Enhanced a wide range of credit risk models for a large global bank that needed to upgrade its modelling to comply the IFRS 9 mandate requiring forecasting of expected loss
Client: Global Bank
Objective
To help a large global bank upgrade its credit risk models to comply with new IFRS 9 mandate requiring analysis based forecasted loss, as opposed to incurred loss.
CRISIL's Solution
- Determined relevant modelling techniques to be applied on various portfolios based on materiality, availability of data and existence of Basel II models
- Leveraged Basel II default definition to identify stage III
- Leveraged Basel II models for LGD and EAD and for 12-month PD determination
- Developed models for determination of lifetime PD and extrapolation of LGD, EAD using macroeconomic factors
- Included prepayment assumptions for determining lifetime PD for secured lending products
- Determined cut-offs to identify significant credit deterioration and sensitivity analyses of various cut-offs
- Estimated and compared EL using:
- Segment-level/customer-level models;
- Various modeling techniques such as transition matrix approach etc.;
- Various definitions for credit deterioration;
- Various cut-offs for each definition of credit deterioration