Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Syndicated loan wikipedia , lookup
Federal takeover of Fannie Mae and Freddie Mac wikipedia , lookup
Investment management wikipedia , lookup
Shadow banking system wikipedia , lookup
Credit bureau wikipedia , lookup
Public finance wikipedia , lookup
Credit rationing wikipedia , lookup
Moral hazard wikipedia , lookup
Financialization wikipedia , lookup
Financial economics wikipedia , lookup
Securitization wikipedia , lookup
Risk management in banks Leoš Souček, Komerční banka MFF UK – March 9, 2012 page 1 Introduction / Czech economic specifics… 1/2 Private debt to GDP - 2011Q1 Private sector indebtedness at the lower end of EU levels 300% Indebtedness of corporate sector at 22% of GDP 250% Indebtedness of households 30% of GDP Dynamic growth of mass retail exposure (above 30% yoy in 2003- 200% 2008) slow-downed in 2010/2011 (6.6% yoy in 07/2011) 150% 100% Also public sector indebtedness lower than EU peers CZ at 38.5% end of 2010 (FR: 82%, DE: 83%, HU: 80%, PL: 55%, SK: 41%, IT: 119%, GR: 143%) Budget deficit narrowed to -4.7% GDP in 2010 (SK: -7.9%, HU: -4.3%, GR: -10.5%, FR: -7.0%, DE: -3.3%, AT: -4.8%) Health care and pension reforms under progress S&P raised the LTFC Czech Republic rating to 'AA-' 50% 0% Despite fragile political stability some progress in reforms, which help to secure fiscal sustainability Household debt to GDP Cyprus Luxembour Denmark Spain Ireland Portugal Malta Sweden Netherlands UK Greece Austria Italy France Estonia Germany Latvia Finland Slovenia Bulgaria Belgium Lithuania Hungary Czech Rep. Poland Slovakia Romania Non-financial corporation debt to GDP Total external debt in % of GDP (Q4 2010) 250% Public sector Private sector 200% 150% No concrete plans on EUR adoption 100% 50% Limited dependence on external financing Relative low level of external debt in terms of GDP External financing needs covered by FDI and EU funds MFF UK – March 9, 2012 0% Czech Hungary Republic Poland U.S. Germany France Austria page 2 Introduction / Czech economic specifics… 2/2 Limited share of private foreign currency debt 13.0% for private sector (in 7/2011, both residents and non residents) 17.4% for corporate, 0.14% for households (residents only) export-oriented corporates as main users 150% coverage ratio by foreign currency deposits (res. only) 80% 60% Growth largely relying on external factors … Share of nominal exports on GDP at 80% in 2010 84% of exports concentrated on the EU-27 in 2010 (two predominant partners: Germany 32% and Slovakia 9%) Absence of major macroeconomic imbalances - current account worsened to 3.8% of GDP in 2010 Substantial foreign ownership following high FDI inflows 35.0 Share in GDP in % Czech Republic Austria France Germany Hungary 0% EMU 20% Poland Confirmed by CNB stress tests Sustained banking sector profitability since early 2000s Favorable loan-to-deposit ratio at 78% July 2011 Strongly capitalized (in end-June, 15.9% average regulatory capital ratio) 100% 40% Healthy banking sector 120% Slovakia Loan-to-Deposit Ratio - March 11 140% Czeh Republic Euro area 30.0 25.0 20.0 15.0 10.0 5.0 ... and on the cyclical industry sectors 0.0 Industry sectors represents 30% of GDP (vs. 22% in Germany and 12% in France) Highly cyclical (predominant car industry and machinery) Agriculture, hunting, forestry & fishing MFF UK – March 9, 2012 Industry Construction Trade, transport & communication services Business activities & financial services page 3 Introduction / Banking sector As of