covering the measurement and management of credit risk. This has been achieved whilst further building a stronger credit culture within the Bank, based on thorough knowledge of our borrowers and executed by well-trained staff according to our 3 lines of defense risk management framework. The 3 lines of defense principle helps us to mitigate credit risk within the Bank and consists of 3 principles: • Management and staffs of the Bank’s business units have primary responsibility and accountability for the effective control of credit risks incurred by their business units (“1st line of defense”). • Credit Risk Management (“2nd line of defense”) supports and where necessary interferes in the 1st line of defense’s risk management activities. The risk management functions are independent of the management and staff that originate the credit risk exposures. • Audit operates as the “3rd line of defense”. Audit is to provide an independent assurance of the design and effectiveness of internal controls over the credit risks inherent to the Bank’s business performance. 2.2.1.1 Credit Risk Factors • Credit quality Stage 3 loans (Non-Performing Loans) arise when debtors fail to repay debts according to an agreed schedule. This may lead to loss of interest income but sometimes also of the principal balance, whether in whole or in part, which thereby will affect the Bank’s profitability and capital adequacy. The Bank manages the quality of its credit portfolios by monitoring and reviewing the status of our borrowers and/or counterparties constantly, both at an individual and at portfolio level. Also, here the 3 lines of defense approach is applicable: dedicated Relationship Managers monitor their Commercial Customers at an individual level. For Retail portfolio, the monitoring is performed in portfolio level. Early warning triggers, Qualitative Risk Score, and Behavioral Risk Level monitoring are in place to detect customers that may be moving towards an adverse stage or show further deterioration of their performance. Dedicated Credit Restructuring teams and Credit Restructuring Committees are established to restructure problem loans in an effective manner and to provide advice on debt restructuring conditions. During the year 2021, the Bank provided various relief measures to support customers who have been affected by the Coronavirus pandemic to ensure their business viability and ability to have sufficient funding and liquidity and retain their workforce. In addition, the Bank sets the framework to ensure prudent staging and provisioning for customers under these relief measures and closely monitors these customers through a monthly Debt Relief Dashboard. The Bank closely monitors and reviews loan quality to ensure that the Bank has set aside adequate loan loss provisions in accordance with guidelines from the Bank of Thailand (BOT) to mitigate the impact from portfolio deterioration. Expected Credit Loss is calculated using PD (probability of default) based on risk level, EAD (exposure at default) based on loan types or debtor types, and LGD (loss given default) based on collateral types. 102 TMBThanachart Bank Public Company Limited
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