What is required?

Banks need a consistent way of understanding:

  1. What credit conditions we are under now
  2. What credit risk their customers have under any economic conditions
  3. What the credit conditions are going to be in the future
  4. How to describe all of these in consistent ways for the different regulators and accounting standards to understand them

Banks and Insurance Companies' Challenges

  1. Basel Rules require sophisticated models that measure credit risk over the next 12 months based on average economic conditions but with stressed recovery values
  2. Stress testing (PRA/EBA/CCAR) requires credit risk to be measured over the next 5 years, based on a range of different economic conditions
    And if that wasn't hard enough...
  3.  New accounting standard (IFRS9/CECL) that starts on the 1st of January 2018 (and CECL in the United States where the implementation date is still under discussion) requires an accurate forecast of credit losses over the lifetime of a loan starting with current credit conditions and an unbiased estimate of future credit conditions
A Proven Solution

Complex new regulations like IFRS9/CECL and Stress Testing require new PIT analytic models that banks have not developed before. Under these regulations banks are required to implement batch processed credit models for wholesale – which they have not had to do before the Z-Risk Engine approach was developed and approved for Basel 2 waivers of two global banks.

Therefore Z-Risk Engine is a proven solution that can provide substantial benefits:

Low Build and Operational Cost

Solution batch automation leads to low build and operational costs at a time of large regulatory changes

Accuracy

More accurate and dynamic assessment of PIT risk (default rate, losses and exposure) customised to each bank's portfolio of customers

Compliance

Trusted approach approved by UK regulators when AAA team built Basel II suite of models for 2 UK based global banks

Scalable

One common scenario-based batch solution for any regional or geographic footprint and across regulator applications (Basel II/III, IFRS9/CECL and Stress Testing) but with customised models

Lower project execution risk

End-to-end business model where Deloitte provides complementary services for implementation, process design, benchmarking and review services, reducing project execution risk

Integrated

One common solution covering all types of corporate and commercial credit models (PD, LGD and EAD) and all types ofwholesale portfolios