Zoom on KB: SG Group member since 2002. Third largest bank in ČR: 12/2011 Net profit about 7 800 employees. about 400 point of sales. Three key banks (market share at about 70%) KB (SG Group) ČS (ERSTE Group) ČSOB (KBC Group) 9,5 13,6 11,2 Deposits (Bn CZK) 586,0 783,3 721,6 Loans (Bn CZK) 441,4 483,5 440,5 -7,3 -5,5 -5,0 Cost of Risk (Bn CZK) KB initially corporate bank. o/w loans -2,0 -5,5 -1,8 Retail developed after 2000. o/w other risks (Gr) -5,3 0,0 -3,2 Cost of Risk (bps) 181bps (39bps) 114bps 36bps Loan to Deposits 77,5% 71,9% 69,5% LUSR 5,7% 6,0% 5,2% CIR 41.2% 41,8% 44,8% CAR 14,6% 13,1% 15,6% ROE 12,3% 18,2% 17,3% KB’s market share on credit lending: Mortgages: 23% Small Business: 20% Corporates: 30% Municipalities: 40% MFF UK – March 9, 2012 page 4 Risk Management / Functions & Missions Credit Risk Management Retail: model based and statistical approach (PD, LGD, EL) Individual approach for non-retail (Corporate, Banks, Sovereign) Collateral Evaluation (independent on client or distribution channel, on-site visits) Market Risk Management FX, IR, commodity, credit risk, … Monitoring and reporting Quality of portfolio / Focus on sensitive sections / Distribution channels / Sensitivity to market (FX, IR, ..) Back-testing of models Recovery / Collection Pre-early collection (-5DPD - 5DPD), Soft collection (5DPD – 90DPD) Hard recovery (90DPD +) Operational Risk Management Antifraud policy, Insurance, Business continuity plans, estimations of operational losses, … MFF UK – March 9, 2012 page 5 Risk Management / Zoom on KB organization Universal Risk Management Function / OpRisk out of scope. Matrix organization / One of largest Risk Management in the SG Group (330FTE). SG RISQ KB RISQ A. Viry (L. Souček) Credit Risk Assessment Corporate deal-flow Capital Markets Risks Market risk Capital markets Assets Valuation & Recovery Hard recovery Collateral Evaluation Risk Information Systems Risk databasis Supervision and Measurement Scoring models Monitoring Risk Methodology Credit frauds Functional links with SG RISQ departments MFF UK – March 9, 2012 page 6 Risk Management / History of model development in KB In-house score-card development since 1998 (IND, SB, Corp, Muni). SG models used for sovereign and banks since 2002. KB historical view: 1990 – 1997: Score-card developed by analysts (very simple expert models). 1997 – 1998: Score-card developed by statisticians (consumer loans, mortgages, corp). 2002 – 2003: Models implemented to the central rating system. 2001 – 2002: Behavioural scoring model developed (IND, SB). 2002 – 2005: Review of models with SG after acquisition. 2002 – 2007: Progressive usage of credit bureaus for retail (CBCB, SOLUS). 2005 – 2007: Implementation of Ba2 standards in KB (advanced methods for all credit portfolios). 2008 – 2011: Development and implementation of credit fraud prevention. MFF UK – March 9, 2012 page 7 Risk Management / Key risks for the bank CREDIT RISK MONITORING / REPORTING OPERATIONAL RISK MARKET RISK RECOVERY 3 DANGERS NOT INTEGRATED CYCLE LOW UNDERSTANDING MODEL RISK MFF UK – March 9, 2012 page 8 Credit Risk / Key elements PD, LGD, EaD Expected Loss (EL) = EaD * 1Y PD * LGD Risk Weighted Assets (RWA) = RW * EaD 1Y PD = Probability of Default during following 1Y LGD = Loss Given Default EaD = Exposure at Default RW = Risk Weight RWA = Risk Weighted Assets RW = Function (PD, LGD, Maturity, Regulatory correlation, Regulatory interval of conf. 99.9%) Actual Exposure = On B/S + Off B/S Exposure at Default (EaD) = On B/S + Off