Rating Models and Validation - Oesterreichische Nationalbank

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Rating Models and Validation Chart 4: Data Requirements for Corporate Customers — Enterprises/Business Owners 18 Guidelines on Credit Risk Management
Capital Market-Oriented/International Companies The main source of credit assessment data on capital market-oriented/international companies is their annual financial statements. However, financial statement analyses are based solely on the past and therefore cannot fully depict a companyÕs ability to meet future payment obligations. To supplement these analyses, cash flow forecasts can also be included in the assessment process. This requires a qualitative assessment of the companyÕs future development and planning in order to assess how realistic these cash flow forecasts are. Additional qualitative information to be assessed includes the management, the companyÕs orientation toward specific customers and products in individual business areas, and the industry in which the company operates. The core objective of analyzing these information categories should always be an appraisal of an enterpriseÕs ability to meet its future payment obligations. As capital marketoriented/international companies are often broad, complex groups of companies, legal issues — especially those related to liability — should be examined carefully in the area of qualitative information. One essential difference between capital market-oriented/international companies and other types of enterprises is the availability of external information. The capital market information available may include the stock price and its development (for exchange-listed companies), other published information (e.g. ad hoc reports), and external ratings. Other enterprises which prepare balance sheets (not capital market-oriented/international) Credit assessment for other companies which prepare balance sheets is largely similar to the assessment of capital market-oriented/international companies. However, there are some differences in the available information and the focuses of assessment. In this context, analyses also focus on the companyÕs annual financial statements. In contrast to the assessment of capital market-oriented/international companies, however, these analyses are not generally supplemented with cashflow forecasts, but usually with an analysis of the borrowerÕs debt service capacity. This analysis gives a simplified presentation of whether the borrower can meet the future payment obligations arising from a loan on the basis of income and expenses expected in the future. In this context, therefore, it is also necessary to assess the companyÕs future development and planning in qualitative terms. In addition, bank account activity data can also provide a source of quantitative information. This might include the analysis of long-term overdrafts as well as debit or credit balances. This type of analysis is not feasible for capital market-oriented/international companies due to their large number of bank accounts, which are generally distributed among multiple (national and international) credit institutions. On the qualitative level, the management and the respective industry of these companies also have to be assessed. As the organizational structure of these companies is substantially less complex than that of capital market-oriented/international companies, the orientation of business areas is less important in this context. Rather, the success of a company which prepares balance sheets hinges on its strength and presence on the relevant market. This means Rating Models and Validation Guidelines on Credit Risk Management 19
Page 1 and 2: ≈√ Guidelines on Credit Risk Ma
Page 3 and 4: The ongoing development of contempo
Page 5 and 6: 5 Developing a Rating Model 60 5.1
Page 7 and 8: Rating Models and Validation I INTR
Page 9 and 10: This segmentation from the business
Page 11 and 12: The best-practice segmentation pres
Page 13 and 14: Chart 2: Data Requirements for Gove
Page 15 and 16: 2.2 Financial Service Providers In
Page 17: Insurance Companies Due to their di
Page 21 and 22: — Market prospects are not assess
Page 23 and 24: Chart 5: Data Requirements for Corp
Page 25 and 26: elationships in the project, these
Page 27 and 28: Before the Project As the repayment
Page 29 and 30: Chart 6: Data Requirements for Reta
Page 31 and 32: During the Credit Term Instead of o
Page 33 and 34: 3.1 Heuristic Models Heuristic mode
Page 35 and 36: Chart 9: Information Categories for
Page 37 and 38: Explanatory Component The explanato
Page 39 and 40: This example defines linguistic ter
Page 41 and 42: ments as to whether higher or lower
Page 43 and 44: Chart 16: Indicators in the ÒCrebo
Page 45 and 46: Logistic regression has a number of
Page 47 and 48: adapts the network according to any
Page 49 and 50: The parameters required to calculat
Page 51 and 52: ture of the borrowerÕs creditworth
Page 53 and 54: Chart 24: Vertical Linking of Ratin
Page 55 and 56: e necessary in this case if the def
Page 57 and 58: 4.1.5 Consistency Heuristic models
Page 59 and 60: Compared to heuristic models, stati
Page 61 and 62: the data set and statistical testin
Page 63 and 64: data collection procedure. This pro
Page 65 and 66: full surveys is often too high, esp
Page 67 and 68: essential structural characteristic
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For each block, interim objectives
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Chart 34: Creating the Analysis Dat
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Chart 35: Creating the Analysis and
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Once a quality-assured data set has
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an indicator should only be used in
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Transformation of Indicators In ord
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the scoring functions developed usi
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Chart 37: Significance of Quantitat
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— For all other statistical and h
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of approximately 10 intervals shoul
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With regard to the time interval be
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around the main diagonal, however,
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tial increase in marginal default r
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Chart 46: Aspects of Rating Model V
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— Model development procedure Mod
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and bad refer to whether a credit d
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numbers of cases per class observed
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Chart 54: Depiction of a and b erro
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Chart 57: Shape of the a—b Error
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Interpretation of the Pietra Index
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The following relation applies to t
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Chart 62: ROC Curve with Simultaneo
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Chart 65: Interpretation of the Bay
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The table below (chart 67) shows a
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The lower the Brier Score is, the b
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Chart 70 shows the reliability diag
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Chart 71: Identification of Signifi
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estimates, which means that it is e
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transition matrix, the data require
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tency of the cumulative and conditi
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to internal back-testing results in
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Changes in correlations One of the
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6.4.3 Developing Stress Tests This
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Counterparty-based and credit facil
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tify decisive factors influencing i
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III ESTIMATING AND VALIDATING LGD/E
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Chart 81: Loss Components in LGD to
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assets, as the danger exists that m
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— Collateral: Collateral value, c
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Chart 87: Overview of Customer Type
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transaction, however, it is also ne
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Implementing an in-house LGD estima
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nents; this is analogous to the use
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those assets which serve as collate
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during the realization period. The
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Chart 91: Example of Segmentation f
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ity of the realization market and t
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The level of utilization for off-ba
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8.3 EAD Estimation Methods As in th
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IV REFERENCES Backhaus, Klaus/Erich
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Stuhlinger, Matthias, Rolle von Rat
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Pytlik, Martin, Diskriminanzanalyse
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Rating Models and Validation - Oesterreichische Nationalbank

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