Implemen’ng IFRS9 Standards · And why talk about it in a Workshop on Risk Management?...

A report from the field J Grad Mokrice, Slovenia | 29th May 2017

Implemen'ngIFRS9Standards

Grad Mokrice, Slovenia | 29th May 2017

Agenda

Introduction 1

Lifetime PD (approach is valid for retail and corporate business) 2

Integration of forward looking information 3

Lifetime LGD 4

Lifetime EAD - approach on calculation and validation 5

Approach for retail business a Approach for corporate business b


WhatisIFRS9?

Eurobanking 2017 | Implementing IFRS9 Standards

•  They are obligatory for companies in the EU which are subject to a member‘s legislation and whose securities are available for trading in a regulated market in one of the member states or are waiting to be admitted for trading.

•  Goals: “Our mission is to (…) bring transparency, accountability and efficiency to financial markets..”:

ü  IFRS ensures the transparency by improving the international comparability and the quality of financial statements…

ü  IFRS increases management’s accountability and responsibility by decreasing the information asymmetry between investors and companies and by drawing on standardised information…

ü  IFRS contributes to the increase in economic efficiency as investors can better assess global opportunities and risks, thereby improving their capital allocation…

‘If we really believe in open international markets and the benefits of global finance, then it can’t make sense to have different accounting rules and practices for companies and investors operating across national borders. That is why we need global standards. Ultimately this will get done.’

IFRS: „International Financial Reporting Standards”: Accounting Regulations, as published by International Accounting Standards Board (IASB)

Paul A. Volcker


Interna'onalFinancialRepor'ngStandards(IFRS)

IFRS 1 First-time Adoption of International Financial Reporting Standards 2003 IFRS 2 Share-based Payment 2004 IFRS 3 Business Combinations 2004 IFRS 4 Insurance Contracts 2004 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 2004 IFRS 6 Exploration for and Evaluation of Mineral Resources 2006 IFRS 7 Financial Instruments: Disclosures 2005 IFRS 8 Operating Segments 2006 IFRS 9 Financial Instruments (2014) 2009 IFRS 10 Consolidated Financial Statements 2011 IFRS 11 Joint Arrangements 2011 IFRS 12 Disclosure of Interests in Other Entities 2011 IFRS 13 Fair Value Measurement 2011 IFRS 14 Regulatory Deferral Accounts 2014 IFRS 15 Revenue from Contracts with Customers 2014 IFRS 16 Leases 2016

Year of original issue or major amendment

IFRS 9 Financial Instruments (2014) 2009

•  Final version published in July 2014 •  Replaces IAS 39

•  Comes into effect on 1st January 2018



Impairment

AndwhytalkaboutitinaWorkshoponRiskManagement?

Classification and Valuation of

Financial Instruments

Hedge Accounting

3 Phases of IFRS 9

•  Content of this presentation

•  Adresses the weakness that has become apparent during the financial crisis, namely too little and too late risk provisioning

•  Is consistent with the demand of G20 heads of state in April 2009 to "strengthen accounting recognition of loan loss provisions by incorporating a broader range of credit information".

•  BCBS350 (December 2015): “Guidance on credit risk and accounting for expected credit losses”: Strong linkages between risk management and accounting, using a set of common processes (systems, tools, data) throughout the bank as often as possible

•  Basis: Risk Management Practices



RiskManagementasperIAS39:„TooliLle,toolate“

Currently: Incurred Loss Model IAS 39

Incurred Credit Losses (as per IAS 39)

T (Decrease of creditworthiness)

Good book Bad book

Occured Loss

Good Book: PoWB – PD x LGD x EAD x LIP Bad Book: EWB/pEWB: Lifetime EL (DCF)

Expected Credit Loss



RiskManagementasperIFRS

In the future: Expected Loss Model IFRS9

Expected Credit Losses as per IFRS 9

T (Decrease of creditworthiness)

Stage 1 Stage 3

Expected Credit Loss Significant

Deterioration

Stage 2

Lifetime Expected Credit Losses

1. Stage: 1y EL (PD x LGD x EAD) – 1y Parameter

2. Stage: LT EL (PD x LGD x EAD) – LT Parameter

3. Stage (Bad Book): EWB/pEWB or Lifetime EL (based on parameter)

Occured Loss

Already a significant deterioration (switch

from Stage 1 to Stage 2) leads to a value adjustment via the

switch from a 1 year EL to lifetime EL

!



