Credit risk & modelling – Special report 2021

The Covid-19 pandemic has had a profound impact on the credit risk landscape, creating a host of new challenges for banks as they prepare for tighter regulatory controls under Basel III.

As lockdowns are lifted, governmental support measures unwound and economies return to ‘normal’, lenders are facing an uncertain environment in which to assess the credit risk within their portfolios, with a blurred picture of firms’ true state of health and a paucity of reliable data.

Alongside Basel III, new accounting standards are forcing banks to take a more holistic view across their business. Credit risk models must support risk management and capital allocation decisions at a firm-wide level, but many have been left in disarray from Covid-19 volatility or patched up with overlays.

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

 

Download the full 2021 Credit risk & modelling special report in PDF format

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The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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