Credit risk

The management of credit risk and maintaining it at a secure level defined by the risk appetite is fundamental for stable operation and growth of the Bank. Credit risk control is delivered by our comprehensive credit risk management system which is integrated into the Bank’s operational processes.

The description of how the risk control system operates is reflected in the regulations applicable at the Bank, in particular in credit origination methodologies and in the risk valuation models adapted to the customer segment, type of product and transaction, the rules for establishing and monitoring legal securities for loans, and by debt monitoring and collection processes. In 2019, a risk control department was established as an independent unit conducting additional controls in key processes of credit risk management.

In managing its risks, the Bank takes measures, both on the individual and on portfolio basis, aimed at: 

  • Minimising the level of credit risk of a single loan at the adopted profitability level

As part of measures to minimise the risk level of a single exposure, the Bank assesses each time when originating a new loan product: 

  • credibility and credit rating of the customer, taking into account, among other things, detailed analysis of the source from which the exposure is to be repaid, 
  • credibility of the accepted security, including verification of the formal legal status and economic value, taking into account, among other things, LTV adequacy, 
  • taking effective monitoring and collection measures adequately defined on the level of a single customer based on the segmentation models applied. 
  • Reducing the overall credit risk resulting from the Bank holding a specific credit loan portfolio

To keep credit risk on the level defined in its risk appetite, the bank has applied the following measures: 

  • establishing and controlling concentration limits,  ,
  • monitoring of structure and quality of new credit exposure in relation to defined purposes and EWS signals, 
  • analysing of changes in internal and market factors as well as the sensitivity of the loan portfolio, in particular in relation to negative events identified as potential risk, 
  • regularly monitoring the loan portfolio, by controlling all major parameters of credit risk (including PD, LGD, LTV, DTI, COR, NPE, NPL, Coverage, loss rate of particular generations),  
  • regularly conduct of stress tests. 

In the retail loan area, in 2019 the cost of risk and portfolio structure were consistent with the credit risk appetite. At the same time, the Bank continued its process of searching for areas of secure growth. 

For housing loans, the Bank has expanded its offering of mortgage loans with a very high potential for value growth due to their location in the largest cities. In addition, the Bank has implemented changes to the lending process which result in increased automation and efficiency of the lending process. 

For loans other than mortgage loans, the Bank continued optimising its credit policy for cash advances, achieving a reduction of the default rate of that product portfolio by 11% as compared to 2018, including through: 

Maintaining an adequate structure of distribution channels, with a low share of the intermediary segment

Maintaining the share of relationship customers

Deepening the variation of the amounts and prices of the available loan products depending on the customer risk profile

In the area of instalment loans, the Bank has continued its strategy to optimise loan policy, in particular its adaptation to particular market partners and the development of collaboration with parties supplying the desirable customer profile, which results in risk costs for that product improving in 2019 by 29% as compared to 2018, accompanied by portfolio growth by 7%. 

In the area of loans for micro- and small enterprises, the Bank has consistently pursued its strategy to optimise loan policies by focusing on precise delineation of customer profiles with the highest loss rates, in particular: in the first step, by limiting and eventually abandoning sales through the loan intermediary channel in the business area, by limiting the available amounts in the most disadvantageous risk classes, by introducing more stringent refusal criteria and stricter credit rating assessment methodology, by expanding customer credibility assessment to include new information sources (external databases), and for collateral, by implementing BGK guarantees to automated processes, at the same time expanding their mandatory scope. The largest number of changes applied to the micro-enterprise segment, which has resulted in improved quality of new loan origination by 60% and 3-fold increase in collateral coverage ratio as compared to prior years. 

Regarding loans for business customers, in 2019 the Bank has implemented a number of initiatives to improve the quality of the loan portfolio, including: the parameters of loan policy were adjusted with a view to acquiring new borrowers with the lowest risk profiles, the limit of the available overdraft facilities and collateral requirements were reviewed. 

Risk assessment in the loan origination process  

The Bank takes decisions to award credit products in accordance with: 

  • the applicable legislation and KNF recommendations; 
  • credit risk management policies; 
  • loan origination methodologies appropriate for the respective customer and type of product; 
  • operational procedures defining the appropriate activities to be carried out under the loan origination process, the Bank’s units responsible for them, and the tools to be used; 
  • loan responsibility rules whereby responsibility levels are adapted to the level of risk involved in the customer and transaction. 

