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Welcome

Retail Credit Risk for Risk Practitioners (ERMTP – Intermediate)

Welcome to Retail Credit Risk for Risk Practitioners.

This intermediate course provides an overview of how retail credit risk is managed at Citi and the related Retail Policy requirements with links to associated Standards and Procedures for a deeper dive into the detail.

If you are accessing the course from a personal device directly over the Internet (outside of the Citi network), some of these links may not work if they link to content within Citi’s network. This will not impact your ability to complete the course.

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Citi’s Enterprise Risk Management Training Program

Why this?

Citi’s culture and values are at the heart of how business is conducted. A strong risk and control environment is a key enabler of Citi’s culture of excellence.

This intermediate course is part of Citi’s Enterprise Risk Management Training Program (ERMTP). ERMTP is a series of courses which will build your understanding of your risk and control responsibilities.

Why now?

Citi has a standard framework for managing risk. As part of Citi's Enterprise Risk Management Framework (ERMF) supporting capabilities, we are committed to equipping employees with knowledge to carry out day-to-day risk and control responsibilities. 

Why us?

Managing risk is everyone’s job at Citi. We are all risk managers.   Risk is inherent to Citi’s business and cannot be avoided. Everyone must be vigilant and manage risk with consistency, and accountability including compliance with applicable laws and regulations. 

The Enterprise Risk Management Framework (ERMF) is Citi’s standard for managing risk.

Everyone is responsible for escalating risks and concerns, and Citi provides an environment where this can be done without fear of retribution.  

It is your responsibility to understand your role as it relates to managing risk, taking complete ownership of your actions, and supporting Citi in identifying and managing risk every day.

Introduction

After completing this course, you will be able to:

  • Describe the components of the Retail Credit Life Cycle
  • Describe the foundational elements of Retail Credit Risk’s Portfolio Risk Appetite Program
  • Identify the Risk Readiness Playbook pillars
  • Recognize key elements of Retail Credit Risk performance monitoring and portfolio management
  • Describe the key credit roles and approval levels in Retail Credit Risk Management
  • Recognize Retail Credit Risk limits, monitoring and controls required by Retail Credit Risk Policy
  • Explain key MIS requirements across the Retail Credit Life Cycle
  • Identify key aspects of collections, loss mitigation and loss recognition

This course is divided into eight topics and an end-of-course assessment. After completing the training content, you must score 80% or higher in the assessment to receive credit for this course.

Welcome

Are you already familiar with Retail Credit Risk?

If so, this training includes an opportunity for you to demonstrate your knowledge by completing a Test Out. Successful completion of the Test Out will allow you to take an accelerated path through the training by skipping the training content to receive credit for the course.

To continue to the Test Out, select the Take the Test Out button.

If you prefer to skip the Test Out and go straight to the content, select the Start the Course button.

Portfolio Governance

Portfolio Governance

Retail credit risk is generally managed at a portfolio level given Citi’s large number of retail clients. Let’s begin with a look at portfolio governance and the tools used to manage Citi’s retail portfolios.

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Retail Credit Life Cycle

The Retail Credit Life Cycle has four phases. The linkage of all phases and continuous monitoring of retail portfolios throughout the Credit Life Cycle are critical to ensure Retail lending activities are within the approved risk appetite.

  1. Product Planning: Risk management ensures our products and services will perform within the approved risk appetite.
  2. Credit Acquisition: Risk management focuses on prudent underwriting and the borrower’s ability to repay the loan while optimizing our risk-return profile.
  3. Existing Customer Management (ECM): Risk management provides ECM strategies to deepen the customer relationship, optimize revenue and minimize delinquencies.
  4. Collections & Loss Mitigation: Collections, loss mitigation and recovery strategies help minimize credit losses.
Retail Credit Life Cycle image.

Global Retail Lending Principles

The Global Retail Lending Principles are foundational elements of our risk appetite and risk culture for all lending decisions.

To proceed, select each principle to learn more.

Fairness
 

Fairness
Must be fair to customers and meet their needs. Fairness considers customer debt leverage, value to the customer and avoidance of predatory practices.
Strategic Alignment
 

Strategic Alignment
Align product purpose, value proposition and credit policy.
Underwriting Focus
 

Underwriting Focus
More underwriting scrutiny to determine ability to pay applies to customers without credit experience or significant negative history without compensating factors.
Payment for Risk
 

Payment for Risk
Citi must get paid for the risk it takes.

Portfolio Monitoring and Categorization (PMAC)

All retail receivables are assigned to a specific portfolio and every portfolio is assigned one of five categorizations outlined in the RCR Credit Approval Rules Standard and the RCR PMAC and Product Credit Risk Rating (PCRR) Standard.