ExpectedLossandLife'meExpectedLoss

Basel Approach: PD0,1: Forecast Probability of Default in the coming year EAD0,1, LGD0,1: Forecast Exposure or Loss-Given-Default in case of an default in the coming year

1,01,01,0 LGDEADPDEL ⋅⋅=

Expected Loss (EL)

Lifetime Expected Loss (LEL)

∑=

⋅⋅⋅=T

ttttt DEADLGDPDLEL

1

T = Remaining time to maturity of the financial instrument

• Book value of amortised costs in period t • Estimation of the cashflow structure over the entire term, based on the

IFRS book value

• Marginal Probability of Default (PD) in period t • Consideration of economic cylces (Point in Time)

• Discount rate in time t on balance sheet date (effective interest rate) • LGD for period t (marginal LGD)



RequirementsontheLife'meExpectedLoss(LEL)

•  The LEL is defined as a probability weighted expected value

•  Using the best (internally and externally) available information to create forward looking estimates including: - -  Information about previous events -  Information about current circumstances -  Reasonable and acceptable forecasts about future

events and the future economic situation •  Validation of all assumptions is necessary

(conservative discounts are not possible) •  Point in Time Analysis required

(Through-the-Cycle-Means are inadequate)

Forward-looking loss estimate



BaselIRBvs.IFRS9Models

•  „The forecast quality of the model is good“ and „not biased“. Reasonable and effective input variables/ data, no errors associated with model weaknesses (Art. 174 CRR)

•  Long run averages must be considered (Art. 180 CRR); Hybrid TTC-PIT models possible

•  Margin of conservatism and PD-floors are required in Art. 179 CRR

•  Discounting: economical interest rate (CRR)

•  Downturn LGDs must be used, if more conservative (CRR Art. 181)

•  PD/LGD correlations must be considered

•  Any information available should be considered in a multifactor analysis (B5.5.15 ff), e.g. internal/ external evaluations, market indicators, ratings

•  Point-in-time/ hybrid in IFRS 9 possible; TTC excluded

•  No margin of conservatism permitted in IFRS 9

•  Effective rate of interest includes standard risk costs

•  Haircuts in downturn scenarios

•  Adjustments for double default risk

Basel IRB IFRS 9



Agenda

Introduction 1



Lifetime LGD 4




FocussingonSingleParameters


∑=

⋅⋅⋅=T

ttttt DEADLGDPDLEL

1



IFRS book value




Lifetime PD


Life'me-PDes'ma'onbasedontransi'onmatricesoftheriskclassifica'onsystemsinplace


Determine transition matrix

Potentiate transition-Matrix Lifetime - PD

Risk classification of FI / customer at various dates (at least two)


Life'mePD–Profiles(example)


0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

1 2 3 4 5

RK 1

RK 2

RK 3

RK 4

RK 5

RK 6

RK 7

RK 8

RK 9

RK 10

RK 11

RK 12

RK 13

RK 14

RK 15


Agenda

Introduction 1



Lifetime LGD 4




Integra'onofForwardLookingInforma'on


Operation level

Parameter (PD)

Portfolio

Frequency

Release (2x/year)

Quarterly / ad hoc

Aggregation

Portfolio of risk classification

procedure

(Sub-) portfolios

Approach

Expert judgement at (Re-) Calibration

Quantitative + Qualitative Framework

(Derivation [Results Monitoring,

Validation], Expert judgement)

