Document ID: chunk:federal_register_of_legislation:F2022L01576:body:0:p5
Version: federal_register_of_legislation:F2022L01576
Segment Type: other
Provision Reference: 
Character Range: 11508–14729

risk appetite statement;
       (b)          a credit risk management strategy;
       (c)          policies and processes supporting clearly defined and documented roles, responsibilities and formal reporting structures for the management of credit risk;
       (d)          a designated credit risk management function;
       (e)          a management information system that is adequate, both under normal circumstances and in periods of stress, for measuring, assessing and reporting on credit risk; and
       (f)           an independent review process to ensure that the credit risk management framework is effective in identifying, measuring, evaluating, monitoring, reporting, and controlling or mitigating credit risk.[4]
17.         An ADI need not have a stand-alone credit risk appetite statement or credit risk management strategy document where they form part of the ADI's overall risk appetite statement or risk management strategy document required under Prudential Standard CPS 220 Risk Management (CPS 220).

Outsourcing
18.         An ADI may outsource aspects of its credit risk management, including credit origination, credit assessment and approval, however, it must have regard to Prudential Standard CPS 231 Outsourcing (CPS 231) for outsourced functions.

Large exposures and associations with related entities
19.         For large exposures and associations with related entities, an ADI must also have regard to Prudential Standard APS 221 Large Exposures (APS 221) and Prudential Standard APS 222 Associations with Related Entities (APS 222), respectively.

Credit risk appetite
20.         An ADI must maintain an appropriate and well-documented credit risk appetite statement. The statement must, at a minimum, articulate the degree of credit risk that the ADI is prepared to accept (credit risk appetite), the maximum level of credit risk that the ADI is willing to operate within (credit risk tolerance), the process for ensuring credit risk tolerances are set at an appropriate level, the process for monitoring compliance with credit risk tolerances and for taking appropriate action in the event it is breached, and the timing and process for review of the credit risk appetite and tolerances.

Credit risk management strategy
21.         An ADI must maintain an appropriate and well-documented credit risk management strategy that outlines the objectives guiding the ADI's credit origination, credit assessment and approval activities and adopts the necessary policies and processes for conducting such activities.
22.         An ADI's credit risk management strategy must reflect the ADI's credit risk appetite, credit risk profile and market and macroeconomic conditions.
23.         An ADI's credit risk management strategy must describe the ADI's willingness to accept credit risk based on exposure type, economic or industry sector, geographical location, currency and maturity. This must also include the overall characteristics that the ADI would want to achieve in its credit portfolio.
24.         An ADI's credit risk management strategy must consider the sustainability of earnings from its credit risk activities including an acceptable risk/reward trade-off that would