Page 97 - 2021 ANNUAL REPORT draft

Loans and Advances

Models have been used to estimate the amount of credit exposures, as the value of a product varies with
changes in market variables, expected cash flows and time. The assessment of credit risk of a portfolio of
assets entails further estimations as to the likelihood of defaults occurring, of the associated loss ratios and
of default correlations between parties.
Ratings and scoring models are in use for all key credit portfolios and form the basis for measuring default
risks.
In measuring credit risk of loans and advances at a counterparty level, the Bank considers three
components:

(i) The ‘probability of default’ (PD)
(ii) Exposures to the counterparty and its likely future development, from which the Bank derive the
‘exposure at default’ (EAD); and
(iii) The likely recovery ratio on the defaulted obligations (the ‘loss given default’) (LGD).
The models are reviewed regularly to monitor their robustness relative to actual performance and amended
as necessary to optimize their effectiveness.

Risk Limit Control and Mitigation Policies

The Bank applies limits to control credit risk concentration and diversification of its risk assets portfolio. The
Bank maintains limits for individual borrowers and group of related borrowers, business lines, rating grade
and geographical area.

The Bank adopted obligor limits as set by the regulators and it is currently at 25% of the Bank’s
shareholders’ funds. The obligor limit covers exposures to counterparties and related parties.
The Bank imposes industry/economic sector limits to guide against concentration risk as a result of
exposures to sets of counterparties operating in a particular industry. The industry limits are arrived at after
rigorous analysis of the risks inherent in the industry/economic sectors.

The limits are usually recommended by the Bank’s Enterprise Risk Management Unit and approved by the
Board. The limits set for each industry or economic sector depend on the historical performance of the
sector as well as the intelligence report on the outlook of the sector. During the year, limits can be realigned
(by way of outright removal, reduction or increase) to meet the exigencies of the prevailing macroeconomic
events.

The Bank also sets internal credit approval limits for various levels of officers in the credit process. Approval
decisions are guided by the Bank’s strategic focus as well as the stated risk appetite and the other limits
established by the board or regulatory authorities such as Aggregate Large Exposure Limits, Single Obligor
Limits, Geographical Limits, Industry / Economic sector limits etc.

The lending authority in the Bank flows through the management hierarchy with the final authority residing
with the Board of Directors as indicated below:

Designation Limit

Up to the single obligor limit as advised by the regulatory
Board of Directors Authorities from time to time but currently put at 25% of
shareholders’ funds (total equity)
Management Credit Committee Up to GMD3Million

97 | P a g e
Guaranty Trust Bank (Gambia) Limited Financial Statements December 2021