Interrelationship


Integra'onofForwardLookingInforma'on


12 months

Horizon

24 months

Prec

isio

n

36 months

The explicit consideration of macroeconomic forecasts is mainly

conducted in an expert based manner

Qualitative macroeconomic forecasts Quantitative macroeconomic forecasts


Integra'onofForwardLookingInforma'oninPD(example)



Integra'onofForwardLookingInforma'oninPD(example)

Macroeconomic Conditions: The increase of the GDP has been decelerating, whereas a slight increase of GDP is foreseen. The industrial production fluctuates over the time and is predicted as increasing for 2017. A decreasing development has observed in regard of the retail sales growth, which is followed by a slight increase in 2017. Country X is currently in high inflationary cycle with affordability becoming an issue. After reaching its maximum in the fourth quarter of 2016, the CPI-Growth is forecasted as slightly decreasing. The unemployment rate and short term interest rate show a stable development, containing small variations over the time. There had been a gradual increase in delinquency rates over the past couple of years due to an economic downturn, with factors such as relatively high inflation, interest rate hikes, a high unemployment rate, various strikes, restrictive policies imposed by the government, corruption within the government, deterioration in exchange rate all having played a role. Risk Strategy / Change of products: Management and the Board of VWFS corporation have shifted its focus on selling affordable vehicles in the second hand market. The risk appetite of VWFS corporation is risk averse and tight controls and measures are in place to monitor expected default rates and if necessary mitigate this risk by focusing purely on A1, A2 and A3 customers. They are viewed as safe and history has shown that they are the last to default due to prudent planning and generally risk averseness of these customers. Several business policy rules have been introduced during the course of the past year in order to keep an increase in delinquencies at bay. Political situation: The political situation has had an increasing impact on the expected default rate. Country X is currently politically unstable, with issues like “State Capture” of key institutions and massive amount of fraud taking place. Rating agencies are more likely to downgrade Country X to “junk” status in the coming months. This will lead to the currency depreciating and inflation increasing. This will have direct impacts on the cost of credit for both financial institutions and individuals. Overall Effect: An increasing impact on default rate expected.

2015-Q2 2015-Q3 2015-Q4 2016-Q1 2016-Q2 2016-Q3 2016-Q4 2017-Q1 2017-Q2 Trend1.57 1.07 0.16 -0.65 0.22 0.52 0.46 0.76 0.71-1.71 2.00 -1.21 -0.87 0.95 -0.41 0.08 0.49 0.993.16 3.21 3.91 2.86 1.18 0.73 0.14 0.51 2.544.58 4.70 4.91 6.51 6.18 6.64 7.38 6.46 6.2724.65 25.37 25.33 26.34 26.19 26.29 26.97 27.25 27.586.06 6.19 6.89 7.11 7.22 7.44 7.36 7.38 7.12

UnemploymentRateShortTermInterestRateTotal

GDPGrowthIndustrialProductionGrowthRetailSalesGrowthConsumerPriceIndexGrowth



Agenda

Introduction 1



Lifetime LGD 4




ProjectSummary

VWFSAGisimplemen/ngtherequirementsoftheInterna/onalFinancialRepor/ngStandards(IFRS)In2014,theInterna'onalAccoun'ngStandardsBoard("IASB")publishedthefinalversionofIFRS9"FinancialInstruments".InthefinalprovisionsofIFRS9[IASB2014],amongothersconcreterequirementsforthecreditriskparameterstobeusedfortheassessmentofriskprovisionsaregiven.RevisionoftheQualita/veRa/ngModuleofVWFSAG‘sra/ngmodelsAspartoftheIFRS9projecttheQualita'veRa'ngModuleofthera'ngmodelsusedbyVWFSAGforcorporateclientswererevised.Maintasksoftherevisionwere:

•  Checkregardingappropriatenessofexis'ngriskfactors,proposalfornew(macroeconomic)riskfactors,•  Conversionofthequalita'vemoduletowardsaques'onnaire,•  Worldwideanalysisoffeedbackfromanalystsontheques'onnaire,•  Comprehensivemanualforanalysts,•  CompliancewithIFRS9requirements.

