Mega Bank Annual Report 2017

21 Annual Report 2017 -21- Risk Management Credit Risk Management System Year 2017 Item Content A. Credit Risk Strategies, Goals, Policies, and Procedures 1. When developing the Bank ’ s credit and investment businesses, besides complying with the relevant laws and regulations such as the Banking Act of the Republic of China, the business supervisory units shall set risk management targets (non-performing loans ratio, NPL coverage ratio, etc.), and the Risk Management Department compiles and submits reports to the Bank ’ s Risk Management Committee and the Bank ’ s Board of Directors for approval. The Bank also sets its risk appetite by establishing various credit and investment regulations, maintaining a sound credit risk management framework and standard. 2. In response to the implementation of New Basel Capital Accord, the Bank is gradually developing models and evaluation mechanisms for estimating various credit risk component, such as implementation of internal rating system linked to probability of default (PD), to predict customer ’ s PD with quantitative analysis tools, etc., so as to strengthen the existing credit rating system of credit analysis procedures, and thereby enhance the management efficiency of credit risk. 3. Before engaging in credit and investment businesses, the Bank shall ensure thorough credit investigation and review with clear authorization limits by a hierarchical delegation framework to enhance service efficiency and shorten operating processes. Regular review is also conducted by establishing a reporting mechanism to report irregular or emergent incidents within the stipulated time. 4. The Overdue Loan & Control Department is in charge of non-performing/non-accrual loans management. Proper guidelines, rules and procedures have been set to ensure effective monitoring and collection of NPLs. B. Organization of Credit Risk Management 1. The Board of Directors has the ultimate responsibility for the Bank ’ s credit risk management, in charge of approval of entire Bank ’ s credit risk policies, framework, strategies/goals and important credit risk management regulations of the Bank. The Risk Management Committee is delegated by the Board of Directors and is convened by Chairman of the Board with the responsibility to review and discuss risk management policies, regulations, etc. 2. The Loan Committee and Investment Committee are in charge of reviewing credit and investment cases, related policies and implementation status in this regard. The Problem Loan Committee manages problem loans and debt collection, and reviews related policies of non-performing/non-accrual loans. 3. Each Head Office department in charge of credit risk shall, according to their duties, implement credit risk management procedures such as identification, measurement, monitoring, reporting, etc., and continue to enhance risk management mechanism. 4. The Risk Management Department shall coordinate and supervise the various units in establishing the credit risk management mechanism, and gradually develop tools such as internal rating system to enhance credit risk management, and submits risk management report to the Board of Directors and Mega Financial Holding Company regularly. C. Scope and Characteristics of the Credit Risk, Reporting and Measuring System 1. The Bank ’ s credit risk management objectives are set annually using a bottom-up method, and are submitted to the Board of Directors for approval. The implementation progress and status are evaluated regularly according to economic conditions, the Bank ’ s financial status and risk exposure, etc., so as to strengthen the Bank ’ s overall risk management. Meanwhile, in accordance with the regulations of the competent authority, related credit risk information is disclosed on the Bank ’ s website. 2. To control the same concerned party (groups of related counterparties), industries, country risk, etc., and prevent over-concentration of risk, the Bank has set various credit and investment limits for the same concerned party (groups of related counterparties), industries, etc., according to economic performance, industry outlook and credit risk level, and reports