RAROC
First phase of the risk measurement process is estimation of parameters necessary in loss calculations. These parameters are then used to calculate EL and UL, and finally based on these loss statistics, risk adjusted credit prices are determined and RAROC reports are prepared.
LGD
Measurement of LDG directly affect loss calculations, namely EL and UL. By nature, this statistic varies accross different sectors, collateral types and regions. On top of calculating different moments of the LGD distribution, our Credit Risk application uses Kernel based alternative distribution to reflect the variance in the LDG amon different factors.
Expected Loss (EL):
The most widely used credit risk measure EL comprises of, PD, LGD and EAD. The Credit Risk Module, offers EL calculations based on analytical or simulated distributions. Our flexible software allows for EL calculation for the credit real portfolio of the bank as well as for different hypothetical portfolios.
Unexpected Loss (UL)
In contemporary risk management what is often more in use is UL which is the measure of possible deviations in the loan loss. This measure can reflect the actual riskiness of a credit portfolio. Together with EL, UL measures the most important aspect of the credit risk which is Economic Capital (ECAP). Our software supplies UL for each credit and hence allows for both bottom-up and top-down approaches. Both EL and UL enable the user to easily estimate RAROC both at micro and macro level.
Risk Adjusted Credit Pricing and RAROC
In modern credit risk, loan price has simply four components, funds transfer pricing (FTP), costs, expected loss(EL) and unexpected loss(UL). The main advantage of our product is to reduce the complex pricing process into a very simple number based on the calculations obtained from our strong technical engine. Hence, the credit officer just needs to plug in the necessary information about the customer and then price the loan. We supply a flexible pricing tool for various credits (for all segments including SME's, corporate credit customers etc.) to simplify the credit operation for the credit officer.
Risk Adjusted Rate on Economic Capital (RAROC) is a very critical and useful performance measure. By using RAROC various credits, branches even customers can be compared in terms of both risk and return aspects. It may be one of the most crucial standard measures for comparison, risk budgeting and the like. Our software supplies RAROC figure even at individual customer level.