[A primary objective of prudential supervisors is to maintain the financial soundness of individual financial institutions and the stability of the financial system as a whole. Prudential supervisors achieve this objective partly by issuing guidance on sound risk management, assessing the risk profile of each regulated institution and imposing a risk-based capital requirement.]

Principle 9 – Credit risk management assessment

Banking supervisors should periodically evaluate the effectiveness of a bank's credit risk practices.

83. Banking supervisors have policies that call for the periodic prudential review of a bank's lending and credit risk assessment functions [See Principle 17 of the Basel Core Principles. Essential Criterion 3 of Principle 17 provides that supervisors regularly determine that a bank's board-approved credit risk management strategy and significant policies and processes, as implemented and developed by senior management, "establish an appropriate and properly controlled credit risk environment".] and for recommending improvements where necessary. Supervisors should be satisfied that the bank has adopted and adheres to the sound credit risk practices described in this paper. For example, supervisors should evaluate whether:

(a) the bank's internal credit risk review function is robust and encompasses all lending exposures;