Duringathreemonthsprojectalltasksweresuccessfullycompleted.Therevisedqualita'vemoduleisfinalized.ü



OverviewofRiskFactors

TheassessmentintheQualita/veRa/ngModuleisbasedontheanalyst'sopinionregardingtheborrower’sstrengthsandweaknessesprofileinvariouscategories

Number Qualita/veFactor1 Exper'seofManagement2 SuccessionPlanning3 PaymentBehaviour4 AccountQuality5 Compe''on&Posi'oning6 IndustryOutlook7 EconomyFactor(NEW)8 Income&ProfitabilityOutlook9 EquityDevelopment10 LiquidityOutlook11 GroupStructure

•  TheriskassessmentofaborroweroraborrowergroupwithintheQualita'veRa'ngModuleisfuture-oriented.

•  Itfocusesontheanalyst’sevalua'onoftheborrower’sabilitytocarryouthisbusinessopera'onssuccessfullyinthefutureandthereforeservesasaforward-lookinges'ma'onoftheborrower’screditworthiness.

•  Theassessmentshouldthereforenotsolelyrelyonpastdueinforma'on,butalsoconsiderreasonableandsupportableforward-lookinginforma'on.

Allriskfactorswerecomprehensivelyrevisedandaddressedviaconciseques'onsfortheanalyst.ü

Overview of single risk factors



ThenewEconomyFactor

TheEconomyFactorreferstothegrowthpoten'alofthegrossdomes'cproduct(GDP)ofthecountry/thecountries,inwhichtheborroweroperates.Theassessmentiscapturedinthesocalled“EconomyFactor”,forwhichtheforecastedGDPgrowthrateiscomparedtotheaveragehistoricGDPgrowthrateoverthelast20years.

Amertherelevantcountrieshavebeenselected,theEconomyFactorwillbeassessedautoma'callyinthebackgroundandwillrunintotheoverallra'ng.Onemajorgoaloftheconsidera'onoftheEconomyFactoristopromoteaforward-lookingra'ngmodel.

GDPratesareavailablefreeofchargeandareautoma'callyintegratedintothera'ngsheet.Theanalystsimplyhastoselecttherelevantcountry/countries.

Thelowerthecurrentlyforecastedgrowthrateiscomparedtothelongtermprognosis,themoreconserva'vetheassessmentis.

Duringtheprojectanewmacroeconomicfactorwasintroduced

Thenewfactorisbasedonmacroeconomicinforma'onandpromotesaforward-lookingra'ngapproach.ü



Ques'onnaireStructureI

TheQualita'veRa'ngModuleisbasedonques'onsfortheanalystwhichgenerallyhavetobeansweredwith(i)yesorno,(ii)byenteringconcretefactsor(iii)byselec3nganappropriateanswerfromadropdownbox.Inordertogainacomprehensivepictureoftheborrowerallques'onshavetobeanswered.

Thestraighnorwarddesignoftheques'onnairereducesopera'ngexpenseswiththeanalystsandassuresqualityresults.ü

Thenewques/onnairefollowsaclearstructure

Extract of section 1.2 from the Questionnaire



Ques'onnaireStructureII

Helpboxesprovidebackgroundinforma'onontheques'onsandthusdirectlysupporttheanalysts.ü

Comprehensivehelpboxessupporttheanalyst

Extract of section 4.3 from the Questionnaire

Inaddi'ontothecomprehensivemanualtheanalystisdirectlyguidedthroughtheques'onnairebymeansofhelpboxeswithbackgroundinforma'ononhowtoselecttheanswerforalmosteveryques'on.Helpboxesthusensurenotonlythecomparabilityofanswersacrosscountriesbutalsothequalityoftheresults.



