Basel Framework and Banking Regulations

What is the primary function of the Basel Committee on Banking Supervision?

What is the purpose of internal policies and guidelines in a bank?

Which of the following is an example of an external law or regulation affecting bank credit functions?

What is the purpose of a credit policy in a bank?

Which of the following is NOT an example of an external law or regulation affecting bank credit functions?

What is the primary component of a financial rating in the lending process?

What is the purpose of a weighting function in the rating process?

What documents are typically required for the lending process?

What is a qualitative rating based on?

What is the result of combining financial and qualitative ratings?

The Basel Framework

The Basel Framework is a set of standards for the prudential regulation of banks, set by the Basel Committee on Banking Supervision, the primary global standard setter.

External Laws and Regulations

External laws and regulations affecting bank credit functions include:
- Regulations, Guidelines, Notices and Directions Issued by Bank Negara Malaysia
- Financial Services Act 2013
- National Land Code Act 828 (for land charges and lien as collateral)

Internal Policies and Guidelines

The credit policy is a document that outlines guidelines for lending companies to make critical lending decisions.
The guidelines are important for risk management and provide necessary guidelines for staff to effectively manage clients' portfolios.

Lending Approaches

Documents required for lending: annual financial statements or the business plan

Rating Process

A typical rating process consists of two components:
- Financial Rating (Quantitative Rating)
  - Analysis of financial data available for the credit applicant
  - Focus on debt service capacity
- Qualitative Rating
  - Assessment of borrower characteristics:
    - Knowledge
    - Experience
    - Past credit conduct
  - Assessment of business characteristics:
    - Profitability
    - Competitiveness
    - Survival

Combining Ratings

Financial and qualitative ratings are combined using a weighting function
The resulting rating is referred to as the Base Rating

This quiz covers the Basel Framework, the global standard for prudential regulation of banks, and external laws and regulations affecting bank credit functions in Malaysia.