Why have the principles been updated to reflect current guidelines?
The BCBS first published its โPrinciples for the Management of Credit Riskโ in 2000, establishing uniform global standards for credit risk management in banks. These principles serve as a framework for supervisory authorities to assess and monitor how banks manage credit risk.
In 2023, the Committee launched a review to ensure that the principles remained relevant and up-to-date in light of developments in the global financial markets and the evolving regulatory landscape. The ongoing relevance of the principles was generally confirmed during the review. However, areas were identified that were outdated or no longer fully consistent with the current Basel framework and the Committeeโs latest guidelines.
The updated principles, published in Aprilย 2025[1] , therefore include several technical adjustments to align them with the current Basel framework and the latest guidelines. These adjustments aim to enhance the effectiveness of credit risk management without altering the core content of the principles.
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What are the main new features of the updated principles?
I) Regular review and approval of the credit risk strategy
The updated principles emphasize the management boardโs responsibility to review and approve the credit risk strategy and its operationalization on an annual basis. This regular review is intended to ensure a quick response to changing economic conditions and new risks.
II)ย Improvements to the credit approval process
Information requirements have been specified to the effect that banks must request sufficient loan documents to fully assess a borrowerโs risk profile. This includes considering scenarios and future cash flow projections.
The definition of credit limits for individual borrowers and related borrower groups has also been refined to allow for better diversification and risk management.
III)ย Integration of market conditions and macroeconomic factors
The credit risk strategy must now explicitly consider market conditions, macroeconomic indicators and forward-looking information. This proactive approach enables banks to better anticipate economic shifts and to manage and monitor their risk exposures more effectively. Adapting in this way is essential to prepare for global economic trends and potential market changes.
IV)ย Improved communication and implementation
The strategy and regulations must be effectively communicated within the organization. All relevant employees must have an understanding of and comply with the institutionโs credit risk culture. This is intended to promote the uniform implementation of risk management practices. Clear communication is essential for avoiding misunderstandings and ensuring compliance with the regulations.
V)ย Independent evaluation and reporting
Another important point is the implementation of an independent system for the ongoing evaluation of credit risk management processes, with a direct reporting line to senior management and the board. This enhances transparency and accountability within the bank, ensuring that credit risk management processes are regularly reviewed and improved. Independent reviews should help detect weaknesses early on and allow for timely corrective measures.
VI)ย Improved risk management practices
The revised principles emphasize the importance of robust risk management and effective internal controls. Banks must develop and implement internal risk assessment systems that are consistent with the nature, scope, complexity and risk content of their operations. Although this is not a new requirement, implementing it in practice is always a challenge.
The principles also raise the bar for the quality and granularity of management information systems to support better monitoring and control of credit risks.
VII)ย Early action for problem loans
A systematic process for the early initiation of measures for risk positions with deteriorating credit quality is absolutely essential. These processes should enable banks to identify potential problems early on and take appropriate measures to minimize their impact on loan portfolios. Proactively managing problem loans can reduce losses and ensure the bankโs financial stability. While the concept itself isnโt new, the paperโs emphasis on the topic gives it greater significance (see also BankingHub (2024):ย The resurgence of problem loan managementย โ challenges for banks).
Conclusion: Can the new BCBS requirements stabilize the banking industry?
The updated BCBS requirements aim to strengthen the stability and resilience of the banking sector by introducing stricter capital requirements and improved risk management practices.
Both European and national banking supervisors will continue to refine their regulations and monitoring practices in the future to ensure that banks comply with and effectively implement the new standards. While the adjustments presented in this Basel paper do not introduce fundamentally new requirements, they clarify and reinforce existing expectations, such as those set out in the EBA guidelines on loan origination and monitoring as well as internal governance and the SREP guidelines. However, the emphasized requirements of regular reviews, independent assessments and early action on problem loans are important steps in further strengthening the robustness and resilience of the banking sector.
