PD & LGD models developments according to new EBA guidelines

Client

Major banking group in Central and Eastern Europe

Keywords

• PD, LGD, ELBE
• Scorecards development
• EBA methodologies and guidelines
• Downturn quantification
• Margin of Conservatism (MoC)
• Modelling datasets

Context

Subsidiaries of a big international bank were in the process of IRB application, facing a critical deadline when several redeveloped IRB models needed to be submitted to the regulator.

Finalyse has been selected to develop through-the-cycle PD and LGD models for the mortgage and personal loans portfolios. The developments come in line with the recent EBA-compliant modelling methodology recently issued by the group and include amongst others full-scale component level models (e.g., probability of cure, loss cure, loss non-cure models both for performing as well as for in-default portfolios) together with all applicable margins of conservatism (MoC A, B, C).

Benefits of the provided solution

• Handling of data preparation steps and data quality check
• Complete model development
• Delivery of full model package documentation
• Delivery of credit models codes and scripts
• Development of LGD model with MoC and Downturn Components.
• Support to the local modelling teams for execution / calibration / validation.

Key success factors

• Regulatory expertise on EBA PD and LGD parameters estimation guidelines
• Wide exposure on credit risk IRB model development projects
• SAS base, Eguide, EMiner proficiency and extended coding skills
• End-to-end model development cycle knowledge
• Heavy involvement in the data management aspects