Rating Models and Validation - Oesterreichische Nationalbank

Rating Models and Validation
The rating information available on all cases as of the earlier cutoff date
(1; see chart 48) is used. The second step involves adding status information as
of the later cutoff date (2) for all cases. In this process, all cases which were
assigned to a default class at any point between the cutoff dates are classified
as bad; all others are considered good. Cases which no longer appear in the sample
as of cutoff date (2) but did not default are also classified as good. In these
cases, the borrower generally repaid the loan properly and the account was
deleted. Cases for which no rating information as of cutoff date (1) is available
(e.g. new business) cannot be included in the sample as their status could not be
observed over the entire forecasting horizon.
Chart 49: Example of Rating Validation Data
Chart 50: Curve of the Default Rate for each Rating Class in the Data Example
On the basis of the resulting sample, various analyses of the rating procedureÕs
discriminatory power are possible. The example shown in chart 49
forms the basis of the explanations below. The example refers to a rating model
with 10 classes. However, the procedures presented can also be applied to a far
finer observation scale, even to individual score values. At the same time, it is
necessary to note that statistical fluctuations predominate in the case of small
100 Guidelines on Credit Risk Management