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Beyond Basle II ComplianceBest Practices of Credit Risk Management
삼성SDS SolutionDay20032003.11.6
김종우삼성구조조정본부
삼성Agenda
1. Basle II의미래와금융기관의전략선택
2. Best Practices of Credit Risk Management
삼성Global Trend of Financial Regulation
• After 1930 Great Depression– One cause of the great depression: integrated investment and
commercial banking– Regulation for business boundary: investment bank, commercial bank,
consumer loan company, insurance company, brokerage company, andasset management
• From 1990s – Universal Banking– Globalization and financial innovation to avoid regulation of business
boundary from European countries– Focusing on risk management regulation– Any financial company can provide any service to any client and can
hold any kind of risky asset, but the company can measure the risk of its service and asset, disclose the risk transparently to external entities, and reserve required capital to buffer its risk to protect depositors and investors
삼성증가하는감독기관의규제에대한합리적대응감독기관의규제보다는 Best Practice에따른내부위험관리절차확립
• 현재감독기관은기존의직접규제를대폭축소하지않고위험규제를추가하는
형태. 금융기관은최소한의제약으로간주하고의사결정의왜곡최소화– 수익성에대하여최종적으로책임을져야하는금융기관의자율적인의사결정을제약함. 이러한제약으로의사결정이왜곡되지않도록주의하여야함 (예:일부은행의1가구 2주택담보대출금지). Reputation Risk 정도고려할필요가있음
• 현재감독기관은 Risk Management Best Practice에대한이해및적용보다는동일한규제의일률적적용을강조하고있음. 금융기관은실질적인위험관리가되도록 Best Practice에대한이해와이에따른내부위험관리절차확립이필요
– Leading US and European banks have developed their internal risk management models and practices for better financial decision.
– When BIS applies new risk management regulation, BIS …• reviews internal models and practices of leading banks• incorporates better models and practices and standardizes in detail to assign
them all banks• designs backtesting or validation tools of reports submitted by banks.
삼성Basle II Overview
1. Standardized approach– Similar to 1988 Capital Accord, which uses a fixed risk weighting dependant on
external credit rating and "Obligor Type" - Corporate, Sovereign and Banks.
2. IRB Foundation approach– Builds on the standardized approach by calculating the risk weights from default
probabilities, using the current formula as covered in the BIS proposal, having made fixed assumptions of loss given default, maturity and so on, so that the default probability is the only variable.
3. IRB Advanced approach– Allows greater flexibility into the risk weighting formula, with adjustments for
maturity and an internal estimate of loss given default and exposure at default.
금융기관이 IRB Advanced approach를사용한다고하여도 Book Value를사용하고 Obligors’ Correlation을반영하지못하여위험관리의사결정에도움을줄수없음
삼성Basle II에대한비판
1. Risk Exposure가큰금융기관의반대– 미국내에서 Credit Card Business의비중이큰은행, 상대적으로저등급차주가많은유럽계은행, 신용등급조차매기기어려운개발도상국의은행들은추가적인자본확충이자기자본수익률을떨어뜨린다고반대함.
2. 경기변동을확대하는부작용– 경기하강시에신용등급의 Downgrading이집중되고, 이는은행의 Capital
Requirement를증가시켜대출축소로이어짐.
3. 막대한 IT 투자가필요– 규모가큰은행의경우 115 million Euro 투자가필요 (AWSJ).
감독기관은 Basle II의적용실익을검토하여적용시기를늦추는결정이필요하고금융기관은 Basle II를위한준비보다는실질적인 Credit Risk Management를할수있는 Infra 구축이필요함
삼성Agenda
1. Basle II의미래와금융기관의전략선택
2. Best Practices of Credit Risk Management
삼성Three Phases of Evolution
Decision to extend or not to extend a loan
Major problem is cross subsidization of poor credits
Yes
No
1. Binary
AAAAAA
BBBBBB
CCC
Differentiation by counterparty credit worthiness
Application of differential pricing according to credit quality (probability of loss and recovery rate)
Allocation of reserves to cover Expected Losses
2. RatingsCapital E(L)
Portfolio risk modeling to determine economic capital needs (using counterparty correlations)
Marginal pricing, capital, and limits decisions
Dynamic view of credit and concentrations
Extensive sensitivity analysis and stress testing of risk variables
Goal is to optimize return on risk
3. Portfolio
삼성Basic Requirements of Good Credit Risk Management
“How much should I carry in reserves?”
Allocating capital/reserves
Identifying concentration risks
“How much additional capital will this trade require?”
Marginal capital cost
“How exposed am I to specific events?”
“Given risk and return, how much exposure is too much?”Setting limits
“How can I generate better returns for the risk I am taking?”
Enhance risk-return ratios
삼성Measuring Credit Loss based on Mark-to-Market
• Step 1: calculating credit exposures to each obligors• Step 2: pricing portfolio value with credit rating migration
BBBCurrent state
AAA AA A BBB BB B CCC Default
0.00% 0.11% 5.28% 86.71% 6.12% 1.27% 0.23% 0.28%
8 possible statesafter one year
Probabilities
100.9% 100.8% 100.7% Par 97.5% 95.8% 83.2% Recovery
Statistics (exp. return, standard deviation) for the value in one year.
Instrument value
• Step 3: incorporating default correlation among obligors
삼성Estimating Expected Loss and Unexpected Loss
Expected horizon value or total notional value
5500 5600 5700 5800 5900 6000Portfolio value at horizon
Worst case horizon value
at level p
Risk capital at level p
Holding risk capital in this way assures that the likelihood of bankruptcy-causing losses is p.
