At Banrisul, the analysis of credit risk is carried out through statistical models for individuals and for the mass corporate segment, which comprises companies with average monthly income of up to R$2 million that do not belong to economic groups and\/or exceptional segments.<\/p>\n\n\n\n
The exceptional segment is identified based on the company\u2019s main activity in the national classification of economic activities (CNAE, in Portuguese) and includes companies that have atypical cash flows, as well as those that are not targets of Banrisul\u2019s market of interest.<\/p>\n\n\n\n
In the segments with little commercial interest, we list the segments with high environmental and social risk. Companies that are not subject to the mass analysis are analyzed on a case-by-case basis observing quantitative and qualitative aspects.<\/p>\n\n\n\n
The Bank currently checks with external agencies whether the customer, either an individual or a company, has been listed as an \u201cEmployer that uses Forced Labor\u201d or as causing \u201cEnvironmental Damage\u201d (conviction for environmental damage in actions filed by Brazil\u2019s environmental protection agency (IBAMA, in Portuguese)). Potential new customers identified as an \u201cEmployer that uses Forced Labor\u201d are not allowed to obtain credit of any type. If existing customers are included in this list, Banrisul takes specific measures to discontinue the business relationship. The occurrence of environmental damage, on the other hand, prevents customers from obtaining specialized credit lines.<\/p>\n\n\n\n
Regarding social aspects, there are markings in the Risk Calculation and Negative Occurrence systems indicating individual customers classified based on a proprietary model to identify vulnerabilities, in which customers with a high score go through a special credit granting process, with the application of regulations to product policies. In addition, the credit granting guidelines define the overall limits that should be considered in the process, preventing over-indebtedness.<\/p>\n\n\n\n
Moreover, in larger transactions, especially those involving larger companies or exceptional segments (for which we do not set limits using a mass model), Banrisul carries out a case-by-case analysis using data from the financial statements, notes to the financial statements and other information, in addition to requiring the filling out of a specific checklist to learn more about the customer, helping analysts obtain qualitative information that will be used in their report and risk analysis, as well as in the definition of the exposure limit.<\/p>\n\n\n\n
In order to include a qualitative aspect in credit analysis, Banrisul incorporated an ESG assessment tool into the process. The tool uses a questionnaire completed by companies\/economic groups with exposure or proposed risk limit higher than R$5 million to generate a score that is incorporated into the customer\u2019s internal risk rating. It is being used to assess the risk limit of sectors considered to be more sensitive to ESG aspects. ESG aspects are analyzed qualitatively by credit risk analysts in line with Banrisul\u2019s Institutional Manual\/Social, Environmental and Climate Policy.<\/p>\n\n\n\n
The risk analysis for the establishment of the exposure limit is general in nature, i.e., it addresses the most relevant information and considerations for credit risk without taking account the specific characteristics of the credit lines in question. In this context, additional information and analyses can be required during the credit analysis and approval process, with special attention to ESG aspects, especially credit lines for investment, agribusiness and real estate projects.<\/p>\n\n\n\n
Given the relevance of credit exposures, all the transactions above R$10 million in which the allocation of funds or credit granted is known are subject to the completion of standardized questionnaires to better measure the social, environmental and climate risk. This questionnaire may also be used in other transactions or in transactions involving a lower amount.<\/p>\n\n\n\n
The guidelines related to the products, which complement the Institution\u2019s Credit Policy, are set out in the specific regulations for Agribusiness (N7), Development (N33) and Real Estate (N30).<\/p>\n\n\n\n
In order to estimate credit losses during the duration of the contract of the financial assets, the provision for credit losses is calculated monthly for all active contracts based on the rating calculation. Currently, the credit rating of Banrisul\u2019s credit transactions can be hurt if the client does not have an approved credit exposure limit. For some industries, this individual analysis to determine exposure limit is forbidden, for example sectors\/CNAE of gambling and betting, several agricultural crops (such as tobacco and sugar cane).<\/p>\n\n\n\n
In the context of the Stress Test Program, the scenario is assessed in two stages. At first, the accounting balance of the adverse scenario is used in the ad hoc scenario analysis. All transactions classified as highly exposed to climate risk are downgraded by one level of risk, resulting in a higher provision. The difference between the new provision and the initial provision is then added to the amount of the expected difference between the loss in the adverse scenario and the loss in the credit base scenario.<\/p>\n\n\n\n
These data are sent to the budget department, which will calculate the income statement with these new provision amounts, attesting to the Institution\u2019s resilience in the face of a possible stress. Whereas the individualized analyses make use of, but are not limited to, relevant information from the ESG agenda, the knowledge acquired during these analyses, combined with the constant monitoring of trends, is how we currently seek to identify opportunities for improvements in our processes.<\/p>\n\n\n\n
As we monitor the credit portfolio, we look at credit allocation according to the sector, as well as the largest individual and economic group exposures. In the geographical context, the statistical models used in credit granting include a variable that indicates the main regions of the state.<\/p>\n\n\n\n
The Green Taxonomy (Brazilian Federation of Banks \u2014 FEBRABAN, in Portuguese) is used to analyze the risk exposure profile. The assessment is based on the borrower\u2019s code in the National Classification of Economic Activity (CNAE) in three dimensions: Contribution to the Green Economy, Exposure to Climate Change and Exposure to Environmental Risk.<\/p>\n\n\n\n
The activities listed in Resolution 237\/97 of the National Environmental Council (CONAMA, in Portuguese), which requires environmental licensing for sectors with higher potential impact, were considered in the classification of the Exposure to Environmental Risk. In December 2022, 41.49% of the corporate credit portfolio had high exposure to environmental risk.<\/p>\n\n\n\n
The classification related to Exposure to Climate Change was prepared based on the activities defined by Task Force on Climate-related Financial Disclosures (TCFD) as having the highest probability of being affected by transition and physical risks considering three factors: greenhouse gas (GHG) emissions, energy use and water consumption. These sectors were classified as High Exposure, and the activities related to or financially exposed to this sector were classified as Moderate Exposure. In December 2022, 44.61% of the corporate credit portfolio had significant exposure to climate risk.<\/p>\n\n\n\n
In addition to the credit risk assessment, the customer\u2019s exposures are controlled to avoid over-indebtedness. Based on the client\u2019s risk rating, size and profile, the Bank determines healthy income commitment levels (percentage of income allocated to debt servicing), as follows:<\/p>\n\n\n\n