Building Credit Risk Models for Risk

Management and Basel II/III

Compliance: All you need to know.
4-Day Intensive Workshop
The Crowne Plaza, Harare, Zimbabwe
30 November 3 December 2015
Course level: Intermediate/Advanced
Introduction
The Reserve Bank of Zimbabwe (RBZ) issued the guidance notes on Regulatory Capital
Measurement and Management for the Zimbabwean Banking System (Basel II Compliance
BSD/1 of Jan 2011). Accordingly, all bank and banking groups are expected to adopt at least
the basic approaches for the computation of capital requirements for credit risk, market risk
and operational risk.
Under Basel II/III, capital adequacy generally hinges around the proper estimation of Basel
II/III risk parameters: PD, LGD, and EAD. These parameters are used on one hand as inputs
to credit portfolio models, and on the other hand, to compute risk weighted assets and hence,
regulatory capital adequacy. At the same time, they are also inputs into a banks ICAAP.
Credit risk continues to constitute the greatest challenge to banks, financial services providers
and regulators worldwide. The modeling of Corporate & Retail credit risk therefore becomes
a necessary and obligatory process for every bank. Under Basel II, banks are encouraged to
have own internal Modeling and Validation units, among others. Equipping staff with the
necessary modeling and validation skills goes a long way in helping firms save money and
create value in the staff members driving the Basel II project.
Whether required for the Standardized or Advanced Internal Ratings Based approaches or to
give your firm a competitive advantage in the management of credit risk, delegates will gain
an excellent footing in this specialist field. This course is designed to equip participants with
the knowledge and techniques to enable them to build, validate and audit credit risk models
within their organizations with minimal or no help.

Modworld Consulting (Pvt) Ltd, 70 Livingstone Ave, Harare, Zimbabwe

Web: www.modworld.co.za, Email:[email protected], Cell: 0772 255 693

Training Methodology
Ideally, you will bring your own laptop with Microsoft Excel. The training course will be
interactive in nature, proactive, pragmatic, action-based, non-theoretical and non-academic.
Industry-specific examples will be done as case studies. A package of detailed notes will be
handed out.

Course Objectives
After completion of the course, delegates will have sound knowledge and understanding of
the various techniques and approaches for Retail & Corporate credit risk modeling and
validation, with specific emphasis on the RBZ recommended ones.
You will learn how to:

Select suitable techniques to build models for retail & wholesale portfolios.

Apply advanced techniques such as the Logistic regression technique to model PD

and build internal ratings models.

Choose from a variety of methods to model LGD and EAD for all your portfolios
(Cheque, PL, HL, CC, IF, VF, SL, etc)

Document credit risk models to Basel II/III standards.

Calculate various metrics for model validation and monitoring

Know what is needed for Basel II/III compliance and why.

Learn how to prepare a Basel II/III compliant ICAAP Report, and the inputs to it.

Who Should Attend

The following professionals should find this course beneficial and appealing:
Credit Risk Analysts and Loan officers

Model Developers

Model Validators

Internal Auditors

Model Risk Auditors

Financial regulators

Bank Supervisors/Central Bank Personnel

Retail, Corporate & Other Finance personnel

Financial and Investment analysts
Executives and Managers
Professionals in financial services industry
Interested parties

Modworld Consulting (Pvt) Ltd, 70 Livingstone Ave, Harare, Zimbabwe

Web: www.modworld.co.za, Email:[email protected], Cell: 0772 255 693

AGENDA
1. Overview of Basel II Credit Risk Modeling and Models

Definition of Credit Risk

Wholesale versus Retail Models

Overview of the retail portfolio

Overview of the corporate portfolio

The modeling process A to Z

The Basel II/III Compliance Audit Sheet: all that needs to be in place

2. Pillar 1: Minimum Capital Requirements

3.

Credit Risk Approaches to measure credit risk

The Standardized Approach The Simple and Comprehensive Approaches

Credit Risk The 2 Internal Ratings-Based Approaches (IRB)

Expected and Unexpected Loss BIS

IRB PD, LGD, EAD, M, K

Scorecard Models (AS, BS, CS, Attrition, Propensity)

Examples of Capital Requirements

RWA Formulae and The Capital Adequacy Ratio

Ratings Model Validation Techniques

Kolmogorov-Smirnov Test

Cumulative Accuracy Profiles (CAP)

Operating Characteristic Curves (ROC)

The Chi Square Test

Other Techniques

4. Corporate Probability of Default (PD)

The Data Set and Data Cleansing

Data Cleaning

Quality of Financial Statements

Calculation of Financial Ratios

Model Building

Pre-selection of Input Ratios

Derivation of the Z-score and the Final Default Prediction Model

Modworld Consulting (Pvt) Ltd, 70 Livingstone Ave, Harare, Zimbabwe

Web: www.modworld.co.za, Email:[email protected], Cell: 0772 255 693

Model Validation The K-S Test and others

Internal Credit Rating Model

Case Study

5. Corporate Loss Given Default (LGD)

Mortality-Based approach

Regression Methods

Case Study: Building a Corporate LGD Model

6. Corporate Exposure at Default (EAD)

The CCF approach

The LEQ approach

Case Study: Building a Corporate EAD Model

7. Retail PD Modeling

The Scoring Concept

PD Estimation Techniques

The Logit Model

Case Study: Building a Retail PD and a Retail Internal Credit Rating Model

PD Model Validation The Kolmogorov-Smirnov Test (at build)

