SMBC has established the Credit Risk Committee, as a con- sultative body, to round out its oversight system for undertaking  flexible and efficient control of credit risk, and ensuring the overall  soundness of the bank’s loan operations. The Internal Audit Unit, operating independently of the business  units, audits asset quality, accuracy of gradings and self-assessment,  and state of credit risk management, and reports the results directly  to the Board of Directors and the Management Committee.  At SMBC, to effectively manage the risk involved in individual loans  as well as the credit portfolio as a whole, we first acknowledge that  every loan entails credit risks, assess the credit risk posed by each  borrower and loan using an internal rating system, and quantify that  risk for control purposes. There is an internal rating system for each asset control cat- egory set according to portfolio characteristics. For example,  credits to commercial and industrial (C&I) companies, individuals  for business purposes (domestic only), sovereigns, public-sector  entities, and financial institutions are assigned an “obligor  grade,” which indicates the borrower’s creditworthiness, and/or  “facility grade,” which indicates the collectibility of assets taking  into account transaction conditions such as guarantee/collateral,  and tenor. An obligor grade is determined by first assigning a  financial grade using a financial strength grading model and data  obtained from the obligor’s financial statements. The financial  grade is then adjusted taking into account the actual state of the  obligor’s balance sheet and qualitative factors to derive the obligor  grade. In the event that the borrower is domiciled overseas, internal  ratings for credit are made after taking into consideration country  rank, which represents an assessment of the credit quality of each  country, based on its political and economic situation, as well as  its current account balance and external debt. Self-assessment is  the obligor grading process for assigning lower grades, and the  borrower categories used in self-assessment are consistent with the  obligor grade categories.  SMFG  2011 35 (a) Internal Rating System (1) Credit Risk Assessment and Quantification 3. Credit Risk Management Methods ■  SMBC’s Credit Risk Management System Risk Management Unit Investment Banking Unit Business Units Management Committee Board of Directors External Audit (Auditing Firm) Corporate Auditors Credit Dept. Domestic Structured Finance Structured Finance Credit Dept. International Banking Unit Overseas Corporations Structured Finance Credit Dept., Americas Div. Credit Dept., Europe Div. Asia Credit Dept. Credit Management Dept. Corporate Banking Unit Large Domestic Corporations Credit Dept. Middle Market Banking Unit Small and Medium-Sized Enterprises Credit Dept. I & II Consumer Banking Unit Credit for Individuals Credit Dept. Internal Audit Unit Corporate Services Unit •Audits self-assessments, grading (obligors and facilities), and  effectiveness of write-offs and reserves Credit Review Dept. •Audits credit risk management Internal Audit Dept. •Aggregates risk for comprehensive management •Plans and proposes risk quantification methods Corporate Risk Management Dept. •Industry trend research •Credit assessment of major industry players Corporate Research Dept. •Manages problem assets (plans, implements corporate rehabilitation  program, sells off the revitalized company) Credit Administration Dept. •Aggregates credit risk for unified management •Plans and proposes basic credit policies •Drafts, administers, and examines internal rating system Credit & Investment Planning Dept. •Undertakes active portfolio management Credit Portfolio Management Dept.