삼성Calculating Economic Reserves and Capital
•• An Example, for next 1 year,An Example, for next 1 year,
–– Expected Credit Loss: Expected Credit Loss: 3,4253,425억원억원 (1.17% (1.17% of the book value)of the book value)
–– Unexpected Credit Loss: 31,301Unexpected Credit Loss: 31,301억원억원 in the case of worst 1% (10.73% of the in the case of worst 1% (10.73% of the
book value)book value)
삼성Executing Stress Test for Crisis Situation
5500 5600 5700 5800 5900 6000
Expected horizon value or total notional value
Portfolio value at horizon
Worst case horizon value
at level p
Risk capital at level p
Should make reasonable crisis scenario(transition matrix, recovery rate, and credit spread)
Crisis Situation
Normal Situation
삼성Stress Test, if Asian Crisis happens again Today
•• Expected Credit Loss increases to 37,981Expected Credit Loss increases to 37,981억원억원 (11 (11 times compared times compared to normal situation)to normal situation)
–– This Expected Credit Loss (37,981This Expected Credit Loss (37,981억원억원) ) at Asian Crisis is almost the same as at Asian Crisis is almost the same as
Total Credit Loss (34,726Total Credit Loss (34,726억원억원 = = Expected Loss + VaR = 3,425 + 31,301) at Expected Loss + VaR = 3,425 + 31,301) at
normal situation. normal situation.
삼성Risk Budgeting
Total VaR Limit
40,000억원
Market VaR Limit
3,000억원
Credit VaR Limit
37,000억원
Credit VaR – Retail
2,000억원
Credit VaR – Corporate
35,000억원
1 – 7 Grades
32,000억원
8 – 10 Grades
3,000억원
Banking
5,000억원Chemical
45,000억원
Commercial
55,000억원
Construction
30,000억원
Electronics
15,000억원
Financial
10,000억원 10
삼성Capital Allocation based on RAROC and EVA
• RAROC (Risk Adjusted Return on Capital) and EVA (Economic Value Added) must take into account both expected and unexpected losses– Minimum charge should be expected loss– BUT you also need to allocate capital for unexpected loss
RAROC = Net Margin / Economic CapitalEVA = Net Margin - Economic Capital x RoC
where,Net Margin = Interest Income – Cost of Funding
– Operational Expense – Expected LossEconomic Capital = Unexpected Loss or Credit VaR ContributionRoC = required Return on Capital. .
삼성Capital Allocation based on RAROC
•• TradeTrade--off relationship of risk contribution as credit rating decreasesoff relationship of risk contribution as credit rating decreases: : higher default prob made higher risk contribution but smaller higher default prob made higher risk contribution but smaller average credit size made lower risk contributionaverage credit size made lower risk contribution
삼성Setting Limits based on Risk Contribution
• Need to move from hard to soft limit management– Hard limit management: based on exposure or credit rating– Soft limit management: based on risk contribution to entire
portfolio of bank
Absolute exposure size (by obligor)
Mar
gina
l st.
dev.
% (b
y ob
ligor
) Obligors in excession:high risk and large size “Hard”
individual risk limit
“Soft” absolute risk limit
“Hard” exposure size limit
삼성Risk Based Pricing
• Risk based pricing must take into account both expected and unexpected losses– Minimum charge should be expected loss– BUT you also need to allocate capital for unexpected losses
Fair Credit Price
= Expected Loss + Return on Capital x Capital at Risk
= Probability of Default x Loss Given Default + RoC * CaR
삼성경기하강시 Credit Loss의과소예측방지를위한조정Credit Loss 측정에사용되는 Input Data에대한검증필요
• 경기하강시 Credit Loss (Expected and Unexpected Loss)가과소예측될수있음– Credit Exposure: 평상시사용하지않은한도도 Credit Crunch 상황에서는한도까지도달
– Recovery Rate: 담보의시가하락으로충분한 Hair Cut 상실, 금융기관간경쟁적인채권추심으로채무추심성공율저하
– Default Prob.: CSS의 Input Data 왜곡, CSS의 Systematic Bias– Correlation: 경기하강시차주간에 Default Correlation이높아지는경향 (예:상호지급보증)
• Correlation은기업대출에서는중요하나가계대출에서의영향은적고 Credit Exposure와 Recovery Rate은합리적인예측이가능하나 Default Prob.의과소평가가가장심각한문제
– CSS의 Input Data 왜곡: 경기하강시영업부서에서경쟁격화와전반적인신용등급하락으로개인정보를왜곡하여입력 (예:다단계회사직원에신용카드발급) 특히 Hurdle Credit Rating을적용하는경우왜곡가능성이큼. 신용등급에따른 Loan Pricing과영업부서에대한신용위험을감안한성과평가필요
– CSS의 Systematic Bias: 잘설계된 CSS라도설명변수에포함되지않은요인, Parameter의불안정성, Input Data의 Updating 지연등으로발생. 경기변동에의하여Transition Matrix를자동적으로조정하여야함 (Conditional Transition Matrix)
삼성경기하강시 Credit Loss의과소예측방지를위한조정거시경제변수예측을 Default Prob. 예측에이용
Z = - [ Φ-1 (Default Prob) - µ ] / σZ: Credit Cycle Index
standard normal transformation
Φ-1 (Default Prob) = Xß + ЄInverse Normal CDF of Default Prob.
X: Macroeconomic and Financial Series
0.00
0.05
0.10
0.15
0.20
Dec-84 Dec-86 Dec-88 Dec-90 Dec-92 Dec-94 Dec-96 Dec-98
Actual DefaultProb.
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
Credit CycleIndex
Mean of SDP
Mean of CCI
거시경제변수들로설계된 Credit Cycle Index는경제전체신용상황의개선과악화를예측함. 따라서 Credit Cycle Index는 Default Prob.와부의상관관계를가짐
삼성
Q & A
우리의대표브랜드 Samsung