The categorizations for active, seasoned portfolios, which represent almost all Retail receivables, are based on three Portfolio Monitoring and Categorization (PMAC) pillars:

  • Governance and control rating (audit ratings, quality assurance, etc.)
  • Credit risk performance (Net Credit Loss)
  • Profitability resiliency (Risk Appetite Ratio)

New and Liquidating categorizations are also used but are not categorized using the three pillars due to the stage of the portfolio lifecycle.

Let's take a closer look.

To proceed, select the arrow on the right to learn more about each category.

 

Performance Exception (PE)

Portfolio that:

  • Failed the governance and control pillar or
  • Failed the credit risk pillar or
  • Failed the profitability resiliency pillar and portfolio Ending Net Receivables (ENR) is greater than $3Bn
 

Mature and Stable Watchlisted (M&SW)

Portfolio that:

  • Did not fail the governance and control pillar and
  • Did not fail the credit loss pillar and
  • Failed the profitability resiliency pillar and portfolio ENR is less than or equal to $3Bn
 

Mature and Stable (M&S)

Portfolio that:

  • Did not fail the governance and control pillar
  • Did not fail the credit risk pillar
  • Did not fail the profitability resiliency pillar
 

New Portfolio

  • Initial launch of a credit offering in a specific country
  • A completely new credit product
  • Re-launch of a previous credit offering
 

Liquidating
  • Intent is to liquidate the portfolio over time.
  • No new bookings. The Group Risk Director (GRD) may approve limited bookings to maintain franchise value before a potential sale.
  • No additional spending or exposure allowed. The GRD may approve incremental spending for franchise preservation during sales or due to regulatory compliance requirements.
 
 

Check Your Understanding

Consider a scenario where you’re tasked with categorizing retail receivables into portfolios based on the PMAC pillars. Given a portfolio that has passed the governance and control pillar checks, maintained acceptable credit loss levels, but has not met the profitability resiliency criteria with an ENR of $3Bn or less, how would you classify it?

Select the best response from the four options and then select Submit.

Please use the Space key only when selecting a radio option with the keyboard. The Enter key is not fully supported. If the Enter key has been used to select a radio option, please use the Escape key. Then you will be able to use the Space key again to select a radio option.

Submit

Portfolio Risk Appetite Program

The Portfolio Risk Appetite Program (PRAP) documents the credit risk management approach at a portfolio level across the full Retail Credit Risk Life Cycle.

The components of a comprehensive PRAP are detailed in the RCR Credit Performance Management Standard and summarized below.

To proceed, select each component to learn more.

 

Target Market and Focus Statement

Statement of the:

  • Target client/space in which the business wants to acquire accounts or grant additional exposure
  • High-level portfolio management strategy across the full Retail Credit Risk Life Cycle

Benchmarks

A PRAP includes Benchmarks for acquisitions, ECM and Collections.

Acquisition Benchmarks must cover returns, booking mix, vintage delinquency and vintage loss performance.

Return and Loss Targets

Minimum return and loss targets for acquisitions, ECM programs, material and marginal segments as well as at the total portfolio level are required.

Limits

The PRAP outlines how the portfolio manages to the USPB Risk Appetite Statement (RAS) limits.

Triggers and Key Risk Indicators (KRIs)

Additional portfolio metrics that signal potential breaches of benchmarks, return targets, or loss thresholds.

Profit & Loss Statements (P&Ls)

A PRAP includes total portfolio and Comprehensive Capital Analysis and Review (CCAR) Stress Profit & Loss Statements (P&Ls).

PRAP Dashboard

The PRAP dashboard offers a recurring update of credit risk benchmarks, KRIs, return and loss targets, triggers and relevant macroeconomic data.

Governance

PRAPs specify the governance forums at which the business and Independent Risk review and discuss PRAP topics. These forums must meet at least quarterly.

Risk Assessment

A risk assessment evaluates the viability of a program and rationale for approval of the PRAP.

About the Risk Readiness Playbook (RRP)

A Risk Readiness Playbook (RRP) is a portfolio-level, forward-looking Retail risk management tool that triggers appropriate risk mitigating activities when defined leading indicators are tripped.

Detailed requirements for RRPs are outlined in the RCR Credit Performance Management Standard.

To proceed, select each aspect to find out what an RRP involves.

Risks

Risks

Identifying and evaluating relevant portfolio risk and external drivers and/or adverse scenarios.

Triggers

Triggers

Setting appropriate triggers to prompt closer attention to heightened risk.

Plans

Plans

Creating corresponding action plans to minimize the anticipated adverse impact.

The Five RRP Pillars

RRPs are based on five pillars.

To proceed, select the arrow on the right for an overview of each pillar.

 

1. Establishing Triggers

Establishing triggers enables the Business to prepare for potential stress events so that timely credit and operational actions can be taken to preserve portfolio quality. Examples of triggers are:

  • External leading indicators
  • Internal leading indicators
  • Industry and competitor information
  • Country watchlist
  • Partner health
 

2. Credit Tightening Actions

An RRP defines concrete credit tightening actions in the following areas, with examples:

Acquisitions

  • Raise required credit scores to restrict eligibility
  • Lower initial credit line assignments
  • Discontinue originations

Existing Customer Management

  • Lower credit lines, Loan-to-Value requirements, etc.
  • Restrict spend of early-stage delinquent accounts
  • Tighten eligibility criteria

Collections

  • Increase call intensity and capacity
  • Develop new loss mitigation/customer relief programs
 

3. Operational Readiness

The RRP operational readiness pillar requires that businesses:

  • Assess operational capacity (e.g., collections and customer service) and technology resources
  • Evaluate ability to rapidly deploy digital and work-from-home capabilities
 

4. Monitoring and Execution

The RRP monitoring and execution pillar requires businesses to:

  • Monitor downgrade/upgrade of trigger status
  • Define increased scope, frequency, and granularity of reporting and monitoring
  • Perform analytics to gain insights into customer behaviors and loss implications
  • Outline a framework to evaluate proposals for reversal of credit tightening actions
 

5. Governance and Communication

An RRP outlines protocols for governance and communication of:

  • Changes in trigger status/tripwires
  • The approval process for credit tightening actions
  • Deployment of strategy changes and communication to external partners and third parties
  • The annual update update and renewal of the RRP
 
 

Business Credit Policy & Procedures

Each Retail business maintains a local Business Credit Policy & Procedures (BCP&P) document to:

  • Establish its target market
  • Define risk acceptance, bureau and scoring criteria
  • Document ECM strategies
  • Outline policies and procedures for collections, loss mitigation and write-off
  • Detail other business and operating procedures related to the Retail Credit Life Cycle

Retail businesses also maintain Baseline Lending Programs (BLPs) which synopsize BCP&P content.

Each Retail business is required to update the BCP&P and the BLP at least annually.

Check Your Understanding

Imagine you’re evaluating the completeness of a PRAP documenting the credit risk management approach of a retail portfolio across the full Retail Credit Risk Life Cycle.

Which of the following would NOT be a key component in the PRAP?

Select the best response from the five options and then select Submit.

Please use the Space key only when selecting a radio option with the keyboard. The Enter key is not fully supported. If the Enter key has been used to select a radio option, please use the Escape key. Then you will be able to use the Space key again to select a radio option.

Submit

Coming Next

In this opening topic you saw how the Retail Credit Life Cycle is guided by principles of fairness and strategic risk management. You also learned that all retail receivables are categorized within a portfolio and managed through the PRAP and RRP tools to ensure the business operates within risk appetite and there is a documented approach for managing the portfolio through stress scenarios.

Next, we focus on how the performance of each portfolio is managed.

Portfolio & Product Performance Monitoring

Portfolio & Product Performance Monitoring

This topic provides an overview of portfolio and product performance monitoring and the methods used for ongoing risk assessments, including:

  • Periodic reviews
  • Benchmarks
  • The Balanced Scorecard
  • Product Credit Risk Rating (PCRR)
  • Significant Credit Changes (SCCs) and Tests

    • Scroll down to continue.

Periodic Reviews

On-going performance monitoring throughout the Retail Credit Life Cycle enables risk managers to continuously perform risk assessments of portfolio and product strategies.

Review Types

Portfolio Quality Reviews (PQRs) and Chief Risk Officer (CRO) reviews provide a forum for performance evaluation of the prior period.

  • A CRO review is required quarterly
  • PQRs are required every month in which there is no CRO review

Purpose of PQR and CRO reviews

  • Perform on-going risk assessment of the portfolio
  • Forum to identify and escalate emerging risks
  • Regular dialogue between first and second lines of defense

Benchmarks

Benchmarks are credit quality measures that outline expected portfolio performance at specific points in time and must be in place for any Retail portfolio actively extending credit via new account acquisition or ECM actions. Benchmarks require re-validation and approval at least annually.

For a deeper dive into benchmarks, consider the frequently asked questions below and refer to the RCR Credit Performance Management Standard.

1

Why are benchmarks important?

As one of the fundamental methods for managing credit risk, portfolio performance against benchmarks is monitored frequently to determine if the portfolio is performing as expected or if any breaches to a benchmark occurred. Tracking against benchmarks is included in PRAP and PQR/CRO reviews for on-going portfolio monitoring.

2

What do acquisition benchmarks include?

Benchmarks must be tied to a pro-forma Profit and Loss Statement (P&L) that indicates the level of return the portfolio will achieve.

Minimum components of benchmarks include:

  • Booking mix
  • Early delinquency
  • Loss rates
  • Returns
3

What happens when a benchmark is breached?

When breached, corrective action is required to align performance with expectations.

Remedial actions can include:

  • Root cause analysis to determine the driver of the breach
  • Adjustment of credit criteria to reduce volumes in segments causing the breach
  • Changes to ECM strategies to tighten exposure management
  • Changes to collections strategies

Benchmarks in the Balanced Scorecard

Results of benchmark performance are part of the Balanced Scorecard process detailed in the RCR Credit Performance Management Standard.

