Credit Monitoring, Early Warning Signals, and Portfolio Management
What the exam tests
This domain tests post-disbursement discipline: covenant testing, account conduct, watchlists, early warning signals, concentration limits, and portfolio-level risk appetite. It is about detecting deterioration before default.
Core rules
- Monitor repayment behavior, limit utilization, account turnover, and covenant compliance at least quarterly for higher-risk accounts.
- Early warning signals include rising arrears, persistent excesses, returned cheques, declining turnover, auditor resignation, tax arrears, key management exits, and sector stress.
- Watchlist accounts require escalated review and a remediation plan.
- Portfolio limits cover single obligor, sector, product, tenor, and collateral type; breaches are reported and cured.
- Report credits to the central credit risk management system and check credit bureau records before and during lending.
Worked example
A portfolio of ₦10bn has a 25% sector cap, so the maximum is ₦2.5bn. Existing exposure is ₦2.7bn, an excess of ₦200m. The correct response is not simply to stop new lending; the excess must be reported, a cure plan agreed, and renewals in that sector declined until exposure falls below the cap. If the excess arose from drawdowns on existing commitments, the cause should be documented.
Traps
Relying only on repayment status and ignoring account conduct; treating a watchlist as a label without action; aggregating connected borrowers incorrectly; and missing off-balance-sheet or contingent exposures. Also avoid assuming a sector cap is measured only on drawn balances.
Key points
- Monitor account conduct, not just repayment.
- Early warning signals should trigger escalation, not observation.
- Portfolio limits need reporting and a cure plan when breached.
- Check credit bureau and central credit records during the relationship.