The purpose of this seminar is to give you a clear understanding of how banks address credit risk in the light of recent evolutions, IFRS 9, ESG and Covid. The regulatory view of credit risk is central to banking supervision; but we will see that taking an economic approach is needed to gain an edge in a competitive environment. This means mastering modelling and management of credit risk and, of course, adapting the requirements to specific issues like IFRS 9, which is pushing banks to new levels in assessing and steering credit risk, including capturing it up until maturity and making it sensitive to macro-economic forecasts. The seminar consists of six study sessions.
The six sessions are articulated as follows: We start by clarifying the nature of credit risk and why it is the main risk of banks. Then we look at the regulatory and economic views of credit risk, with their respective benefits and challenges. We finish by clarifying how to price credit risk in order to create value, and current issues. More specifically:
Session 1 defines and explores the nature of credit risk and its main components, exposure, default and recovery. We introduce capital as the metric for measuring credit risk and the IFRS 9 accounting standard for its provisioning.
Session 2 explains the regulatory approach to credit risk. We discover how regulators define and measure it. Pros and cons of their approach are uncovered, and also the consequences.
Session 3 is dedicated to the economic approach to credit risk. We find why it is more sophisticated than the regulatory approach and why it is key to creating value. Also, how it is aligned with IFRS 9, the accounting standard.
Session 4 looks at the various credit risk models used to assess credit parameters for retail and non-retail customers, from scorecards to migration matrices, and integrating ESG in a post-Covid world.
Session 5 follows the life of a loan. We look at the granting process, how the loan is priced, and what happens during its life, its provisioning, servicing, up to a possible recovery process.
Session 6 looks at the future of credit risk: how and why is the reporting of credit risk evolving? What are the impacts of IFRS9, ESG and the Covid crisis? How to turn these inevitable evolutions into competitive benefits?
By the end of the seminar, you have a thorough understanding of the conceptual and practical issues related to credit risk today. And you are ready to professionally contribute on most issues related to credit risk, provisioning and pricing.