Customer credit rating prior to issuing a decision to award a credit product is conducted using our loan origination support system, scoring or rating tools, external information (including databases of CBD DZ, CBD BR, BIK, credit bureaus) and the Bank’s in-house databases. 

To conduct regular assessment of the assumed credit risk and to limit potential losses due to credit exposures during the lending process, the Bank monitors the customer’s circumstances by identifying early warning signals and conducting periodic, individual reviews of loan exposures. The monitoring process terminates with defining a strategy for further cooperation with the client, issuing possible recommendations regarding changes in the terms of cooperation and then contacting the customer to implement the proposed changes. 

Separation of responsibilities  

The Bank has in place a policy of the separation of functions related to Customer acquisition and sale of credit products from functions related to the assessment of credit risk, taking loan origination decisions, and monitoring loan exposures. 

Concentration risk management 

Concentration risk is analysed at the Bank with regard to credit activity and is defined as a threat resulting from the Bank’s excessive exposures:  

  • to single customers or groups of related customers,  
  • subject to common or correlated risk factors,  
  • having a potential to generate losses to the extent that may pose threats to the Bank’s financial condition.  

The Bank identifies and assesses concentration risk by analysing the portfolio structure against various factors (exposure features) important for credit risks, and on this basis defines exposure groups whose excessive concentration is undesirable and in extreme conditions may generate losses that exceed the Banks’ credit risk appetite. The awareness of the scale of potential threats related to exposure concentration allows us to create a secure structure of the credit portfolio.  

In order to prevent unfavourable events resulting from excessive concentration, the Bank restricts this risks by complying with concentration limits under laws and regulations and by applying in-house limits and standards 

Impairment and provisions  

The Bank assesses all on-balance-sheet credit exposures (groups of on-balance-sheet credit exposures) to identify objective evidence of impairment, according to information most current as at the value adjustment date. The Bank also assesses off-balance-sheet exposures in terms of the need to establish provisions. Impairment is identified automatically in the Bank’s central system based on system information (arrears) or information entered by users. If there is no objective evidence of impairment of the carrying amount of credit exposures, they are aggregated to a group of assets with a similar credit risk profile and assessed as a group in terms of material deterioration of credit quality since initial recognition. The assessment of deteriorated credit quality is based on a set of qualitative and quantitative evidence. Qualitative evidence includes: the exposure is materially past due in excess of 30 days, assignment of customer to the Watch List category, exposure remaining in the forborne category, existence of other risks (including risk of sector, region, etc.). Quantitative evidence is material deterioration of the current aggregate probabilities of default in the period leading to expected maturity against aggregate probabilities of default for that period at the time of exposure generation (i.e., release or major modification). The Bank uses two models to estimate write-offs for exposures for which there is no impairment evidence: model of expected losses estimated within 12 months for exposures classified as Bucket/Stage 1 (or LCR) and model of expected losses estimated at the time leading to maturity for exposures classified as Bucket/Stage 2 (including POCI). 

Impairment evidence 

The Bank assesses impairment evidence by classifying and varying events related to: 



Exposure to banks

Exposure to bonds

Ekspozycje, dla których stwierdzono przesłanki utraty wartości, dzielone są na wyceniane indywidualnie i wyceniane grupowo. Wycena indywidualna obowiązuje dla ekspozycji zagrożonych utratą wartości (liczonych na poziomie klienta), przekraczających progi istotności ustalone w zależności od segmentu klienta (patrz tabela poniżej).

Exposures for which impairment evidence has been identified are classified as those valued individually and those valued as a group. Individual valuation applies to exposures at risk of impairment (calculated at the customer level), exceeding the significance levels established based on customer segment (see table below). 

Significance levels qualifying customer exposures to individual valuation

Customer segment Level value (zloty)
Customer segment Consumers Level value (zloty) No level
Customer segment Business customer 3,000,000 Level value (zloty) 3 000 000

Individual assessment is also conducted for exposures at risk of impairment, for which the Bank is unable to define a group of assets with similar credit risk characteristics or does not hold a sufficient sample to estimate group parameters. 

Individual valuation is based on the analysis of potential scenarios (business customers). Each scenario and tree branch have assigned to them probabilities of materialisation and the expected recoveries. The assumptions adopted for individual valuations are described in detail by those conducting the analysis. The values of recoveries expected under individual valuations are compared to the realised recoveries on quarterly basis. 

The group valuation is based on the time for which the exposure remains in the default state; it takes account of specific features of the group in terms of expected recoveries. Security is incorporated on the exposure level. 