Balanced Scorecard reporting is required for all non-liquidating retail lending portfolios with ENR of $50 million or more.

Three sets of acquisition benchmarks are assessed in the Balanced Scorecard each quarter: mix, early delinquency and losses

To proceed, select each benchmark to learn more.

Through-the-Door Mix

Through-the-Door Mix

Quarterly performance measurement comparing actual booking profiles against mix guardrails/triggers set in the PRAP.
Early Delinquency by Vintage

Early Delinquency by Vintage

Coincident delinquency for revolving products and ever delinquency for closed-end loans measured by vintage.

Losses (NCL/GCL) by Vintage

Losses (NCL/GCL) by Vintage

Gross Credit Loss (GCL) or Net Credit Loss (NCL) by vintage.

Product Credit Risk Rating

Retail businesses must maintain an inventory of all products and assess the risk profile of each product across all risk types. The credit risk rating for Retail products is called the Product Credit Risk Rating (PCRR).

You’ll find details about the required process, methodology and calculations in the Portfolio Monitoring and Categorization and Product Credit Risk Rating Standard.

To proceed, select each area to learn more about what's involved in the PCRR process.

Risk Rating Pillars
Risk Ratings

Risk Rating Pillars

The PCRR is based on the same three PMAC pillars used to categorize retail portfolios:

  • Governance and Control (audit ratings, quality assurance, etc.)
  • Credit Risk performance (Net Credit Loss)
  • Profitability Resiliency (Risk Appetite Ratio)

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Risk Ratings

Products are risk rated as High/Medium/Low based on PMAC categorization types:

  • Performance Exception is risk rated as High Risk for PCRR
  • Mature & Stable Watchlisted is risk rated as Medium Risk for PCRR
  • Mature & Stable is risk rated as Low Risk for PCRR
  • New is risk rated as Low Risk for PCRR (for 24 months)

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Significant Credit Changes (SCCs) and Tests

Retail portfolio management includes testing activities and changes to risk acceptance criteria or acquisition/ECM strategies through SCCs. Both are important to continuously optimize a portfolio’s risk-reward balance.

  • Tests are used to understand performance of new segments, target markets, channels, score segments, collections treatments, etc. before rolling out permanent changes to strategies.
  • Test activities are limited so they do not impact overall portfolio performance. Tests are classified as either Credit or Collections Tests.
  • SCCs are used to roll-out permanent changes that are materially different than the current policy or process.

Credit Test and SCC monitoring is updated at least quarterly and includes:

  • Monitoring of actual volume booked vs. the approved Credit Test or SCC volume
  • Exposure and/or ENR booked against portfolio-level limits
  • Performance against expectations (e.g., delinquency and/or losses)

Additional details regarding monitoring of Credit Tests and SCCs are outlined in the RCR MIS & Reporting Standard.

Check Your Understanding

Imagine you’re reviewing the Balanced Scorecard for the quarter. Which trio of benchmarks is assessed?

Select the best response from the four options and then select Submit.

Please use the Space key only when selecting a radio option with the keyboard. The Enter key is not fully supported. If the Enter key has been used to select a radio option, please use the Escape key. Then you will be able to use the Space key again to select a radio option.

Submit

Coming Next

In this topic you learned that portfolio performance monitoring, Benchmarks, the Balanced Scorecard and the PCRR facilitate continuous risk assessment and optimization of portfolio strategies, while Significant Credit Changes and Tests ensure a portfolio’s overall risk-reward balance is optimized.

Now that you know how retail credit risk is monitored, let’s explore the key credit roles and their responsibilities in retail risk management, along with guidance on Credit Approval Rules.

Credit Authority and Approval Rules

Credit Authority and Approval Rules

This topic covers the responsibilities of key credit roles in Retail Credit Risk Management (RCRM) and details regarding specific Credit Approval Rules for portfolio categorizations, Credit tests and SCCs.

Scroll down to continue.

Key Retail Credit Risk Roles

Citi uses a Lines of Defense (LOD) model to manage risk. Roles and responsibilities are grouped according to these LODs.

  • First Line of Defense (1LOD) owns the risks and associated controls inherent in, or arising from, the execution of their business activities and is responsible for identifying, measuring, monitoring, controlling and reporting those risks.
  • Second Line of Defense (2LOD) is responsible for overseeing the risk-taking activities of 1LOD and providing credible challenge to 1LOD in its execution of their risk management responsibilities.

Within the Retail Credit Risk Management (RCRM) framework there are key credit roles in 1LOD and 2LOD that are responsible for the management and oversight of retail portfolios.

To proceed, select each key credit role to discover more.

Senior Country/Business Risk Manager (SC/BRM)

Senior Country/Business Risk Manager (SC/BRM)

The lead risk manager for the country or business (1LOD) is accountable for the retail credit risk of their respective portfolio(s) and for all risk management activities detailed in RCR Policy, Standards and Procedures.

