Unlocking credit cycles

Transcription

1 Unlocking credit cycles

2 Unlocking Credit Cycles Wholesale credit risk over the past years has exhibited pronounced cycles with losses varying widely over time and across industries and regions. Coupled with new regulations for IFRS9/CECL and Stress Testing this creates the need for Point-in- Time (PIT) models PIT models for PD, LGD and EAD are capable of accurately assessing credit losses (ECLs) at all points in the cycle across all borrowers and individual exposures.

3 Z-RiskEngine is an advanced solution for IFRS9/CECL and Stress Testing developed and refined over the last 10 years providing a single integrated customisable, Batch Analytics Solution for Wholesale, Corporate and Commercial Credit Portfolios to successfully satisfy complex regulations. Why use Z in Z-RiskEngine? Z represents our notation for credit cycles. First used in our publications in 1998, Z is the key to measuring PIT risks and unlocking credit cycles. END TO END BUSINESS SOLUTION Brought to you by Aguais And Associates In Association with Deloitte Aguais And Associates, the makers of Z-RiskEngine, have developed a strategic association with Deloitte, a global accounting and advisory firm that allows the combination of Z-RiskEngine s solution and Deloitte s substantial advisory resources to provide a full end-to-end solution implemented, validated and programme managed by Deloitte. Deloitte Business Impact Assessment Quantitative Impact Study Gap Assessment QIS Solutions Implementation Z-RiskEngine Batch Solution Custom Z Model Calibration Tech Model Support for Compliance Ongoing Calibration Updates Technical Advisory

4 SOLUTION ARCHITECTURE Z-RiskEngine is a SAS software based solution and is flexible to how SAS is implemented within an institution. Utilising client data and existing credit and stress testing models, the solution provides full batch processing capability to apply customised industry/region credit indices and calculate credit losses. Existing Client Models and Data: PD, LGD, EAD and Stress Testing PIT MODULE Custom Industry-Region Credit Cycles provide: Consistent set of credit indices used in all models, reducing model complexity Assessment of PIT-ness of existing models Conversion of hybrid model output to PIT PIT PD, LGD and EAD measures Fully automated batch processing based solution ECL MODULE SCENARIO FORECASTING MODULE Simulation Simulation #1 Simulation #2 Simulation #n Simulation #1000 Unconditional Multi Period PIT PD PIT LGD PIT EAD Probabilities and Scenarios from Client or Regulator Significant Deterioration Criteria from Client Bridge Scenario #1 Scenario #2 Scenario #n Conditional Multi Period PIT PD PIT LGD PIT EAD Expected Credit Loss Scenario Based Loss

5 BATCH PROCESSING Using industry and regional credit cycles customised to each financial institution s own footprint and the batch processing capabilities of SAS, the solution provides the full ECL calculations for each facility, counterparty, portfolio or any customised user defined segment in a few hours. Client PD, LGD, EAD Data 500,000+ PIT PDs, LGDs, EADs x10 years Market Implied PDs Macro Economic Data Client Model Parameters BATCH PROCESSING 500,000+ IFRS9/CECL Expected Credit Loss x10 years 500,000+ Stressed Losses x10 years WHY CREDIT CYCLES MATTER Understanding industry-region credit cycles are paramount to converting TTC credit models into PIT ones before assessing ECLs as can be seen in the graphic on the right over the last 30 years using various measures like Credit Edge EDFs, US Loan Charge-offs and Moody s Default rates credit cycles are real and accurately assessing them is a key capability of Z-RiskEngine that supports IFRS9/CECL and Stress Testing in a single solution suite.

6 THE BUSINESS CASE: A proven solution that can provide substantial benefits Low Build and Operational Cost Solution batch automation leads to low build and operational costs at a time of large regulatory changes Accuracy More accurate and dynamic assessment of PIT risk (default rate, losses and exposure) customised to each institution s portfolio of customers Compliance Trusted approach approved by UK regulators when AAA team built Basel II suite of models for two UK based global banks ABOUT Developers of world-leading Credit Analytic Solutions Aguais And Associates (AAA) was founded in 2014 to bring Z-RiskEngine s world leading solution to market globally to support key regulatory initiatives for IFRS9/CECL and Stress Testing. The team successfully achieved two Basel II Waivers at large UK global investment banks and has pioneered dual PIT-TTC framework, implementing the approach for the first time in This PIT-TTC solution was officially approved in these two Basel II Waivers. The AAA management team has over 60 years combined experience developing, validating and implementing advanced wholesale credit models.

7 Scalable One common scenario-based batch solution for any regional or geographic footprint and across regulator applications (Basel II/III, IFRS9/CECL and Stress Testing) but with customised models Lower project execution risk End-to-end business model where Deloitte provides complementary services for implementation, process design, benchmarking and review services, reducing project execution risk Integrated One common solution covering all types of corporate and commercial credit models (PD, LGD and EAD) and all types of wholesale portfolio CONTACT To find out more about Z-RiskEngine please contact: Dr. Scott D. Aguais: +44 (0) Gaurav Chawla: +44 (0) Aguais And Associates Ltd Wenlock Road London N1 7GU, UK

8 BROUGHT TO YOU BY Wenlock Road London N1 7GU, UK