Rating Models and Validation - Oesterreichische Nationalbank

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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
Chart 6: Data Requirements for Retail Customers Rating Models and Validation Guidelines on Credit Risk Management 29
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 and 18: Insurance Companies Due to their di
Page 19 and 20: Capital Market-Oriented/Internation
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: Before the Project As the repayment
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
Page 69 and 70: For each block, interim objectives
Page 71 and 72: Chart 34: Creating the Analysis Dat
Page 73 and 74: Chart 35: Creating the Analysis and
Page 75 and 76: Once a quality-assured data set has
Page 77 and 78: an indicator should only be used in
Page 79 and 80:
Transformation of Indicators In ord
Page 81 and 82:
the scoring functions developed usi
Page 83 and 84:
Chart 37: Significance of Quantitat
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— For all other statistical and h
Page 87 and 88:
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
Page 111 and 112:
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
Page 123 and 124:
estimates, which means that it is e
Page 125 and 126:
transition matrix, the data require
Page 127 and 128:
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
Page 169 and 170:
Stuhlinger, Matthias, Rolle von Rat
Page 171 and 172:
Pytlik, Martin, Diskriminanzanalyse
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Rating Models and Validation - Oesterreichische Nationalbank

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