Group Risk Director (GRD)

Group Risk Director (GRD)

GRDs (2LOD) manage and provide oversight to SC/BRMs for their designated business or function. GRDs monitor the credit risk/reward balance and performance of retail portfolios.
Global Product/Function Oversight Director (GP/FOD)

Global Product/Function Oversight Director (GP/FOD)

GP/FODs (2LOD) are designated based on their expertise in a specific product or functional area and are primarily responsible for providing cross-business oversight and independent review and effective challenge.

USPB Chief Risk Officer (CRO)

USPB Chief Risk Officer (CRO)

The USPB CRO is a 2LOD role accountable for the credit risk performance of all retail credit portfolios and responsible for leading the global RCRM group.

Credit Approval Rules

Let’s now turn to the rules that must be followed for certain RCR required approvals.

To proceed, select the arrow on the right for an overview of the RCR Approval Rule requirements.

 

PE Categorization Approval Rules

The SC/BRM (or designee) prepares the Performance Exception (PE) categorization approval request addressing performance drivers and including an action plan for improving product performance.

The PE request is submitted for approval to the appropriate Senior Credit Officer (SCO) based on Grid 3.6 in the RCR Credit Approval Rules Standard.

PE Categorization Approval Rules table
 

M&S/M&SW Categorization Approval Rules

Mature & Stable Watchlisted (M&SW)

M&SW portfolios require a review to address reasons for the categorization and to propose an action plan for performance improvement and return to Mature and Stable.


Approval of the M&SW request is provided by the GRD and/or GP/FOD (based on portfolio size).


Mature & Stable (M&S)

Portfolios that improved performance and changed from PE or M&SW to MS require review and approval by the GRD.

 

Liquidating Categorization Approval Rules

The liquidating approval request should include details about the collections and loss mitigation policy, strategy to liquidate the portfolio, ENR/bookings/NCL comparison to latest annual business plan/budget and the PRAP update plan.

The Liquidating request is submitted for approval to the appropriate Senior Credit Officer (SCO) based on Grid 3.6 in the RCR Credit Approval Rules Standard.

Liquidating Categorization Approval Rules table
 

Credit Tests

Approval of Credit Tests is based on a combination of two measures:

  • New volume/lines booked in the Test
  • Test exposure as a percentage of total portfolio booked over the next 12 months

Approval is granted by the appropriate SCO or CRO based on Grid 3.10 of the RCR Credit Approval Rules Standard.

Credit Tests table
 

Significant Credit Changes (SCCs)

SCC approval is based on a combination of two measures:

  • Expected peak ENR of all accounts impacted by the SCC over the next 12 months
  • SCC ENR as a percentage of total portfolio ENR over the next 12 months

Approval is granted by the appropriate SCO or CRO based on Grid 3.7 of the RCR Credit Approval Rules Standard.

Significant Credit Changes (SCCs) table
 
 

Check Your Understanding

Imagine you’re determining who would be the lead Risk Manager responsible for managing a retail portfolio and ensuring all risk management activities are in line with RCR Policy, Standards and Procedures. Which 1LOD role would be accountable?

Select the best response from the four options and then select Submit.

Please use the Space key only when selecting a radio option with the keyboard. The Enter key is not fully supported. If the Enter key has been used to select a radio option, please use the Escape key. Then you will be able to use the Space key again to select a radio option.

Submit

Coming Next

In this topic you learned that Citi employs a Lines of Defense model to structure key risk management roles. You covered the various responsibilities of these management roles and explored the rules that must be followed for required approvals such as portfolio categorizations, SCCs and Credit Tests.

In the next topic we dive deeper into RCR, with our focus turning to limits, monitoring and controls.

Retail Limits, Monitoring and Controls

Retail Limits, Monitoring and Controls

This topic defines certain key RCR limits, monitoring and other controls codified in the Retail Credit Risk Policy and supporting Standards and Procedures.

Scroll down to continue.

Risk Tolerance Limits

All retail portfolios need an initial approval and annual reapproval to set a Risk Tolerance Limit (RTL). An RTL is the maximum exposure, or size, allowed for a portfolio. RTL approval levels vary based on portfolio categorization and size.

RTLs must be monitored monthly. If a portfolio reaches 90% of the approved RTL, the GRD and SC/BRM must determine what, if any, action must be taken.

For more details, refer to the RCR Credit Approval Rules Standard.

Credit Criteria, Process and Pricing Exceptions

Each business must comply with requirements related to credit criteria, process and pricing exceptions outlined in RCR Credit Performance Management Policy (RCR Chapter 2) and the RCR Credit Performance Management Standard.

To learn more about each of these exception types, select each type of exception for a brief definition.

Credit Criteria Exceptions

Credit Criteria Exceptions

Deviations to approved risk acceptance credit criteria including, but not limited to, credit score overrides, exceptions to debt burden, loan to value, minimum income, etc.