8. Retail LGD Modeling

Modeling Retail Loss Given Default (LGD)

Key drivers of CLGD

Estimating Recovery Rates

Modeling LGD using regression

A Mortality-based approach to estimate recovery rates - IRB

Case Study: Building an LGD model for a particular portfolio

LGD Model Validation

Modworld Consulting (Pvt) Ltd, 70 Livingstone Ave, Harare, Zimbabwe

Web: www.modworld.co.za, Email:[email protected], Cell: 0772 255 693

9. Retail EAD Modeling

Estimating credit conversion factors (CCF)

Risk drivers for CCF

Estimating Loan Equivalents (LEQ)

Risk drivers for LEQ

Case Study: Building an EAD model for a retail portfolio

EAD Model Validation

10. Putting Everything Together

Retail Expected Loss calculations

PIT and TTC PD, LGD and EAD

Capital Requirements Calculations

Retail Risk Weighted Assets Calculations

Practical exercises throughout the course to cement understanding and

develop skills. This is not an academic theory course but practical in building
models towards Basel II/III compliance.

Course Presenter:
Victor Gumbo: PhD in Operations Research specializing in Financial Modeling, MSc in
Mathematics of Finance, a Certified Basel II Professional (CBiiPro).

Victor is a Certified Basel II Professional (CBiiPro) and a holder of a Professional Certificate

in Credit Risk Modeling (New York Institute of Finance), he is a senior consultant at
Corporate Treasury Solutions Barclays a research and consultancy firm specializing in
Treasury, Financial Risk Modeling and Basel II/III implementation across Africa, previously
he was with ABSA, a Division of Barclays. Formerly with one of South Africas top-4 banks
as a Senior Modeling Analyst, he also boasts of extensive lecturing experience with various
top universities. He publishes in top Journals in the area of Risk modeling and is a blind peer
reviewer for a number of top international Journals. He is currently involved in major Basel
II/III retail credit risk modeling and implementation around SADC, West and East Africa. He
is a member of many professional organizations (BCPA, IAMBD, SAMS, ORSSA, IARCP,
CompliancEX, SOXCPA).

Modworld Consulting (Pvt) Ltd, 70 Livingstone Ave, Harare, Zimbabwe

Web: www.modworld.co.za, Email:[email protected], Cell: 0772 255 693

Venue:

Crowne Plaza

Dates:

30 November 2015 3 December 2015

Course Fees: US$500 per head.

There is a 10% discount for second and subsequent participants from the
same organization.
NB-In-house customized training available for you and your team. We will do
comprehensive training needs analysis so as to uniquely customize the training for
your organisation. This will include Basel II/III Compliance diagnostic audit.

REGISTRATION & ENQUIRIES

Email: [email protected]; +263 772255693; +263 733433422.
Website: www.modworldconsulting.com/www.modworld.co.za

Modworld Profile
Modworld Consulting Pvt Ltd is a financial and risk modeling company, the market leader
in Africa in Modeling and Enterprise Risk management Consulting. We are an innovative
consulting firm serving corporates and Banks who want to optimize business processes,
quantify and manage risk and liquidity. We partner with clients to quantify, manage and
disclose their credit, market and operational risks. Our partnership with your organization
leaves you Basel II/III Compliant.
Our vision has been to consistently provide process optimization, analytics and risk
quantification, management advice to corporates and financial institutions across Africa.
Today, we are the trusted faithful guardian of financial and operational risk consultancy of
industry-leading organizations, with a track record of success under any dynamic economic
circumstance. Our achievements are the result of continuous visionary research and
development, and use of experts and collaboration.

Our Solutions Include

Basel II/III Diagnostic audit, reviews and gap analysis

Basel II/III Implementation
Basel II/III Awareness Workshops and Training for Senior Management
Quantitative Impact Analysis
Development/Validation of Internal Rating Models and Overall Risk Management Framework
IT System-Implementation and systems integration

Modworld Consulting (Pvt) Ltd, 70 Livingstone Ave, Harare, Zimbabwe

Web: www.modworld.co.za, Email:[email protected], Cell: 0772 255 693

Market Risk Modeling & Implementation

Operational Risk Modeling & Implementation
Scorecards Modeling & Implementation
Bank Rating and healthiness Models
Revenue Forecasting & Modeling
Tariff Modeling

Modworld Consulting (Pvt) Ltd, 70 Livingstone Ave, Harare, Zimbabwe

Web: www.modworld.co.za, Email:[email protected], Cell: 0772 255 693