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Credit Card Activities Manual |
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Credit Card Activities Manual
Chapter XIII. – Asset Quality Considerations Summary of Examination Goals – Asset Quality Considerations XIII. Asset Quality Considerations Asset quality impacts many facets of bank operations and is one of the most critical factors in determining the bank's overall condition. The quality of the loan portfolio, including credit card portfolios, and of credit administration programs normally have a substantial effect on asset quality because loans are usually the largest of the asset items, and they can carry the greatest amount of potential risk to capital. Review of the credit card portfolios is carefully rolled into the comprehensive review of asset quality. Problems within the card portfolio can detract from management's ability to successfully and profitably manage other bank activities. The asset quality rating incorporates the quantity of existing and potential credit risk associated with the credit card portfolio(s) and the ability of management to identify, measure, monitor, and control that credit risk. It should consider the adequacy of allowances for credit card losses and all other risks that may affect the value or marketability of the card portfolio, including, but not limited to, operating, market, reputation, strategic, or compliance risks. Prior to assigning the overall asset quality rating, examiners should consider several factors within the context of any local, regional, or national conditions that might impact the card portfolio and, consequently, bank performance. Also, examiners should give any systemic weaknesses appropriate consideration. The following list is not exhaustive but does provide factors to consider when determining the quality of the credit card portfolio and, consequently, asset quality:
Factors should be evaluated not only according to the current level but also to any ongoing trends. The same level might be looked on more or less favorably depending on any improving or deteriorating trends in one or more factors. Key indices can be beneficial in determining the quality of the credit card portfolio. If properly developed, management's basic suite of reports (usually prepared at least monthly) should be able to aid examiners in identifying most of the key indices. The reports, as discussed in the Portfolio Management chapter, should usually be prepared for each portfolio segment to help gauge performance within that segment or to the managed portfolio. Examiners also frequently develop their own reports (or spreadsheets) based on management's reports and any relevant information gathered during the examination. Summary of Examination Goals – Asset Quality Considerations
Numerous potential red flags are named in preceding chapters of this manual. Examiners might identify the following situations which may be red flags from a broader perspective and warrant additional follow up, potentially in the subcomponent review areas for credit card activities:
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