Process Exceptions

Process Exceptions

Deviations to approved policies and procedures regarding how information is obtained/verified or how the identity of an applicant is verified.

Pricing Exceptions

Pricing Exceptions

Deviations to published interest rates or fees.

Exception Limits

All retail products are subject to the following exception limits on a quarterly basis:

  • Credit Criteria: 4%
  • Process: 5%
  • Pricing: 5%

Tracking of exceptions against these limits must be updated quarterly as required by the RCR MIS & Reporting Standard.

Portfolio Credit Concentration Risk Reporting

  • Quarterly reporting is required to monitor credit concentrations, higher-risk portfolio segments, and credit, policy and pricing exceptions.
  • Examples of credit concentrations include the marginal risk segment (i.e., riskiest segment allowed within risk appetite), interest-only lending and many others.
  • Specific guardrails for each credit concentration segment are set for new acquisitions and the total portfolio and are updated at least annually.
  • When guardrails are exceeded, a root cause analysis and remediation plan are required.

For more details, refer to the RCR Credit Approval Rules Standard

Quality Assurance Framework (QAF)

The Quality Assurance Framework (QAF) provides a standardized risk control and assessment framework for all Retail portfolios across each phase of the Credit Risk Life Cycle. It ensures that In-Business processes throughout the life cycle are executed consistently and includes proactive monitoring for self-identification of issues.

For more about the QAF, consider the frequently asked questions below and refer to the RCR Quality Assurance Framework Procedure.

1

Who uses the QAF?

All Retail businesses lending to consumers or managing retail consumer credit portfolios are required to execute QAF monitoring activities and must adhere to the RCR QAF Procedure.

2

What is the QAF Credit Risk Control Matrix (CRCM)?

The CRCM is the core content of the QAF assessment and defines key RCR Policy requirements and Independent Risk’s expectations on how controls of key risks inherent in retail credit processes are monitored and measured.

3

What is the QAF output?

The results of QAF execution, defect level and severity ratings are aggregated based on the number of monitoring activities to assign a QAF risk rating at the portfolio level.

Business Monitor

Business Monitor is a forward-looking self-assessment used in Retail Credit Risk Management (RCRM) that enables 1LOD Risk Management to highlight strengths and weaknesses across the risk and control environment, with review and challenge by 2LOD.

To proceed, select each button to learn more.

Purpose
 

Purpose

  • Proactive review and monitoring of Retail businesses
  • Quarterly portfolio health assessment
Benefits
 

Benefits

  • Comprehensive forward-looking self-assessment offering a macro-view of the risk and control environment
  • Streamlined focus on key processes related to RCRM
  • On-going process for escalation and resolution of risks and gaps

Approach
 

Approach
SC/BRMs or their designees assess risks qualitatively and rate the eight following categories relevant to Retail credit risk:

  1. Human capital
  2. Credit operations effectiveness
  3. Collections effectiveness
  4. Data and analytics
  5. Policy governance, risk and controls
  6. Environmental scanning
  7. Portfolio management
  8. Vulnerability to fraud

Check Your Understanding

If you were setting up a schedule to regularly review Credit, Process and Pricing exception limits for a Retail portfolio, what is the least frequent interval at which the reviews must be conducted to ensure effective monitoring?

Select the best response from the four options and then select Submit.

Please use the Space key only when selecting a radio option with the keyboard. The Enter key is not fully supported. If the Enter key has been used to select a radio option, please use the Escape key. Then you will be able to use the Space key again to select a radio option.

Submit

Coming Next

In this topic you learned that Retail portfolios require initial and annual credit approvals of Risk Tolerance Limits, adherence to RCR policies for credit, process and pricing exceptions and reviews to ensure compliance and risk control, all within a standardized Quality Assurance Framework.

Up next, the role of Management Information Systems (MIS) in Retail Credit Risk management.

Management Information System (MIS)

Management Information System (MIS)

Each business must develop comprehensive and accurate MIS for portfolio performance measurement, monitoring, tracking and reporting across the Retail Credit Life Cycle. This topic provides an overview of the general Retail lending MIS requirements.

Scroll down to continue.

MIS General Requirements

With comprehensive MIS, risk teams can strategically manage risk, identify underperforming segments and take action to manage exposure.

If you want to know more about general MIS requirements, consider the below frequently asked questions and refer to the RCR MIS & Reporting Standard.

1

What should comprehensive MIS measure?

Comprehensive MIS must track and validate:

  • Performance of each product across the Retail Credit Life Cycle using key risk indicators
  • Performance for different portfolio segments (e.g., salaried, self-employed)
  • Sourcing channels (e.g., digital, branch, agent)
  • Key indicators that drive risk (e.g., score, repayment capacity, LTV)
  • Overall portfolio performance
2

Which indicators should Retail businesses monitor?