Legal security is for the Bank a secondary source of repayment of a secured debt if unfavourable circumstances occur within the lifetime of a credit product. Credit security also increases the probability of Borrowers meeting their obligations. If the Borrower fails to pay the debt by the dates defined in the loan agreement and restructuring measures fail to bring the expected result, the security is to enable the Bank to get reimbursed for the loan along with any interest and costs. 

The Bank establishes the security method taking into account: 

  • expected workload of the Bank and the cost of establishing the security; 
  • type and amount of the secured debt and the lending period; 
  • actual possibility of meeting the Bank’s claims in the shortest time possible from the adopted security; 
  • any pre-existing charges on the security, for security in kind; 
  • Financial and business circumstances of the person providing guarantees to the customer, and his/her personal and ownership relationships with other entities – in the event of personal securities; 
  • estimates cost of potential materialisation of the security. 

Management of the assets taken over instead of the debt 

In justified cases, the Bank takes over any assets providing a security in order to satisfy the debt. Such operations are conducted based on an approved plan of management of the asset to be taken over. 


Credit scoring is a tool to support lending decisions for consumers, and credit rating is an instrument supporting the decision-making process in the micro, small, middle-sized and large enterprises.  

The Bank regularly tests its scoring and rating models for accuracy. The purpose is to find out if the models correctly differentiate the risks, and risk parameter estimations adequately reflect the respective risk aspects. In addition, during functional checks the accuracy of application of the models in the lending process is verified. 

The scoring models currently used have been built by the Bank’s in-house resources. To strengthen the process of managing the risk of the models used at the Bank, there is a team which plays the role of an independent validation unit. 

All credit exposures of consumers and business customers are subject to monitoring and current classification to adequate processing paths. To streamline the monitoring and control of the operational risk, adequate solutions in the Bank’s lending systems have been implemented. The system tools have been consolidated to effectively conduct the monitoring procedures, and covers all accounts. 

Monitoring of credit risk for consumers and businesses

Continuous control of the quality of the credit portfolio is ensured by:

current monitoring of timely
repayment of loans

periodic reviews, in particular of financial and business circumstances of customers and the value of the accepted securities

Monitoring of credit risk for consumers and businesses  Forbearance practices  

The Bank uses the following tools in the process of restructuring of consumers: 

  • extension of the lending period resulting in lower amounts of monthly principal and interest to be repaid. The extension is possible up to 144 months (for retail credit products), regardless of the initial lending period. If the lending period is extended, any restrictions resulting from the product characteristics are taken into account, for instance the age of the borrower; 
  • grace periods (applied to a part of or the entire instalment depending on the risk assessment on the single exposure level). During the period of complete grace period for the repayment of principle and interest, the borrower is not required to make any payments under the agreement. The period of loan repayment may be extended to adapt the amount of the instalment to the Borrower’s payment capacity in accordance with the restrictions resulting from the product’s metrics. Complete grace period is applied for a maximum of six months; 
  • consolidation of several liabilities at Alior Bank, including the conversion of the overdraft balance/unauthorised debit on the current account/credit card into a loan to be repaid in instalments; the consolidation results in transforming several liabilities under various contracts into a single liability. The product launched as a result of the consolidation is repaid in monthly instalments based on the established schedule. The parameters of the product launched as a result of applying the respective tool are consistent with the products metrics: cash advance/consolidation loan. 

Tools can be combined if such solution increases the likelihood that the restructuring will be effective. In particularly justified circumstances, there is a possibility of applying other tools. 

Monitoring of risks involved in forbearance practices  

As part of reporting activities concerning the portfolio of restructured loans, the following is subject to detailed analysis: 

  • application process (quantity of applications, quantity of decisions issued, types of decision, time-to-decision, time-to decision delivery); 
  • quality of the portfolio of restructured lending (by particular form of arrears, forms of restructuring, fact of the application of exceptions), with particular attention to delayed loss ratios. 

Assessment of impairment for exposures subject to forbearance practices 

For exposures subject to forbearance practices, the Banks applies stricter criteria for the identification of impairment evidence. In addition to the standard set of evidence, an additional quantitative criterion is applied for those exposures, i.e. past due status in excess of 30 days. 

An exposure for which an impairment has been identified as a result of it being classified as forbearance (default) maintains such status for at least 12 months. Following that period, the exposure may leave the default status if there are no major delays or any other impairment evidence. Such exposure remains under the forbearance status for another 24 months. After that period, the identification of impairment evidence is conducted against the stricter criteria listed above.