B/S * CCF Off B/S CCF LGD Recovered cash On B/S Non-Default, PD < 100% Default, PD= 100% “90DPD or unlikely to pay” MFF UK – March 9, 2012 Recovery process page 9 Credit Risk / Ability to absorb a loss Bank Capital CAR = > 8% FREQUENCY OF LOSSES Market Risk RWA + Credit Risk RWA + Operational Risk RWA CAR = Capital Adequacy Ratio Regulatory minimum at 8% Unexpected Loss as a variation of Expected Loss Probability 99,9% Stress Testing Probability 0,1% Expected Loss covered by revenues SIZE OF LOSSES Unexpected Loss covered by the capital MFF UK – March 9, 2012 Extreme Loss !!! DEFAULT !!! page 10 Credit Risk / Credit portfolios per PD & LGD Expected Loss (given by PD and LGD) is reflected in pricing. 55% 50% Consumer loans Credit Cards 45% Loss Given Default RE Developers 40% Project finance Client rate: 3,5% Small Business Net margin 1,0% Large corporates 35% Banks 30% Expected Loss SME 0,5% 25% 20% PSE 15% Cost of funds 2,0% Residential mortgages Sovereigns 10% -1% 0% of4% Default 5% 1% 12 Month 2% Probability 3% MFF UK – March 9, 2012 6% 7% page 11 Credit Risk / Corporates / Rating Model Individual assessment is prevailing. Financial assessment (financial data) Economic assessment (position in market, …) Model rating revised by credit analyst. Financial Rating Behavioural Rating Economic Rating Model Rating Credit analyst Final Obligor Rating MFF UK – March 9, 2012 Rating scales for non-retail Moody’s Aaa Aa1 Aa2 S&P AAA AA+ AA 1Y PD 0,01% 0,01% 0,02% Country DE, USA, FR (M) FR (S&P) BE, SI Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B B- 0,03% 0,03% 0,04% 0,06% 0,13% 0,26% 0,50% 1,10% 2,12% 3,26% 4,61% 7,76% 11,42% IT, JP CZ, SK, CN PL Caa1 CCC+ Caa2 CCC Caa3 CCCDefault 14,33% 20,44% 27,25% 100,00% RU, BR HU, RO BUL UA GR page 12 Credit Risk / Retail / Granting process Maximally automated (95% of approvals) / Maximally parameterized / Maximally centralized. Data collection / Independent verification / Assessment by statistical model. DATA COLLECTION (COMPLEX INFORMATION ABOUT CLIENT) APPLICATION FORM (DEMOGRAPHIC DATA) INTERNAL BANK DATA (BEHAV. DATA) CREDIT REGISTERS (CREDIT HISTORY) TRANSACTION PARAMETERS COLLATERAL CREDIT ANTIFRAUD SYSTÉM (IDENTITY, EMPLOYER, DATA) SCORING MODEL (YES / NO) INSTALLMENT LIMIT (YES / NO) MFF UK – March 9, 2012 COLLATERAL EVALUATION (YES / NO) page 13 Credit Risk / Retail / Scoring Model MAIN DRIVER OF PREDICTING POWER Behavioural Model (data in the bank) IN KB SINCE 2002 • Basic Behavioural SM (Bank) • Complex Behavioural SM (Group) • Advanced Behavioural SM • Advanced Application SM Behavioural Models (data in subsidiaries) IN KB SINCE 2007 Application rating Credit Register Model (data from the register) IN KB SINCE 2006 3 KEY ADVANTAGES High predicting power. Demographic Model (application form) IN KB SINCE 1998 Complex assessment. High flexibility (4 boxes). MFF UK – March 9, 2012 page 14 Credit Risk / Retail / Scoring Model 3 KEY ADVANTAGES 3 KEY RISKS Fast and easy process No view of expenditures High volume of production Limited assessment Top quality of production Change of behaviour 1 200 ths. clients EUR 6 400M 300 ths. clients EUR 1 200M 80 ths. clients EUR 32M 2002 170 ths. clients EUR 400M 2004 2006 2011 PRODUCTS AO AO, CL, CC AO, CL, CC AO, CL, CC MAX LIMIT EUR 400 EUR 2 400 EUR 6 000 EUR 10 000 KB KB KB KB GROUP CLIENTS MFF UK – March 9, 2012 page 15 CONTACT RNDr. Ing. Leoš Souček Deputy Head of Risk Management Komerční banka, a.s. Tel: +420 222 435 141 Email: [email protected] MFF UK – March 9, 2012 page 16