Markets - Basel III / IFRS 9

QCR has in-depth knowledge of financial regulatory framework and we are keeping up-to-date with the latest development in the changing regulatory landscape. QCR's experience in loan origination and credit risk management gives us a unique perspective to look into challenges in portfolio management in banking. Our experience in Basel regulatory reporting and modelling and IFRS 9 valuation framework makes us well placed to advise clients on the following topics.

  • Establishing economic value of portfolios and Active portfolio management
  • Expected Loss calculation ("Provisioning"), considering incurred losses
  • Unexpected Loss calculation ("Capital Adequacy")
  • PD&LGD modelling
  • Stress Testing credit portfolios and the application of macro-economic Factor Models
  • Application of Standard Approach according to Basel Capital Requirement Directive ("CRD")
  • Development of IRB ("Internal Rating Based") Approach and
  • Assessment of economic capital requirements ("ECap") including preparation of ICAAP Approach ("Internal Capital Adequacy Assessment Process").

In our view existing regulatory framework on Expected and Unexpected Losses does not allow for differentiation between different risk management practices at financial institutions. In order to be on top of the portfolio in all circumstances definitions and connection between Expected and Unexpected Losses shall be defined precisely on which basis Provisions and Capital Requirements should be brought in line with each other. Asset quality depends on the assets but also on the underlying assumptions of the asset valuation and to calculate Expected and Unexpected Losses expected and unexpected cases need to be defined as part of the asset valuation / risk management process.

QCR's credit risk managing software (RISKAWARE) defines expected and unexpected macro scenarios and attaches probabilities to those scenarios to quantify Expected and Unexpected Losses on individual credits and the portfolio. Furthermore, RISKAWARE calculates PD&LGD ratios to each banking exposure without historical series of data, which helps banks to comply with regulatory requirements more efficiently.