Our analytics experts can help you understand IFRS 9 accountancy standards and how it affects loss forecasting and work with you to build and deliver a comprehensive approach to the new standards.
Do you need support to understand IFRS 9 accountancy standards and how it affects loss forecasting? Our analytics experts can help.
As of 1st January 2018, IFRS 9 accountancy standards will replace IAS 39. What does this mean for businesses when it comes to loss forecasting? How can we help to support the transition from IAS 39 to IFRS 9?
The International Financial Reporting Standard (IFRS) 9 will see businesses making significant changes to the way expected credit losses are calculated. As a specialist in loss forecasting and impairment, Experian can work with you on a consultative basis to build and deliver a comprehensive approach to the new standards.
We can support you in anticipation of the accountancy standard change with an end to end solution covering four areas. This does vary however, from business to business, because your business is unique and our solutions can be tailored to your business requirements. Your loss forecasting methodology depends on whether you are under Advanced IRB or Standardised accounting standards, whether you have sufficient relevant historical data internally to support modelling lifetime losses and whether your lending policy or collections strategy has changed significantly in the recent past.
With experience in building models that incorporate credit risk, we can support your internal modelling teams with acquiring new skills, or support you with a fully outsourced capability.
It may be that you have a portfolio that is relatively new and has yet to build up the history required for lifetime loss forecasting. Alternatively, it could be that changes have been made to lending/collections policies that have made all, or a proportion of your historical data, inapplicable for future modelling. We can advise as to the best approaches regarding historical data.
Our economists and credit risk analysts work together to understand the relationships between lending policy and the economy, and how it affects credit risk. We provide generic bureau scores with the economic impact embedded. You can use these scores to determine changes in credit risk and include them within lifetime probability of default models.
Lifetime loss models should be re-assessed quarterly or bi-annually to keep up with changes in loss rates and changes in the economy. We can help with this and benchmark your position against your peers and against market lifetime losses.
Economic stress testing allows portfolio managers to understand the sensitivities of their portfolios to significant economic change and the implications for provisioning, capital allocation and regulatory compliance. Basel II and III mandate certain portfolio stress tests alongside prescriptions for capital approaches.
When developing methodologies for stress testing, it is vital to ensure that any programme adequately addresses a range of economic scenarios for both regulatory and managerial purposes. Experian helps organisations develop these scenarios using a unique combination of economists and credit risk consultants.
Rather than using generalised macro-economic assumptions, Experian’s extensive and detailed economic models allow alternative scenarios to be defined explicitly, which impact local economic and household factors. This in turn identifies economic impact on probability of default and loss given default at an account level.
These scenarios can include:
Experian’s consultants build customised models linking client account level portfolio data on probability of default, exposure at default and loss given default to baseline and alternative economic scenarios. Experian also have extensive experience of building risk, component (PD, EAD and LGD), and capital requirements models, taking account of both economic and non-economic factors. These models are designed and implemented to maximise value to clients whilst ensuring regulatory compliance. Experian also have extensive experience of building risk.
The economics consultancy team tailors Experian forecasts to cover a wider range of industry sectors, produce occupations and skills forecasts or forecasts for non-administrative boundaries like catchment areas or postal geographies.
Experian’s comprehensive approach enhances the ability of credit risk professionals, portfolio owners and regulators to stress test portfolios. We help them evaluate how portfolios will withstand different economic scenarios for both internal financial budgeting purposes and to meet increasingly demanding regulatory requirements in a coherent and transparent way.