where necessary to improve modeling accuracy (a model prediction rate of 86.8%–89.7% was achieved as of year-end 2016) and optimize system functionality. Among thenew functionality added were dynamic management reporting, cross-integration of information from different systems, and establishment of folders based on commonly used model versions.These boosted the effectiveness of the system and increased the Company's overall operating efficiency.

Credit risk management strategies for retail banking

(1) Manage of Approval Authorities and Procedures for Authorized Exceptions

  • Risk-based segmentation is executed based on various dimensions such as customer segmentation, real estate segmentation, loan type, and business growth sources to reinforce the Company's ability to identify risks and make use of differentiation strategies for credit terms and credit analysis procedures, thereby enabling the Bank to attract more premium customers.
  • Scientific credit scoring models are utilized to increase credit risk management effectiveness and boost the speed and efficiency of our review procedures. In addition, data analysis techniques help prevent problems before they occur and ensure stable asset quality.

(2) Optimize Ratings, Rating Models, and Collateral Management

  • Continued to optimize the Bank's credit management framework, implemented segmentation and differentiation strategies, simplified credit analysis procedures and required documents for low risk customer groups, and focused credit analysis resources on higher risk customers.
  • Rules for determining real estate categories can be dynamically adjusted and the frequency of reviews can be increased based on changes in real estate market conditions. Specific property areas under duress may be categorically downgraded as needed in order to main greater control over lending risks.

(3) Monitor, Manage, and VerifyCredit Ratings and Rating Models

  • The borrower's application scorecard is regularly compared against manually reviewed data to check for discrepancies in order to improve the scorecard's effectiveness for identifying risks and to increase the validity of the risk score model.
  • The performance of credit scoring models is regularly monitored to establish risk groups and formulate strategic plans.

(4) Monitor Subsequent Credit Risk After Finalizing a Deal

  • A mechanism has been established for generating Credit MIS Reports which allows the Bank to immediately respond to changes in asset quality and have a basis for formulating relevant risk management strategies.
  • Implemented management controls for designating authorized exception limits in order to ensure that risk is kept within an acceptable threshold.