LivePresenta'on

Focus on macroeconomicfactors:



ComprehensiveManual

Thenewques/onnaireispublishedincombina/onwithacomprehensivemanual

Theguidelinesinthemanualensurethattheanalystscometocomparable,forward-lookingriskassessmentsaroundtheworld.ü

•  Themanualintroducestheforward-lookingapproachtoallanalystsandprovidesinforma'ononhowtodealwithmissinginforma'on.

•  Foreveryriskfactorabroadmo'va'onisgivenandthepossiblesourcesofinforma'onwithregardtotherelevantcriteriaaredocumented.

•  Themanualshouldbereadbeforefillingoutaques'onnaireforthefirst'me.Amerthat,itservesmainlyasareferencebook.



Feedbackfrominterna'onalsubsidiaries

Analystswereaskedforfeedbackinorderto

•  takeuptheirrecommenda'onsregardingtheexis'ngques'onnaire,

•  takeadvantageoftheirexper'seregardingtherelevantmarketsandcustomerswithinthepornolio,

•  ensureacceptancetowardstheques'onnaire.Ingeneralanalystsstatedthatnosignificantaspectsweremissing.Theaverage'metocompletetheques'onnairewases'matedtobebetween15and20minutesforrepeatcustomers.Feedbackonsingleques'onswasincorporatedintotheques'onnairebyresta'ngsomeques'onsforthefinalversion.

Country #FeedbackCzechRepublic 4Greece 4Indien 3Korea,Republicof 4Netherlands 6Norway 4Poland 6Portugal 6Russia 5Slovakia 6Spain 6Sweden 4Turkey 1UK 4Total 63

Byintegra'ngfeedbackfromloca'ons,theques'onnairewascompletedefficientlyandinauserfriendlyway.ü

Beforethefinaliza/onoftheques/onnaire,adraVversionwassenttotheloca/onsandanalystswereaskedforfeedback

Overview of Feedback from Locations



CompliancewithIRFS9Requirements

Thereviewisbasedonananalysisofconcordance.ConcordancelistsstatealllegalrequirementstobeobservedandhowtheircomplianceisensuredatVWFSAG.Linkstothecorrespondingdocumentsareincluded.Twopapersformedthebasisfortheconcordanceanalysisare.ThemostrelevantwastheoriginalIFRS9requirementpublishedin2014:

(1) IASB,IFRS9FinancialInstruments(2014)

Inaddi'on,apaperfromthesixlargestaccoun'ngnetworksundertheauspicesoftheGlobalPublicPolicyCommiLee(GPPC)wasanalysedwithregardtoconcordance.

(2) GPPC,Theimplementa'onofIFRS9impairmentrequirementsbybanks(2016)

ThenewQualita'veRa'ngModuleasawholeanditsindividualparametersareIFRS9compliant.ü

AgainsttherequirementsofIFRS9theQualita/veRa/ngModuleasawholeanditsindividualparameterswerereviewedforappropriatenessandcompliance



Extracts–IFRS9–AnalysisofConcordance(Examples)



LinkstorelevantdocumentsAllrelevantdocumentsaswellastheirderiva/onsarefiledontheIFRS9projectrun

Questionnaire Manual IFRS 9 Verification



Agenda

Introduction 1



Lifetime LGD 4






∑=

⋅⋅⋅=T

ttttt DEADLGDPDLEL

1



IFRS book value




Lifetime LGD


Calcula'onoftheparameterLGD


Therearethreedifferentmodelapproachesbasedonthestandardofthe„HandbookLGD“

Expert judgement: - exception

Collateral value based approach: - LGD similar uncovered amount ⇒ usually conservative estimation, since recoveries are ignored - Mainly used in dealer finance portfolios

LGD Model: - Average based or statistically - Estimation based on realised LGDs - Standardised modell approach - Mainly used in Retail business

size and granularity of the portfolio Qualitative und Quantitative data requirements

The implemented approach depends on the requirements of the model development:


Life'meLGDAppraoch


Standard Modelldesign

The residual maturity of a FI is a risk driver of a statistical LGD model.

