‚ 1 The New Capital Adequacy Framework for Credit Risk Possible Impact on the Austrian Banking...
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‚ 1
The New Capital Adequacy Framework for Credit Risk
Possible Impact on the Austrian Banking Sector and Banking Supervision
Franz PartschCredit Division
Oesterreichische NationalbankVienna, 1 February, 2001
‚ 2
OverviewEmpirical analysis: sample 37 larger Austrian banks
Magnitude and variability of credit risk• Data sources: annual bank supervision audit report, monthly
statistical returns Portfolio structure
• Data sources: central credit register, rating data, sector default data
Conclusions"Road map" for the implementation of the new
Accord based on empirical evidence and judgement
Disclaimer: available data do not come from credit risk management
sources and can only serve as more or less suitable
proxies for credit risk
‚ 3
Watch loans
3737373737N =
Watch 12/99Watch 12/98Watch 12/97Watch 12/96Watch 12/95
40
30
20
10
0
-10
31
1232
28
3132
28
12
13
428
12
254
28
4
28
Extreme values Outliers MedianBox Interquartile Range Highest Non-Outlier Lowest Non-Outlier
‚ 4
Doubtful loans
3737373737N =
Doubtful 12/99
Doubtful 12/98
Doubtful 12/97
Doubtful 12/96
Doubtful 12/95
20
10
0
-10
12
28148
13
15
148
13
84
13
13
413
‚ 5
Loss loans
3737373737N =
Loss 12/99Loss 12/98Loss 12/97Loss 12/96Loss 12/95
8
6
4
2
0
-2
28
22
22
28
22
226
28
6
28
‚ 6
Value adjustments to operating result
3434333334N =
12/9912/9812/9712/9612/95
Va
lue
ad
just
me
nts
to
op
era
ting
re
sult
120
100
80
60
40
20
0
-20
67
Value adjustments of claims and allocations to provisions for contingent claims and for credit risks
‚ 7
Value adjustments to loans
3434333334N =
12/9912/9812/9712/9612/95
Va
lue
ad
just
me
nts
to
loa
ns
2,5
2,0
1,5
1,0
,5
0,0
-,5
9
107
‚ 8
Value adjustments to assets
3434333334N =
12/9912/9812/9712/9612/95
Va
lue
ad
just
me
nts
to
ass
ets
1,4
1,2
1,0
,8
,6
,4
,2
0,0
-,2
65
107
7262
‚ 9
Conclusions (I)
Credit risk is by no means immaterial for the average large
Austrian bank has been, on average, fairly stable over the last
years shows significant and increasing differences
between banks
‚ 10
Austrian Central Credit RegisterDescription
Register of all borrowers from financial institutions (banks, leasing companies, insurance companies) with more than ATS 5m in total loans outstanding or credit lines
Purpose service for reporting institutions source of information for supervisory authorities
Content structural data on borrowers (name , address, legal form
etc.) monthly reporting by types of loans quality check and aggregation regular and ad-hoc information on total indebtedness of
borrowers
‚ 11
Loans by borrower type (I)
57,11% 57,27%
44,16% 41,34%37,89%
7,51% 6,89%
5,40%5,32%
5,10%
4,74% 4,39%
4,19%3,97%
3,62%
10,48% 10,23%
11,72% 16,04%15,89%
12,55% 13,98%
16,80% 14,38%18,05%
7,61% 7,24%
17,74% 18,94% 19,46%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1995 1996 1997 1998 1999
Domestic corporate Domestic private Domestic public
Domestic financial Foreign others Foreign financial
‚ 12
Loans by borrower type (II)
343434343434N =
Foreign f inancial
Foreign others
Domestic f inancial
Domestic public
Domestic private
Domestic corporate
80
60
40
20
0
-20
2302524
23
30
13
‚ 14
Country Risk Weights (Rating agency)
22222222N =
100%50%20%0%
120
100
80
60
40
20
0
-20
1
29
29
17
‚ 16
Hypothetical default rates (corporate sector risk)
4242N =
BankruptcyPayment incidence
8
6
4
2
0
-2
27
7
27
Payment incidence: reported non-payment of commercial or financial debt
‚ 17
Corporate sector risk distributions
373737N =
High riskMedium riskLow risk
100
80
60
40
20
0
-20
15
26
1337
15
13
37
36
Payment incidence
‚ 18
Corporate sector risk distributions
363636N =
High riskMedium riskLow risk
100
80
60
40
20
0
-20
15
37
15
3724
Bankruptcy
‚ 19
Borrower number by borrower type
373737373737N =
Foreign f inancial
Foreign others
Domestic f inancial
Domestic public
Domestic private
Domestic corporate
5000
4000
3000
2000
1000
0
-1000
31361910
21210
12021029
362
1102
4
10
2
1
‚ 22
Conclusions (II)Credit risk
is by no means immaterial for the average Austrian large bank
has been, on average, fairly stable over the last years shows significant and increasing differences between banks
Portfolio structure large banks have significant domestic and foreign lending in
all exposure classes (corporates, public, financial) country risk is concentrated in highly rated areas, but lending
to countries with low ratings is material for some banks corporate exposures are concentrated in medium risk sectors,
but lending to corporates in high risk sectors is material for some banks
the number of borrowers in some exposure classes (public, financial) is fairly small and (lack of) granularity will be an issue for some banks
‚ 23
"Road map" for Basel II
Data own time series on ratings, defaults, losses data pooling mapping to external data check against other data sources
Estimation of risk parameters robust methods using relatively few data transparency for tests by risk managers,
supervisors and market participants
First: sound rating system and risk management frameworkThen: