Credit Risk

1 Introduction
2 Dynamic credit scoring
3 Dynamic provisioning system
4 HIV/AIDS impact & monitoring

1 Introduction
A definition of credit risk according to the Bank for International Settlements is: “The risk of loss arising from default by a creditor or counterparty”. Although this seems like a simple definition, the meaning thereof and the problems to which it pertains evolved into some of the most complex of problems the banking industry has to face today.

Credit risk plays an important part in the new Basel Capital Accord (Basel II) to which banks will have to comply. Credit risk will also be central in the challenges banks will have to face in future. Challenges brought about by the consolidation in the banking sector in the past few years, increased emphasis on corporate-governance by the regulator, changing accounting standards and recent reputational risk of South African banks in the eyes of depositors. Increased competition in the banking sector lies ahead with the H-index set to drop again from its 2002 level. South African Banks will also have to be ready to face the onslaught of the HIV/AIDS pandemic all amid pressures to broaden the access to finance and become competitive in areas like low-cost housing finance.

The ability of the Risk Monitor Group to understand multifaceted risk environments and to develop risk simulation and monitoring systems is a key advantage in solving problems relating to credit and associated risks. Our clients include some of the major South African retail banks and financial institutions.

Back to top

2 Dynamic credit scoring
The process of deciding whether or not to lend money to a creditor, the determination of the conditions under which the money will be lent, and the setting of a price for the credit (the interest rate) is all part of the credit scoring process.

Our system’s competitive advantage stems from the actuarial expertise build into the system and the system’s dynamic nature that allows for invaluable feedback of parameter changes into the scoring process.

Back to top

3 Dynamic Provisioning System
From an actuarial perspective the pricing (or rating) of a risk and the setting of a provision for the realisation of a risk are two sides of the same coin. This line of reasoning underlies our Dynamic Provisioning System. The system allows a retail bank to set provisions for credit risk based on monthly updated data in a scientifically verifiable way.

Back to top