The LGD of the a FI will be calculated for each residual maturity year with updated input paramters as exposure, collateral

value, residual maturity...

LGD1 LGD2 LGD3 LGD4 LGD5

45 36 46 55 78

35 35 35 35 35


Agenda

Introduction 1



Lifetime LGD 4






∑=

⋅⋅⋅=T

ttttt DEADLGDPDLEL

1



IFRS book value




Lifetime EAD


Calcula'on/Es'ma'onoftheEAD


1.  Calcula'onoftheexpectedexposureatany'mekintheresidualmaturity(inmonths)ofafinancialinstrument,basedontherepaymentscheduleofthefinancialinstrument

2.  Calcula'onoftheyearlyaverageEAD_ONBAL_YtobeusedfortheLELcalcula'on

EAD_ONBAL EIR46.185,00 2,28%

k(month) principalandinterestpayment principalandinterestpayment(discounted) sumofprincipalandinterestpayment(discounted) EAD_ONBAL(k)1 30.04.2015 - - 46.185,002 31.05.2015 1.072,33 1.070,32 1.070,32 45.114,683 30.06.2015 1.073,04 1.069,02 2.139,34 44.045,664 31.07.2015 1.069,04 1.063,04 3.202,38 42.982,62

𝐄𝐀𝐃_𝐎𝐍𝐁𝐀𝐋_𝐘[𝐭] =∑ 𝐄𝐀𝐃_𝐎𝐍𝐁𝐀𝐋[𝐤]𝒕×𝟏𝟐

𝒌=(𝒕−𝟏)×𝟏𝟐+𝟏

𝟏𝟐


Mo'va'on

VolkwagenFinancialServicesAG(VWFSAG)reportsinaccordancewithIFRSAccordingtotherulesofthe"IFRS9FinancialInstruments"standard,expectedcreditlossesareprojectedsothatthecompanycanadequatelyrecordtheserisksinitsbalancesheet.ExpectedlossaskeyfigureEn''esreporteitherthe12-monthsexpectedlossores'mate–fortransac'onswherethecreditriskhasincreasedsignificantlyover'me-thelife'meexpectedcreditlossfortheremainderoftheremainingterm.TheexpectedlossiscomposedofthethreecomponentsPD,LGDandEAD.Regularlyvalida/onsarenecessaryExpectedlossmodelsusedforthees'matearetobereviewedregularly(IFRS9,B5.5.52).Thisistoensurethatexpectedcreditlossesarealwaysadequatelyprojected.AconceptforEADvalida'onwasdevelopedforthispurpose.Acentralprincipleoftheconceptistheconsidera'onofthecontractualcashflowsasaproxyfortheexpectedcashflows.TheconceptmeetstherequirementsoftheauditorsforverifyingthedevelopedEADmodel.

TheEADValida'onConceptforcustomerfinancingandleasingcomplieswiththeabovemen'onedrequirementsfortheEADmodels.Ayearlyvalida'onisobligatory.ü



OverviewoftheEADValida'onConcept

Scopeofapplica/on/analysisThevalida'onisbasedonseparateanalysesforthe“customerfinancing”and“leasing”pornolio.Furthermoretheanalysesaredividedintothosewhichrefertothetotalpornolioandthosewhicharedoneseparatelybyna'onalsubsidiaries.

Basisforvalida/onarees/matorsfortheexposureInthemodel,thepredictedexposureisbasedoncurrentreceivablesandcontractuallyagreedcashflowsineachcaseforaperiodof12months:§  EAD1averageexposureforthefirstyearamertheforecast(1.monthto12.month)

§  EAD2averageexposureforthesecondyearoftheforecast(13.monthto24.month)etc.