The following indicators must be tracked and reported to the SC/BRM monthly and must be available upon request to the GRD, GP/FOD or their designees:

  • Leading indicators (e.g., applications, approvals, overrides, payment rates)
  • Coincident indicators (e.g., delinquency, roll rates, activation rates)
  • Lagging indicators (e.g., write-offs, recoveries, foreclosures)
  • Vintage MIS (at least quarterly)
  • Segment-level MIS

For more details, refer to the RCR MIS & Reporting Standard.

3

Why is MIS important?

Monitoring of portfolio, vintage and segment level MIS across the Retail Credit Life Cycle is important to identify emerging trends, underperforming segments and to provide the necessary insight for adjustment of credit criteria to optimize the risk-reward balance of the portfolio.

Both 1LOD and 2LOD must ensure that MIS they produce and the underlying data is timely and accurate.

Check Your Understanding

In a Retail lending context, you’re tasked with identifying essential MIS indicators. Which of the following is NOT a necessary indicator for Retail lending activities?

Select the best response from the five options and then select Submit.

Please use the Space key only when selecting a radio option with the keyboard. The Enter key is not fully supported. If the Enter key has been used to select a radio option, please use the Escape key. Then you will be able to use the Space key again to select a radio option.

Submit

Coming Next

In this topic you learned how comprehensive MIS enhances risk management through comprehensive and accurate reporting that enables strategic risk management.

In our next topic you’ll learn how this information informs collection and loss mitigation management.

Collections & Loss Mitigation

Collections & Loss Mitigation

In this topic we explain collections, loss mitigation and loss recognition concepts.

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Collections Management

The principal objectives of collections are to rehabilitate customers, resolve delinquency and reduce losses.

The RCR Collections Standard establishes the requirements that apply to retail collections.

To proceed, select each function to learn more about the key concepts of retail collections and loss mitigation.

 

Collections Management

  • Proactive management of the collections function is required to facilitate timely and adequate planning (in terms of strategy, capacity, technology investments, etc.) in anticipation of (or in response to) changes in economic factors, socio-political environment, target market and other factors that could impact credit performance.
  • 1LOD Risk Management develops and approves the end-to-end collection strategy, with input from Collections Operations, and both work together to ensure execution and operational readiness.
  • The collections function is part of the overall business planning process in all Retail businesses.

Strategy

  • It is the joint responsibility of the SC/BRM and the Senior Country/Business Collections Manager (SC/BCM) to create a comprehensive collections strategy.
  • Strategy components include segmentation, treatments, contact channels and fulfillment components.
  • The SC/BRM formally approves the baseline collections strategy and any subsequent strategy changes.

Process

Capacity planning

  • Collections capacity planning relies on loss forecasting conducted by Risk Management
  • Capacity plan forecasts should span the next six months
  • A comprehensive plan for staffing/people management must be linked to the objectives and servicing strategy in the Business/Country
  • At a minimum, the capacity plan must be updated quarterly

Workflow process and queue management

  • Work queues must align with the strategy and capacity plan.

Governance

  • A robust governance structure is required for all collection activities in Retail businesses.
  • Governance requires a monthly forum to review performance, operation metrics, control/quality MIS, and timely escalation of issues.

Technology

  • Adequate collections technology is required for all businesses that engage in Retail lending activities.
  • Important aspects of collections technology include a collection system with queuing and segmentation capability, a recovery system, automated dialer capabilities and decision engine (champion/challenger testing) capability.

Event Risk Management

  • Each Retail Business must have proactive operational readiness plans to handle events such as natural disasters or economic downturns.
  • Collections Operations Management collaborates with Operational Risk Management and Compliance to create a comprehensive plan for rapidly expanding collection capacity in response to economic downturns, political turmoil or natural disasters.

Sub-servicer Oversight

  • When collection activities are outsourced to a sub-servicer, it is crucial to exercise careful governance and oversight.
  • Insufficient collections staffing and inefficient processes at the sub-servicer could affect portfolio performance.

Loss Mitigation & Loss Recognition

Loss recognition and loss mitigation is an important part of the retail credit life cycle.

Loss recognition and non-accrual requirements in the RCR Loss Recognition & Mitigation Standard establishes the timing and processes for:

  • Non-accrual of income on delinquent loans
  • Recognition of credit losses, including early write-offs based on delinquency
  • Recognition of recoveries on loans that have already been written off

Write-off / write-down for retail products occurs at a specific number of days past due (DPD):

  • Credit cards write-off at 180 DPD
  • Unsecured installment loans write-off at 120 DPD
  • Mortgages write-down at 180 DPD

Detailed requirements for loss recognition and loss mitigation are outlined in the RCR Loss Recognition & Mitigation Standard.

Types of Loss Mitigation treatments

To proceed, select each button to learn about the different types of Loss Mitigation treatments used to assist customers having difficulty repaying their loan(s).

