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Composite Risk Rating Assessment Criteria

Composite Risk Rating Assessment Criteria

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Role of Composite Risk

The Composite Risk Rating (“CRR”) is an assessment of the provincially regulated financial institution’s (“PRFI”) overall risk profile. The CRR is established after considering the impact of earnings, capital, and liquidity on its overall net risk. It reflects BCFSA’s assessment of the safety, soundness, and stability of the PRFI.

A PRFI’s CRR is assessed as low, moderate, above average, or high, and the direction of CRR assessed as either decreasing, stable, or increasing, depending on the PRFI’s overall net risk direction and impacts of future risk forces on support factors.

Low Composite Risk

A strong, well-managed PRFI. The combination of its overall net risk and its earnings, capital, and liquidity makes the PRFI resilient to normal and most adverse business and economic conditions without materially affecting its risk profile. Its performance has been consistently good with most key indicators higher than industry norms, allowing it higher potential to generate additional capital through future earnings.

Any supervisory concerns have a minor effect on its risk profile and can be addressed in a routine manner. A PRFI in this category would typically have a low overall net risk coupled with acceptable earnings, capital, and liquidity, or a moderate overall net risk coupled with strong earnings, capital, and liquidity. Other combinations may be possible depending on the circumstances of the PRFI.

Moderate Composite Risk

A sound, generally well-managed PRFI. The combination of its overall net risk and its earnings, capital, and liquidity makes the PRFI resilient to normal and some adverse business and economic conditions without materially affecting its risk profile. The PRFI’s performance is satisfactory with key indictors generally comparable to industry norms, allowing it reasonable generation of additional capital through future earnings.

Supervisory concerns are within the PRFI’s ability to address. A PRFI in this category would typically have moderate overall net risk coupled with acceptable capital and earnings, or low overall net risk coupled with capital, and earnings that need improvement. Other combinations are possible.

Above Average Composite Risk

The PRFI has issues that indicate an early warning of risk, or that could lead to a risk to its financial viability. The PRFI has issues in its risk management that, although not serious enough to present an immediate threat to financial viability or solvency, could deteriorate into serious problems if not addressed promptly.

One or more of the following conditions are present: the combination of its overall net risk and its earnings, capital, and liquidity makes the PRFI vulnerable to most adverse business, and economic conditions; its performance is unsatisfactory or deteriorating with some key indicators at or marginally below industry norms, impairing its ability to earn additional capital within a reasonable timeframe.

A PRFI in this category would typically have above average overall net risk, which is not sufficiently mitigated by earnings, capital, and liquidity, or moderate overall net risk coupled with earnings, capital and liquidity that need improvement. Other combinations are possible.

High Composite Risk

The PRFI has serious safety and stability concerns.

One or more of the following conditions are present: the combination of its overall net risk and its earnings, capital, and liquidity is such that the PRFI is vulnerable to normal and most adverse business and economic conditions, posing a serious threat to its financial viability or solvency unless effective corrective action is implemented promptly; its performance is poor with most key indicators below industry norms, seriously impairing its ability to earn additional capital within a reasonable timeframe.

A PRFI in this category would have high overall net risk, which is not sufficiently mitigated by earnings, capital, and liquidity, or above average overall net risk coupled with earnings, capital, and liquidity that need improvement. Other combinations are possible.