Risk Management - Korea Credit Guarantee Fund Organization

KODIT employs the Enterprise Risk Management (ERM) system, integrating credit

Risk management, liquidity risk management and operational risk management

which were carried out respectively in the past. With this integrated risk manage

-ment, KODIT can efficiently cope with the changing business circumstances

arising from the introduction of Basel II, and effectively reinforce its financial

foundation for self-sustainability.

Credit Risk Management

• Using the Credit VAR system, credit risk management quantitatively estimates Expected Loss and Unexpected Loss from the outstanding amount of guarantees which can occur within one year. Applying credit risk management, KODIT can calculate the expected amount of future subrogation and thus reserve the appropriate amount for defaulted guarantees.

Liquidity Risk Management

• Liquidity risk management measures and prepares the appropriate amount of cash flows for subrogation and normal business operations. This risk management considers leverage ratios, outstanding guarantees, and contribution cash flow with the help of statistical methods and IT technology.

Operational Risk Management

• Operational risk management checks the consistency between behaviors of KODIT's staff members and management policies by using the risk monitoring system (RMS). The system monitors guarantee portfolios and the amount of guarantees provided by staff members and their working behaviors.

Classification	Details	Management Tool
Credit Risk Management	- Measure the expected loss from total guarantee portfolio quantitatively	Credit VAR Sytem
Liquidity Risk Management	- Measure the SMEs amount of liquidify by expected leverage ratio	Leverage Ratio Management System
Operational Risk Management	- Check the consistency between staff behavior and management polices	Risk Monitoring System

Integrated Risk Management

- Show individual risks as a whole - Taking the rate and amount of risk acceptance into account

ERM System

Credit Rating System

• Evaluating the credit status of enterprises applying for guarantees is most essential for securing financial sustainability. KODIT operates its own credit rating systems to minimize defaulted guarantees and therefore to keep capital funds stable.
• The credit rating systems estimate credit risk by analyzing and evaluating financial and non-financial factors such as financial risk, industrial risk, and operational risk. To evaluate the credit status of enterprises, KODIT uses two different credit rating systems depending on the business year of an applying enterprise. Corporate Credit Rating System (CCRS) is applied for enterprises over three years, and Startup Business Scoring System (SBSS) is for enterprises below three years.
• The credit rating systems are used to estimate credit risk in the Enterprise Risk Management system and functions as a guideline for credit line, coverage ratio, and guarantee fee rate in the credit guarantee process.