Purpose of Loss Mitigation Programs
 

Purpose of Loss Mitigation Programs
Loss mitigation programs are used to address changes in the customer’s ability to repay a loan according to the loan’s terms and conditions of the original loan.
Key Criteria for Loss Mitigation Programs
 

Key Criteria for Loss Mitigation Programs
Loss mitigation programs must be developed to address the customer’s duration and severity of cash flow reduction so that treatments are aligned to the customer’s condition.

Loss mitigation programs require evaluation methods to determine the customer’s ability and willingness to pay.
Long-term Treatments
 

Long-term Treatments
Long-term treatments are offered to customers before write-off and result in a change of terms (interest rate and/or tenor) that results in a payment reduction for greater than 12 months in duration.

Examples of long-term treatments include rewrites, loan modifications (also called Adjustment of Terms), settlements, short-sales (applicable to real estate) and paydowns.
Short-term Treatments
 

Short-term Treatments
Short-term treatments result in a change of terms (interest rate and/or payment amount) for less than or equal to 12 months in duration. In all cases, the minimum months on books for the loans treated in this manner is nine months.

Examples of short-term treatments include interest/fee waiver, payment reduction programs, extensions and deferments.

Check Your Understanding

What is the principal objective of collections?

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Coming Next

This topic showed that the primary purpose of collections is to rehabilitate customers, resolve delinquencies and minimize losses. It also discussed how loss mitigation treatments are designed to assist customers under payment stress.

Up next, there’s a summary of what you’ve learned.

Summary

Summary

You’ve learned about how Retail Credit Risk is managed at Citi. Before taking the assessment, please review the key takeaways of what you’ve learned.

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Conclusion

This Retail Credit Risk for Risk Practitioners course provided you with an understanding of Retail Credit Risk and the requirements of the associated Retail Credit Risk (RCR) Policy, Standards and Procedures.

  • Retail Credit Life Cycle: Product planning, Acquisitions, ECM, Collections & Loss Mitigation
  • Global Retail Lending Principles: Fairness, alignment of product purpose, value proposition and credit policy, higher scrutiny when underwriting customers with no or negative credit histories, payment for risk-taking
  • Portfolio Categorizations: New, Performance Exception, Mature & Stable, Mature & Stable Watchlisted, Liquidating
  • Risk Readiness Playbook: Five pillars are used: Triggers, Credit tightening, Operational readiness, Governance & Communication, Monitoring & Execution
  • Portfolio Performance monitoring: Benchmarks, Balanced Scorecard, Product Credit Risk Rating, periodic reviews
  • Credit authority and approval rules: Identify the key credit roles in risk management and understand the appropriate approvers for categorizations, significant credit changes and credit tests
  • MIS: Measures and indicators to monitor portfolio performance
  • Collections objectives: Rehabilitate customers, resolve delinquency and reduce losses

Coming Next

Next up, a 10-question assessment.

Assessment

Assessment Intro

Assessent Intro

Phases one and two of the Retail Credit Life Cycle are Product Planning and Acquisitions. What are phases three and four?

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Which mechanism for documenting the credit risk management approach across the credit life cycle must include amongst its components, target market and focus statement, return and loss targets, profit and loss statements (P&Ls) and Key Risk Indicators (KRIs)?

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What forward-looking risk management tool enables the business to prepare for upcoming stress and is based on establishing triggers, credit tightening actions, operational readiness, governance & communication and monitoring & execution?

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All items below are key elements of Retail Credit Risk performance monitoring and portfolio management. Which one requires that Retail businesses maintain an inventory of all products and assess the risk profile of each product across all risk stripes?

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Who is the lead 1LOD Risk Manager accountable for managing their retail portfolios and ensuring that all risk management activities comply with RCR Policy, Standards and Procedures?

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Which type of exceptions are subject to quarterly RCR Policy exception limits?

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Which one of the following ensures consistent execution of In-Business processes throughout the credit life cycle and includes proactive monitoring for self-identification of issues?

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The importance of identifying emerging trends, underperforming segments and providing the necessary insight for adjustment of credit criteria to optimize the risk-reward balance of the portfolio is best accomplished through which of the following?

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Which of the following is an example of a short-term loss mitigation treatment offered to a customer that would help address the customers difficulty repaying the loan?

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The Global Retail Lending Principles are the foundational elements of our risk appetite and culture for all lending decisions. Which one of the below is NOT one of the Global Retail Lending Principles?

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Assessment Results

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Select the Welcome topic to begin. Select the Home button at any time to return to this menu.

Topics

Welcome

Portfolio Governance

Portfolio & Product Performance Monitoring

Credit Authority and Approval Rules

Retail Limits, Monitoring and Controls

Management Information System (MIS)

Collections & Loss Mitigation

Summary

Assessment

Home
Welcome
Portfolio Governance
Portfolio & Product Performance Monitoring
Credit Authority and Approval Rules
Retail Limits, Monitoring and Controls
Management Information System (MIS)
Collections & Loss Mitigation
Summary
Assessment

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