Course Overview

A two-day intermediate level workshop on how credit portfolios are managed, modelled and sensitised within Basel II and economic capital frameworks.

Course Objectives

Participants will be equipped to:
• Identify the key elements of credit risk: probability of default, loss given default and exposure at default
• Evaluate the inter-action of credit risk exposures within a portfolio and how these can be measured and quantified
• Review how the main drivers of credit risk are modelled and sensitised
• Understand how credit portfolio modelling is used within the overall risk management and regulatory and economic capital process.

Course Content

Day One

Risks in an organisation

Review Credit Risk under Basel I accord

Pillar One:
Credit Risks
Market risks
Operation Risk

Pillar One (Minimum Capital Requirements)
Calculation of Minimum Capital Requirements
    • Regulatory Capital
    • Risk Weighted Assets
    • Transitional Arrangements
Constituents of Capital
    • Core Capital ( Tier 1)
    • Supplementary Capital (Tier 2)
Undisclosed Reserves
Revaluation Reserves
General Provisions/ Loan-Loss Reserves
Hybrid Debt Capital Instruments
Subordinated Term Debt
    • Short-Term subordinated debt covering market risk (Tier 3)
    • Deductions from Capital
Credit Risk
    • The Standardised Approach
    • The Internal ratings based approach
    • Securitisation Framework
Internal Ratings Based (IRB)Approach
Overview
Mechanics
Categorisation of Exposures
Corporate
Specialised Lending
Project Finance
Object Finance- ships
Commodities Finance
Income producing Real Estate
Highly Volatile Commercial RE
Soveriegn
Bank
Retail
Low Value
Large Volume
Qualifying Revolving Retail Exposures
Equity
Eligible Receivables
Retail
Corporate
Key Elements for either Foundation or Advanced approaches
Risk Components
Risk-weight Functions
Minimum Requirements
Rules for Corporate, Sovereign and Bank
Risk Weighted Assets
Formula for derivation of risk-weighted assets
Firm-size adjustment
Risk weights for specialised lending
Exposures subject to double default
Risk Components
Probability of Default
Loss given Default
Exposure at Default
Rules for Equity Exposures
Risk-weighted assets
Market based approach
Simple risk weighted
Internal Models
PD/LGD approach
Exclusions
Risk Components
Rules for Purchased Receivables
Risk Weighted assets for default risk
Retail receivables
Corporate receivables
Risk-weighted assets for dilution risk
Treatment of purchase price discounts
Credit Risk Mitigants
Treatment of Expected Losses and Provisions
Calculation of Expected Loss
EL=PD*LGD other than Specialised Lending (SL)
Expected Loss for SL
Supervisory categories and EL risk weights for HVCRE
Calculation of Provisions
Exposures subject to IRB approach
Exposures subject to standardised approach
Treatment of EL and provisions

Day Two

Pillar Two (Supervisory Review):
Importance of Supervisory Review
Four Key principles
Principle 1
    • Board and Senior management oversight
    • Sound capital assessment
    • Comprehensive assessment of risks -Credit, Operational, Market, Interest, Liquidity
    • Monitoring and Reporting
    • Internal Control review
Principle 2
    • Review of adequacy of risk assessment
    • Assessment of capital adequacy
    • Control environment
    • Compliance with minimum standards
    • Supervisory response
Principle 3
    • To operate above the minimum regulatory capital ratio
Principle 4
    • To intervene at an early stage
Specific Issues - relating to Credit
    • Interest rate Risk
    • Credit Risk
    • Stress Test under IRB
    • Definition of default
    • Residual Risk
    • Credit Concentration Risk
    • Counterparty Credit risk
    • Operation risk
    • Market risk
Process for Securitisation
    • Significance of risk transfer
    • Market innovation
    • Implicit support
    • Residual Risks
    • Call Provisions
    • Early amortisation
Interest Rate
    • Repricing
    • Yield curve
    • Basis
    • Embedded Options
    • Effect on Earnings
    • Embedded losses
    • Economic Value
Exchange Rate
    • Bilateral Netting
    • Multilateral netting
    • Volatility
    • Translation
    • Transaction
    • Real Operational
Derivatives
    • Breakdown into components
    • Structure
    • Liquidity
    • Valuation Risk
    • Risk Mitigant or Risk Enhancer

Pillar Three: (Market Disclosure)
General Considerations
    • Disclosure Requirements
    • Guiding Principles
    • Achieving appropriate disclosure
    • Interaction with accounting disclosures
    • Materiality
    • Frequency
    • Proprietary and Confidential Information
Disclosure Requirements - Qualitative and Quantitative
    • General disclosure principle
    • Scope
    • Capital
    • Risk Exposure and Assessment
    • General Qualitative
    • Credit Risk
Accounting
    • Art or Science
    • Abuses - more rules more abuse leads to more rules
Legal
    • Counterparty
    • Product
    • Collateral
    • Netting
    • Offsetting
    • Documentation
    • Regulatory
    • Litigation
Reporting requirements
Regulatory’s concern vs knowledge
Protecting the public

Case Study: Real life case studies to be used to discuss the risk management process involved in mitigating the said risks.

PDF of course outline- Please note that tailoring is possible


IF YOU HAVE ANY QUESTIONS ABOUT THIS SEMINAR PLEASE WRITE TO US AT post@redcliffetraining.co.uk

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