Survey of Credit Risk Models in Relation to Capital Adequacy Framework for Financial Institutions

2006 ◽  
Author(s):  
Poomjai Nacaskul
Keyword(s):  
Credit Risk ◽  
Financial Institutions ◽  
Capital Adequacy ◽  
Risk Models

scholarly journals Survey of credit risk models in relation to capital adequacy framework for financial institutions.

2016 ◽  
Vol 5 (4) ◽  
pp. 68-84
Author(s):  
Poomjai Nacaskul
Keyword(s):  
Credit Risk ◽  
Financial Institutions ◽  
Financial Sector ◽  
Statistical Modelling ◽  
Capital Adequacy ◽  
Stages Of Development ◽  
Risk Models ◽  
Risk Modelling ◽  
Credit Risks ◽  
Irb Approach

This article (i) iterates what is meant by credit risks and the mathematical-statistical modelling thereof, (ii) elaborates the conceptual and technical links between credit risk modelling and capital adequacy framework for financial institutions, particularly as per the New Capital Accord (Basel II)’s Internal Ratings-Based (IRB) approach, (iii) proffer a simple and intuitive taxonomy on contemporary credit risk modelling methodologies, and (iv) discuses in some details a number of key models pertinent, in various stages of development, to various application areas in the banking and financial sector.

scholarly journals Expected effects of the revised exposure to banks Basel credit risk weighted assets standard

2021 ◽  
Vol 26 (3) ◽  
pp. 49-60
Author(s):  
Nenad Milojević ◽  
Srđan Redžepagić
Keyword(s):  
Credit Risk ◽  
Financial Institutions ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Risk Sensitivity ◽  
Banking Supervision ◽  
Developed Economies ◽  
Basel Committee ◽  
Assessment Approach ◽  
New Treatment

In 2017 Basel Committee on Banking Supervision (BCBS) published additional Basel III reforms for the calculation of the risk-weighted assets (RWA) as part of the capital adequacy calculation. The 2017 reforms should resolve shortcomings in the capital adequacy calculation from the pre-crisis period. Revised standardised approach for the credit risk should be valid as of January 2023. The new reforms are bringing numerous improvements particularly interesting for the bank strategic management. One of the especially important improvements of the 2017 Basel III RWA reforms is the new treatment of the exposures to banks. For the treatment of externally unrated exposure to banks, financial institutions can use Standardised Credit Risk Assessment Approach (SCRA). This topic is the most interesting and important for the banking sectors structured mostly with the externally unrated banks. This is more characteristic of the developing, transition economies than the developed economies. However, SCRA will also be very important for the developed economies' banking sectors and banks whose portfolios are dominated by externally rated bank exposures, but in the same time they have significant amount of the exposure to banks without external rating. This paper's focus is related to the expected effects of the implementation of SCRA on the unrated banks' exposure. The aim of the paper is to define those effects. The paper is analysing how worldwide implementation of SCRA will establish a more detailed RWA approach with enhanced risk sensitivity. The research has shown that externally unrated banks with strong and stable capital adequacy and other related parameters can have positive expectations from the implementation of SCRA.

scholarly journals Pengaruh Strategi Perubahan Nilai Car Terhadap Jangkauan Layanan Dan Risiko Pembiayaan Pada Lkm Koperasi Sejahtera Bangsaku

2016 ◽  
Vol 6 (1) ◽  
pp. 01-15
Author(s):  
Ade Rachmawan ◽  
Abdul Kohar ◽  
Tb. Nur Ahmad Maulana
Keyword(s):  
Credit Risk ◽  
Financial Institutions ◽  
Capital Adequacy ◽  
Model Calculations ◽  
Islamic Bank ◽  
The Poor ◽  
Capital Adequacy Ratio ◽  
Credit Default ◽  
Micro Enterprises ◽  
Micro Credit

The role of micro credit in poverty alleviation is very important. In Indonesia, performed by the Commercial Bank/ Islamic Banks of micro units, cooperative, rural bank/rural Islamic bank, and MFIs. Outreach microfinance services to the poor  andmicro enterprisesin Indonesia is still very low. Perception of high risk for micro credit, especially loans to the poor/micro enterprises  and lack of  capital adequacy ratio (CAR)  of  rural bank/rural Islamic bank/ cooperative become obstacles for Financial institutions microlenders intermediation to the poor/micro enterprises  or to financial institutions that will collaborate with MFIs in micro lending. Standardized Model approach is the basis for calculating CAR for Financial institutions microlendersin Indonesia. This method gives a risk weighting of 100% in the assessment of credit risk as a component of Risk Weighted Assets (RWA). CreditRisk+ method is a method of measuring credit risk models based on credit default approach that describes the amount and time limit information exposure and measurement of systematic credit risk of the borrower. By using this method, the credit risk is calculated as the ratio of the maximum estimate of bad debts to the credit balance. For MFIs with good performance of the NPL, then the value of RWA will be smaller, therefore the CAR is much bigger  than the results of model calculations the standardized approach. With this result, outreach MFI services will increase as investors would not hesitate to cooperate in the delivery of microfinance to poor communities/micro enterprises.

