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
    

Client Impact

Enhanced credit risk models enabled the bank to make a smooth transition to the new IFRS 9 requirements.

Questions

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