Credit Rating Model Review and Credit Risk Solutions

Scope of work

• Policy review covering completeness and scope across all credit risk management aspects, alignment with the bank's risk appetite and strategic objectives, and alignment of underwriting, analysis and due diligence policies to CBB regulations. Credit approval policies were reviewed including delegation of authority, lending limits and exception management.

• Methodology review across the three core credit parameters:

  • Probability of default: segment-level validation of the PD term structure, default definition and rating scale
  • Loss given default: recovery rate modelling, segmentation, sensitivity analysis and back-testing
  • Exposure at default: current exposure method, potential future exposure, conversion factors for undrawn lines and regulatory benchmarking

• Risk mitigation assessed across collateral management, guarantees and covenants, with the stress testing framework reviewed for adequate consideration of adverse credit scenarios.

• Model documentation reviewed for completeness, structure and clarity, covering:

  • Purpose and role in the risk framework, and scope by borrower segment and asset class
  • Design and assumptions, including development process, statistical formulation and treatment of incomplete data
  • Data inputs, sources and quality procedures, and outputs across PD, LGD, EAD, ratings and ECL

• Governance reviewed across access controls, roles and responsibilities and version control, together with the framework for identifying, assessing and mitigating model risk.

• Rating scale and reporting assessed, covering the master rating scale developed by the bank and the monitoring procedures for timely escalation to management and board risk committees.