scholarly journals RISK MANAGEMENT DISCLOSURE IN LITHUANIAN COMMERCIAL BANKS FINANCIAL STATEMENTS

2014 ◽  
Vol 9 (1) ◽  
pp. 44-51 ◽  
Author(s):  
Dalia Kaupelytė ◽  
Mantas Seilius ◽  
Rūta Zinkevičiūtė
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Financial Institutions ◽  
Financial Reporting ◽  
Commercial Banks ◽  
Financial Statements ◽  
Capital Adequacy ◽  
Annual Reports ◽  
Basel Iii ◽  
Regulatory Requirements

Financial institutions have to follow International regulatory requirements and national regulations for risk management disclosure. International regulations are developed by Basel Committee of Banking Supervision (known as Basel II and Basel III) and International Financial Reporting Standards (IFRS 7) introduced by International Accounting Standards Board. National requirements in Lithuanian are developed by Lithuanian central bank. Financial institutions, banks, are expected to provide timely and transparent information about risk exposures, correspondence to minimum regulatory requirements, risk computation methods etc. Still there are some questions raised how these de facto regulations are implemented in practice. The goal of empirical research was to investigate the extent of risk management disclosure in Lithuanian commercial banks financial statements. Data sample constituted of 7 commercial banks that are legally registered in Lithuania: AB “Swedbank”, AB “SEB”, AB “DNB”, AB “Citadele”, AB “Medicinos Bankas”, AB “Šiaulių bankas”, AB “Finasta”. The period of 2009 – 2013 was analysed. The content analysis as analytical tool was employed. Research criteria were divided into 5 major groups: general policy, capital adequacy, credit risk, market risk, and operational risk. In total 34 criterions were developed. Coding of text was performed by counting words for each criterion. Our evidence supports the conjecture that Lithuanian commercial banks provide more and more risk reporting. Also, we find that the extent of risk management disclosure is greater with the bigger size of reporting bank. Meanwhile, the extent for different risk management disclosure varies significantly: credit risk management is most reported risk. Further investigations on risk management disclosure in commercial banks should be focused on other reports first, such as annual reports or additional reports, which are provided by banks. Second, the sample of research is limited and in order to obtain more accurate results it is necessary to expand it. Moreover, authors did not examine liquidity risk, which could be relevant to the results, especially when Basel III accord is in the implementation stage. Third, counting unit can be changed from words to sentences, because sometimes separate words are meaningless and finally, future researches could be focused not only on extent of disclosed information, but also concentrate on the quality of provided information.

Islamic Banking Regulations in Light of Basel II

2010 ◽  
Vol 27 (1) ◽  
pp. 74-101 ◽  
Author(s):  
M. Kabir Hassan ◽  
Muhammad Abdul Mannan Chowdhury
Keyword(s):  
Financial Institutions ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Basel Ii ◽  
Capital Adequacy ◽  
Regulatory Agencies ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Minimum Capital ◽  
Regulatory Standards

This paper seeks to determine whether the existing regulatory standards and supervisory framework are adequate to ensure the viability, strength, and continued expansion of Islamic financial institutions. The reemergence of Islamic banking and the attention given to it by regulators around the globe as to the implications of a recently issued Basel II banking regulation makes this article timely. The Basel II framework, which is based on minimum capital requirements, a supervisory review process, and the effective use of market discipline, aligns capital adequacy with banking risks and provides an incentive for financial institutions to enhance risk management and their system of internal controls. Like conventional banks, Islamic banks operate under different regulatory regimes. The still diverse views held by the regulatory agencies of different countries on Islamic banking and finance operations make it harder to assess the overall performance of international Islamic banks. In light of the increased financial innovation and diversity of instruments offered in Islamic finance, the need to improve the transparency of bank operations is particularly relevant for Islamic banks. While product diversity is important in maintaining their competitiveness, it also requires increased transparency and disclosure to improve the understanding of markets and regulatory agencies. The governance of Islamic banks is made even more complex by the need for these banks to meet a set of ethical and financial standards defined by the Shari`ah and the nature of the financial contracts banks use to mobilize deposits. Effective transparency in this area will greatly enhance their credibility and reinforce their depositors and investors’ level of confidence.

Selection versus averaging of logistic credit risk models

2014 ◽  
Vol 16 (5) ◽  
pp. 39-52 ◽  
Author(s):  
Evelyn Hayden ◽  
Alex Stomper ◽  
Arne Westerkamp
Keyword(s):  
Credit Risk ◽  
Risk Models
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