Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Multinational Bank Gets Ready for IFRS 9 Impairment Regulations

830 views

Published on

Developing forward-looking models that effectively predict expected losses In an effort to prevent another financial crisis, several regulations have been implemented over the past few years that require banks to operate with more transparency. This large multinational bank faced the significant challenge of developing new models required for compliance with IFRS 9 Impairment standards. The bank turned to FICO to interpret the intricacies of the new regulations and to develop predictive models that predict losses over the lifetime of an account

Published in: Economy & Finance
  • Be the first to like this

Multinational Bank Gets Ready for IFRS 9 Impairment Regulations

  1. 1. © 2016 Fair Isaac Corporation. All rights reserved. 1 By partnering with FICO on the new IFRS 9 Impairment regulation, this multinational bank is able to: Understand the intricacies of the regulation Forecast future losses over the lifetime of the account Ensure profitability with highly accurate expected loss models Meet aggressive deadlines for compliance Multinational Bank Gets Ready for IFRS 9 Impairment Regulations Client: Large Multinational Bank Challenge: The bank needs to comply with IFRS 9 Impairment regulations within a very short time period, with a limited understanding of the intricacies of the regulation and with limited internal resources. Solution: FICO® IFRS 9 Impairment Solution Results: After a three-month model development period, the bank will have its new expected loss models in compliance with IFRS 9 Impairment regulations and ready for parallel testing by the deadline of mid-2017. Developing forward-looking models that effectively predict expected losses In an effort to prevent another financial crisis, several regulations have been implemented over the past few years that require banks to operate with more transparency. This large multinational bank faced the significant challenge of ANALYTICS Multinational Bank Gets Ready for IFRS 9 Impairment Regulations “FICO is helping the bank construct the most predictive and effective expected loss models possible and is also helping it assess risk impact across portfolios. ” * This case study is based on information from a FICO client that requested anonymity.
  2. 2. FICO is a registered trademark of Fair Isaac Corporation in the United States and in other countries. Other product and company names herein may be trademarks of their respective owners. © 2016 Fair Isaac Corporation. All rights reserved. 4242CS_EN 06/16 PDF NORTH AMERICA +1 888 342 6336 info@fico.com FOR MORE INFORMATION www.fico.com www.fico.com/blogs LATIN AMERICA & CARIBBEAN +55 11 5189 8267 LAC_info@fico.com EUROPE, MIDDLE EAST & AFRICA +44 (0) 207 940 8718 emeainfo@fico.com ASIA PACIFIC +65 6422 7700 infoasia@fico.com ANALYTICS Multinational Bank Gets Ready for IFRS 9 Impairment Regulations A new standard for expected loss impairment IFRS 9 Impairment is a new standard for how banks and lenders must model expected credit losses in their financial statements. Launched in response to the financial crisis, the new standard replaces the incurred-loss model with a forward- looking approach, includes enhanced guidance for classification and measurement of financial assets, and supplements new hedge- accounting requirements. developing new models required for compliance with IFRS 9 Impairment standards. The bank turned to FICO to interpret the intricacies of the new regulations and to develop predictive models that predict losses over the lifetime of an account. Understanding the regulations IFRS 9 Impairment is intentionally designed as principles-based and therefore leaves room for interpretation. The bank wanted to hone in on the most important aspects of the regulation, without spending time and effort on less critical factors. FICO and True North Partners, which provides advisory services on regulatory requirements, helped the bank understand the complexities within the regulations and provided guidance on the most important elements the auditors would be looking for. Building effective models Although the bank’s internal modeling team is highly sophisticated, the new regulation requires models that use techniques that aren’t typical of risk analytic models. Using FICO® IFRS 9 Impairment Solution, the bank and FICO can partner to build expected credit loss models that look at historical data and leverage predictive elements to project the behavior of every account into the future, assessing risk over the lifetime of the account. In compliance, and also profitable One of the impacts of the new regulation is that banks will have to provision much earlier for debts that go bad. This is expected to increase loan loss provisions on banks’ balance sheets by about 50%, potentially forcing banks to set aside more capital to cover possible future losses. The higher cost of capital and lower return on assets will put a potential strain on earnings. With this understanding, the bank emphasized the vital need to create highly predictive and accurate expected loss models. Inaccurate models not only put the bank at risk from a regulatory perspective, but also significantly affect profitability. FICO is helping the bank construct the most predictive and effective expected loss models possible and is also helping it assess risk impact across portfolios. Time is of the essence With a deadline of mid-2017 for the bank to have its new expected loss models in place and ready for parallel testing, FICO worked quickly to determine the best course of action and to begin model development. Once all the data is available, FICO will provide the new models to the bank within three months. This gives the bank plenty of time for simulation exercises before the upcoming deadline in 2017. To learn more about FICO IFRS 9 Impairment Solution, contact FICO at info@fico.com.

×