Significantfactorsinfluencingtheexposure§  Contractterm§  Unscheduledrepayments§  Defaults

Thefirstvalida'onwithinthescopeofIFRS9isobligatoryin2018.Thereforeextensiveprepara'on(especiallydataprocessing)isneededinH2/2017.ü



Scopeofanalysis

§  Qualityofdata§  Processesandmethods§  Userfeedback§  Outlook

Qualita'vevalida'on

§  Overviewofdata§  Developmentofexposure§  Descrip'vesta's'csusedforkeydata§  Valida'onofmodelassump'ons§  Backtes'ng

EADvalida'on

Quan'ta'vevalida'on

BasedontheIFRSrequirementsandtestedstructurestheEADValida/onConceptisdividedintoqualita/veandquan/ta/veanalyses:



Backtes'ng(extract)I

Thecentralquan/ta/veanalysiscomparestheresultsoftherealizedexposurewiththeresultsoftheforecastedexposure.Thisisalsocalledbacktes/ng.

Targetoftheanalysisistes'ngtheforecas'ngpowerofthemodelsfortheanalysedpornolio.Example:Theaveragerealizedpresentvalueexposurein2015iscomparedwiththeforecastedexposureprojectedforthisyear.HereisanexampleofacontractofIFRS-stage-2withamaturityoffiveyears:

§  EAD1-forecastfor2015from31.12.2014





§  realisedaverageexposurein2015discountedto31.12.2014





IntheEADValida'onConceptextensiveanalysesareproposedwhichallowathoroughcomparisonofforecastandrealiza'on.ü



Backtes'ng(extract)IIIIllustratedbelowaresomeexamplesofthecomparisonbetweenforecastandrealiza/on:

Sta's's'calcomparisonofdevia'onbetweenforecastedandrealisedexposure(t-Test)

Rela'vedevia'onoftherealisedaverageexposure

Fortheconsistentevalua'onanalysesarecombinedwithtrafficlightslogic.Differenttolerancegradesofdevia'onarerepresentedbycolorsaccordingtotrafficlights.ü

Evalua'onofabsolutedevia'on

number exposurerealisa/on(inmillionEUR)

exposureforecast(inmillionEuros)

realisa/on-forecast(inmillionEUR) t-sta/s/c p-value

423 151000 152500 -1500 1,2 0,3412

number exposurerealisa/on(inmillionEUR)

realisa/on-forecast

inmillionEUR percentage

423 151000 -1500 -0,99%

realisa/on–forecast number percentage

<-5000 0 0,00%

[-5000,-2500) 4 0,95%

[-2500,-100) 30 7,09%

[-100,100] 365 86,29%

(100,2500] 18 4,26%

(2500,5000] 5 1,18%

>5000 1 0,24%

total 423 100,00%



Challenge:Dataavailability

Itisplannedtobuildupadatahistoryforna'onalsubsidiariesin2017.Thishasaneffectonthefeasibilityofbacktes'nganalyses:

§  backtes'ngforEAD1ispossibleearliestatthebeginningof2019



§  backtes'ngforEAD4ispossibleearliestatthebeginningof2022§  backtes'ngforEAD5ispossibleearliestatthebeginningof2023

Thefinalscopeofanalysis,includingthedevia'ontolerances,canonlybedefinedifanextensivedatastockhasbeenestablished.ü

TheEADvalida/onwillbebasedonagrowingdatabase.Implementa/onofthisdatabasewillstartin2017.



Unscheduledrepayment(numberofcontractswithunscheduledrepayments,amountsofunscheduledrepaymentsrela'ngtotheexposure)

defaults(numberofcontractswithdefaults,amountofdefaultsrela'ngtotheexposure)

Valida'onofmodelassump'ons

Term(comparisonofcontractedtermandactualterm)

Term(sucessfulperformanceofcontracts)

