Rating Models and Validation - Oesterreichische Nationalbank

Rating Models and Validation
As the loan is repaid using the proceeds of the property financed, the occupancy
rate will be of particular interest to the lender in cases where the property
in question is rented out.
2.5 Retail Customers
In the retail segment, we make a general distinction between mass-market banking
and private banking. In contrast to the Basel II segmentation approach, our
discussion of the retail segment only includes loans to private individuals, not to
SMEs.
Mass-market banking refers to general (high-volume) business transacted
with retail customers. For the purpose of credit assessment, we can differentiate
the following standardized products in this context:
— Current accounts
— Consumer loans
— Credit cards
— Residential construction loans
Private banking involves transactions with high-net-worth retail customers
and goes beyond the standardized products used in mass-market banking. Private
banking thus differs from mass-market banking due to the special financing
needs of individual customers.
Unlike in the general segments described above, we have also included a
product component in the retail customer segment. This approach complies with
the future requirements arising from the Basel II regulatory framework. For
example, this approach makes it possible to define retail loan defaults on the
level of specific exposures instead of specific borrowers. 9 Rating systems for
retail credit facilities have to be based on risks specific to borrowers as well
as those specific to transactions, and these systems should also include all relevant
characteristics of borrowers and transactions. 10
In our presentation of the information categories to be assessed, we distinguish
between assessment upon credit application and ongoing risk assessment
during the credit term.
Credit card business is quite similar to current account business in terms of its
risk level and the factors to be assessed. For this reason, it is not entirely necessary
to define a separate segment for credit card business.
2.5.1 Mass-Market Banking
Current Accounts
Upon Credit Application
As standardized documents (such as annual financial statements in the corporate
customer segment) are not available for the evaluation of a retail customerÕs
financial situation, it is necessary to assess these customers on the basis of information
they provide regarding their assets and liabilities. In order to evaluate
whether the borrower is likely to be able to meet future payment obligations,
lenders should also calculate a budget for the borrower.
9 Cf. EUROPEAN COMMISSION, draft directive on regulatory capital requirements, Article 1, No. 46.
10 Cf. EUROPEAN COMMISSION, draft directive on regulatory capital requirements, Annex D-5, No. 7.
28 Guidelines on Credit Risk Management