Dear SAP Banking Community members.
On the previous posts of this topic we discussed about the convenience of using a Counter-Cycle Provisions system in terms of supporting Financial Stability, by limiting the risk exposures on the expansion phase and reducing the losses on the recession phase.
We also discussed about the main difficulty of building a systematic Counter-Cycle provision system. Especially if we consider that, by definition of the model, we have to evaluate non-visible failed loans, and we can not let the system to make “arbitrary” provisions.
As I commented already, the IRB approach of the Basel II agreement is an excellent candidate for making a systematic model for counter-cycle provisions creation, and additionally gives an opportunity for reconciling the solvency and accounting regulation (Basel II and IFRS).
The key points of the model are:
1) Measure the Loss Identification Period (LIP), which as we discussed is not the same for the whole Bank Loans Portfolio, se we need to split it in micro-portfolios and evaluate the Loss Identification Period on each of them.
2) Have a system with a coherent and homogeneous approach for the evaluation of the IRB Approach parameters (Credit Risk-Solvency) and Provisions Creation (Accountancy-Financial Instruments Valuation).
In my opinion Bank Analyzer fulfills those two critical requirements.
On one hand it offers the possibility of calculating the IRB Parameters on micro-portfolios divided by the combination of values of the descriptive characteristics of the Source Data Layer, and store the results also divided by micro-portfolios on the Results Data Layer.
Additionally, and for me it’s a great competitive advantage, the Integrated Financial and Risk Architecture of the Bank Analyzer system it’s the best approach for supporting the necessary reconciliation of the Solvency and Accounting requirements that this method requests.
Looking forward to read your opinions.
Kindest Regards.
Ferran.
On the previous posts of this topic we discussed about the convenience of using a Counter-Cycle Provisions system in terms of supporting Financial Stability, by limiting the risk exposures on the expansion phase and reducing the losses on the recession phase.
We also discussed about the main difficulty of building a systematic Counter-Cycle provision system. Especially if we consider that, by definition of the model, we have to evaluate non-visible failed loans, and we can not let the system to make “arbitrary” provisions.
As I commented already, the IRB approach of the Basel II agreement is an excellent candidate for making a systematic model for counter-cycle provisions creation, and additionally gives an opportunity for reconciling the solvency and accounting regulation (Basel II and IFRS).
The key points of the model are:
1) Measure the Loss Identification Period (LIP), which as we discussed is not the same for the whole Bank Loans Portfolio, se we need to split it in micro-portfolios and evaluate the Loss Identification Period on each of them.
2) Have a system with a coherent and homogeneous approach for the evaluation of the IRB Approach parameters (Credit Risk-Solvency) and Provisions Creation (Accountancy-Financial Instruments Valuation).
In my opinion Bank Analyzer fulfills those two critical requirements.
On one hand it offers the possibility of calculating the IRB Parameters on micro-portfolios divided by the combination of values of the descriptive characteristics of the Source Data Layer, and store the results also divided by micro-portfolios on the Results Data Layer.
Additionally, and for me it’s a great competitive advantage, the Integrated Financial and Risk Architecture of the Bank Analyzer system it’s the best approach for supporting the necessary reconciliation of the Solvency and Accounting requirements that this method requests.
Looking forward to read your opinions.
Kindest Regards.
Ferran.
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