Especiallyinthefirstvalida/ons,theanalysesofthemodelassump/onsplaysanimportantrolebecauseofthelimiteddataavailability:

s/pulatedterm averageactualterm(inmonths)

differences/pulated-actual

differenceaccordingtoamounts/pulated-

actual

periods numberaverageterm(inmonths) inmonth percentage inmonths percentage

<=12 28 12,00 12,10 -0,10 -0,8% 0,10 0,8%18 38 18,00 19,00 -1,00 -5,6% 1,05 5,8%24 30 24,00 26,00 -2,00 -8,3% 2,20 9,2%30 8 30,00 31,00 -1,00 -3,3% 1,30 4,3%36 410 36,00 37,00 -1,00 -2,8% 1,02 2,8%42 32 42,00 43,00 -1,00 -2,4% 1,10 2,6%48 1094 48,00 48,00 0,00 0,0% 0,50 1,0%54 118 54,00 53,00 1,00 1,9% 1,10 2,0%60 0 - - - - - ->60 242 60,00 59,80 0,20 0,3% 0,30 0,5%Gesamt 2000 45,74 46,81 -1,07 -2,3% 1,20 2,6%

term number percentage

nochanges 708 35,40%

changes 1292 64,60%

unscheduledrepayments number percentage

no 1780 89,00%

yes 220 11,00%

exposure(inEUR)

Σunscheduledrepayments(inEUR) percentage

151.000 215 0,14%

defaults number percentage

nodefaults 1940 97,00%

defaults 60 3,00%

Exposure(inEUR) Σdefaults(inEUR) percentage

151.000 200 0,13%



Qualita'veanalyses(extract)

Dataquality–datasetExamplesforqualitycheckstobeperformed:

§  Datasetmodifica'on(comparedtothelastvalida'on)

§  Useofvariables

§  Controlofdates

ProcessesandmethodsWerethereanychangestotherelevantprocessesandmethods?Forexample,someoftheques'onstobeaskedare:§  Hasthecalcula'onofeffec'veinterestrateconceptually/

methodicallychanged?

§  Hastheillustra'onoffeesandtransac'oncostschanged?

§  Isthecash-flow-genera'onmodelusedfortheexposurecalcula'ons'llconsistentwiththatusedtocalculatetheeffec'veinterestrate?

§  Havetherulesforalloca'ontothevariouslevelsinaccordancewithIFRS9changed?

§  Haveprocesses/regula'onsfortheentryandexitofshopschanged?(Influence,interalia,onmaturity?)

§  Howhastheshareofdefaultedclaimsdeveloped?

UserfeedbackUsersareinterviewedtoprovidefeedbackontheirobserva'onsandexperiences.Thefollowingcontentisrequestedfromthecontactpersons:

§  Howwouldyouassesstheadequacyoftheexposureforecastmodel?

§  Whatadjustmentstothemodelshouldbeexaminedinthecontextofapossiblemodeladjustment?

Changesaffec'ngtheEADmodelcanbeiden'fiedandtheexperiencesoftheEADmodeluserscanbetakenintoaccountduringthevalida'onprocessü



Furtherresultsoftheprojects„prepara'onoftheEADValida'onConceptwithinIFRS9“

§  iden'fica'onofrelevantdatafieldsforthevalida'onfromConnect-datawarehouse(incl.calcula'onrulesiftherequiredinforma'onisnotavailable)

§  Verifica'onofdataavailabilityinFinevareforthefirstvalida'oninthebeginningof2018§  Valida'onchecklist§  Sampledocumenta'on

§  Developmentoffurthervalida'onanalyseswhichmaybecarriedout"internally"§  Exceldocumentforsimula'onofbacktes'ngresultsforaspecificcontract(includingthesimula'onof

aspecialrepaymentandaminimumnumberofmonthsfortheexposureforecast)§  Argumentsfororagainsttheconsidera'onofobserva'onsinthecontextofbacktes'ng,theexposure

forecastofwhichisnotbasedonacomplete12-monthhorizon


Implemen’ng IFRS9 Standards · And why talk about it in a Workshop on Risk Management?...

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Transcript of Implemen’ng IFRS9 Standards · And why talk about it in a Workshop on Risk Management?...