-
-
-
-
-
-
-
-
-
Inhoudsopgave Bestuursverslag Corporate governance
Quality assurance credit risk models
Model governance
edtf 17 The Model Governance Committee (MGC) has the
responsibility to sign-off on credit risk models before
implementation (for De Lage Landen (DLL) a separate
arrangement on model validations is in place). Before MGC
sign-off is requested, all models are validated by
an independent Model Validation team. Implemented models
are reviewed on at least an annual basis including back testing
of predictions against realizations. Besides these internally
reviewed risk models, there are some risk models that are
periodically reviewed by external parties under supervision of
the Model Validation team.
The Model Validation team assesses model performance
annually, based on statistical review complemented with
an in-depth analysis of model risks arising from changes in
model internal and external changes. For example, there
can be relevant changes in internal model usage, business
model, changes in external regulations and market conditions.
This periodic validation aims to assess the quality of the model
in terms of prudence, methodology, validity of key assumptions,
fit-for-purpose and compliance.The overall conclusions on
performance of the models are reported to the MGC with
a recommendation to either extend the usage of the model, or
to redevelop the model if necessary. If models are tested as non-
prudent, the MGC is informed and decides on an appropriate
capital add-on until the model is recalibrated to a prudent level.
Model performance
Table 11 provides an overview of number of risk models per
portfolio that were tested 'to be recalibrated'during 2015 and
the mitigating actions that are taken. The table only reports the
models covering portfolios above 1 billion.
Table 11Overview of risk model tested to be recalibrated.
Portfolio
Number of
risk models
Models
tested 'to be
recalibrated'
Actions
taken1
Retail NL-Mortgages
5
2
Retail NL-Consumer Finance
3
Retail NL - Business Lending
3
2
SME lending NL
5
1
Recalibration
is ongoing
Sovereigns and Institutions
7
Corporate Lending International
7
Rural and Retail country banking
6
2
Recalibration
ongoing
Commercial Real Estate
4
1
DLL
22
1 Add-ons are defined until recalibration is implemented.
338 Rabobank Jaarverslag 2015
Jaarrekening Rabobank Groep Jaarrekening Rabobank
Model changes in 2015
The annual periodic validation of risk models may lead to the
conclusion that improvements are needed to maintain their
quality for risk management and capital calculation purposes.
In 2015, Rabobank redeveloped the following models:
The redevelopment of the PD and LGD models for mortgages
in the Netherlands have been internally approved.The new
models improve the use of client behaviour, revaluation
of collateral, downturn LGD, and using information from
defaulted exposures which are still in the workout process.
The new models are submitted to the regulator for a material
change process.
The downturn methodology for the Dutch corporate clients
has been redeveloped and internally approved. The new
methodology takes into account the client and collateral
specific risk drivers as well as the current situation of the
economy. For the new methodology a material change
process is currently ongoing.
The LGD model for international corporate clients has been
recalibrated.
Credit risk reporting
Credit risk reporting is based on the product administration
systems and the rating systems, which hold PD, LGD and EAD
information. Risk reporting is reconciled with financial reporting
data both at entity and Group level. Risk Management compiles
a quarterly Management Information Credit Risk (MICR) report
on the developments in the credit portfolio, which is distributed
among senior management. Key risk indicators in this quarterly
credit risk report such as PD, EAD, LGD, EC and EL, are used
to monitor developments within the portfolio. Furthermore,
trends in bad debts costs, allowances for loan impairments,
non-performing loans, number and amount of exposures are
analysed by Special Accounts Management. Another important
periodic report is the semi-annual provisioning report.
Risk Management Credit (RM Credit) provides insight into the
risk at portfolio level, in order to make it possible for Rabobank
to optimize the balance between credit risk, capital usage
and returns. RM Credit is a centre of competence for all credit
activities in which risk-return considerations play a role.
IRB and Standardised Approach exposures
The following tables provide an overview of Rabobank's
IRB exposures in terms of EAD. These exposures include
outstandings, an estimate of the amount drawn from the
unused part of credit facilities and the estimated interest
payments in arrears in case of a default. Furthermore the risk-
weighted exposure amount, the PD, the LGD and the exposure-
weighted average risk weight are shown.