Rating Models and Validation - Oesterreichische Nationalbank

Rating Models and Validation
Chart 96: Example of Utilization Rates at Default by Customer Group
Even at first glance, the sample distribution above clearly shows that the criterion
is suitable for segmentation (cf. chart 92 in connection with recovery
rates for LGD estimates). Statistical tests can be used to perform more precise
checks of the segmentation criteriaÕs discriminatory power with regard to the
level of utilization at default. It is possible to specify segments even further using
additional criteria (e.g. off-balance-sheet transactions). However, this specification
does not necessarily make sense for every segment. It is also necessary to
ensure that the number of defaulted loans assigned to each segment is sufficiently
large. Data pools can also serve to enrich the bankÕs in-house default data
(cf. section 5.1.2).
In the calculation of CCFs, each active credit facility is assigned to a segment
according to its specific characteristics. The assigned CCF value is equal to the
arithmetic mean of the credit line utilization percentages for all defaulted credit
facilities assigned to the segment. The draft EU directive also calls for the use of
CCFs which take the effects of the business cycle into account.
In the course of quantitative validation (cf. chapter 6), it is necessary to
check the standard deviations of realized utilization rates. In cases where deviations
from the arithmetic mean are very large, the mean (as the segment CCF)
should be adjusted conservatively. In cases where PD and the CCF value exhibit
strong positive dependence on each other, conservative adjustments should also
be made.
166 Guidelines on Credit Risk Management