“Credit risk management is the most important element in the banking business” - that is what the CEO of UBB AD, Mr. Dimitrios Anagnostopoulos, said during the 3-rd Annual Credit Risk Management Conference, organized by ICAPBulgaria and held yesterday in Sofia. “Flexibility is the key to minimizing the negative effect in a situation of crisis and achievement of timely recovery, while stress testing is extremely important and should be part of the everyday routine activity of banks”, the top manager explicitly stated.

 

According to Mr. Anagnostopoulos there is no universal solution to risk management. “Individual organizations should take into consideration all risk management characteristics, in order to choose the model that suits them best. Yet the proper functioning of such model will be tested upon occurrence of a specific event.” The event that Mr. Anagnostopoulos elaborated on was the financial crisis of Y2008. 

 

As main characteristics of the market before the crisis he pointed out the uncontrolled and unsustainably high growth, the disregard of the need of sector analyses and stress tests for entire industries. “Creativity” regarding financial products, conducted on some markets, as well as the spread of the risk “infection” due to the globalization, was emphasized among the other characteristics.

 

The non- performing loans are the essence of credit risk management while their increase - one of the characteristics of a crisis, Mr. Dimitrios Anagnostopoulos said. He gave examples of different countries with different levels of market maturity and different rates of non-performing loans. “Despite some common trends, the non-performing loans increase rate and the remedial actions are fundamentally different with respect to where each country is at in terms of risk management”.

 

“Crises will always happen as we live in business cycles, but we have to assess what we have done right and what we have not”, Mr. Anagnostopoulos added. “Clearly, we had badly analyzed the possible scenarios and we had not identified correctly what might happen and how serious its impact might be. We had badly assessed impact even afterwards- long after the beginning of the crisis we were making attempts at understanding what part of it had penetrated the banking sector and we could not believe the extent of the threat on it. That is why the interbank collapse occurred”, the CEO of UBB AD commented. Mr. Anagnostopoulos highlighted one of the main disadvantages being the inadequate stress tests conducted on clients’ portfolios. “Stress tests are not something that should be performed when there is a problem. These tests have to be performed repeatedly, on a daily basis, the business should get used to live with those”, he added adamantly.

 

As important factors for successful credit risk management Mr. Dimitrios Anagnostopoulos underlined the availability of adequate management structure and the target role of the risk manager, who should be well positioned in terms of strategy and operationally integrated in the organization’s business.