Credit Risk Engine
Bank for International Settlements defines Credit Risk as the potential that a borrower or counterparty will fail to meet its obligations in accordance with agreed terms. The objective of credit risk management is to optimize a bank's risk-adjusted rate of return by maintaining expected credit costs within acceptable thresholds. Banks need to manage credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions based on its overall portfolio composition. In management of credit risk, institutions should also consider the relationships between credit risk and other factors such as liquidity, security, collaterals, structure etc. Effective management of credit risk is a critical component of a comprehensive approach to risk management and essential to the long-term success of any organization especially a banking entity.
Direct finances are considered to be the most apparent and obvious source of credit risk; however, other sources of credit risk like off balance sheet exposures, counterparty risk from transactions in financial instruments and commitments across banking and trading books. Since credit risk continues to be the leading source of problems and capital consumption across financial institutions world-wide, there is a critical business and compliance need to identify, measure, monitor, manage and control credit risk and determine whether adequate capital is available against these risks.
Credit Risk Engine is a comprehensive, scalable browser based solution for credit rating / scoring for all financing transactions at obligor and facility level. The product provides a robust and flexible modeling platform, to efficiently build retail credit rating scorecards and wholesale rating models for evaluation and estimation of credit risk and advanced Basel II risk parameters such as probability of default, loss given default and facility structured ratings for supervisory slotting for all asset classes, counterparties and product types.
Key Product Features
The product enables flexible financial statement formats and helps user perform sophisticated financial analyses for the obligation. It uses a proprietary concept - Fact Sheet – which can be effectively leveraged for capturing financial spreads, calculating ratios and building quantitative, qualitative information, evaluation parameters, scorecards and models, based on business user requirements.
Customized Validation Checks
Easy user defined customized validation checks for business rules to financial and quantitative information spreading template to ensure correctness of input data at the end user level.
Allows Intuitive Construction
Evaluation parameters – whether quantitative, qualitative or transformed - can be intuitively constructed by the model creator. Provision to maintain counterparties and model any type of related quantitative and qualitative information in user defined formats.
Flexibility to host multiple risk rating models / scorecards – application and behavioral PD and LGD - for rating Obligor / Facility / Industry / Product / transaction. Flexibility in assigning scores and weights to model defined parameters as defined by the business rules of the model. Its highly flexible architecture allows configuration of multiple interdependent algorithms for adjustments to rating scores to arrive at the final rating including judgmental overrides.
Option for Multiple Grade Scales
The platform enables development of multiple Grade scales with specific definitions or categories of risk. The product allows complete flexibility in defining optional rule based linkages of individual model Grade Scales to Master Rating Scale.
Facility Risk Evaluation
Capability to configure facility risk evaluation workflow process by linking multiple rating models and instances to produce a facility or transaction rating gives the institution capability to integrated credit evaluation output for different facility dimensions like industry, obligor, security / facility level rating to arrive at the final ratings / risk scores based on master rating scale.
Menu Driven Interface with user friendly GUI
Enables a menu driven interface for development of Rating model framework through business-user friendly graphical user interface.
Portfolio Reporting and Scheduler
The ability to produce reports for user-defined sub segments and drill down into reports for details of portfolio based on a variety of dimensions such as counterparty, products, industries, business segments, ratings to mention a few.
Advanced Basel II concepts and Model Validation
Based on advanced Basel II requirements, it has the capability to define and include model driven and calculated risk drivers such as PD, LGD, complex transformation rules, weights and lookups at multiple levels in any form required by the business rules governing the bank’s credit decision making process. The solution is fully compliant to Basel II data requirements and captures all information required for model validation and modification, back testing and is capable of advanced risk parameter estimation – Probability of Default (PD), Loss Given Default (LGD), Exposure At Default (EAD) for advanced approach credit risk capital calculation.