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Credit Risk
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Risk Analysis and Credit Evaluation (RACE) Solution

Credit risk accounts for the larger part of the risk in banking. With the Basel II regulatory guidelines, banks are required to move from simple credit scoring approaches to Probability of Default (PD) calculation. The ability to calculate PDs forms the building blocks for the progression towards "Internal Ratings Based Approach" (IRB) to capital adequacy. Banking business is essentially the business of risk taking and no-where are these risks more latent than in the credit portfolio of banks. Their understanding and dissemination is critical to their management.

Use RACE to manage your credit portfolio effectively and to comply with Basel II regulations

RACE is not a scoring model. It calculates PDs using advanced pattern recognition statistical techniques. The PDs are then mapped to the current risk grades of the user bank. The calculation itself requires no more than the input of key financial ratios. The RACE algorithm is calibrated to the relevant markets. This is necessary as markets characteristics differ, and a model validated to one market may not provide an accurate result when used in another market.

RACE is easily customizable and provides relevant features for credit approval, administration and portfolio management, all of which are crucial for the sound management of a credit portfolio.

RACE:

  • Provides a customized Financial Analysis Module (FAM) that provides users with all the necessary financial ratios and their analysis. The module also stores this information in order to provide trends over time
  • Permits portfolio analysis for assessing risk concentration
  • Offers a customized solution for calculation of Risk Adjusted Return on Capital (RAROC)
  • Follows Basel II guidelines
  • Has a flexible and state-of-the-art IT architecture that allows easy integration with existing bank architectures
  • Provides risk rating and PDs based on
    • Financials
    • Financial Projections
    • Financials as adjusted by Qualitative Assessments.

RACE System Architecture


Key Benefits of RACE

  • Enables informed and consistent credit risk decision-making: RACE provides a quantitative tool for measurement of credit risk and risk grades. Simultaneously, it leverages the use of qualitative judgment and bank lending experience, both of which are vital to the assessment of risk. It is, thus, a critical tool in the efficient management of a credit portfolio and helps minimise loan provisions and losses.
  • Facilitates compliance with regulatory standards: RACE helps manage a credit risk portfolio to current Regulatory and Basel II standards.
  • Enhances accuracy of PD estimation: The RACE algorithm is calibrated to to local markets. This ensures accurate estimation of PD.
  • Allows for easy customization and integration with existing systems: RACE is easily customizable to suit a bank’s requirements and data availability. Additionally, it has a flexible architecture that allows easy integration with existing bank architectures.