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Credit risk forecasting modelling and projections under IFRS 9
Journal of Risk Management in Financial Institutions,
12
(1),
79-101
(2018)
Abstract
This paper presents the formal relations of a business planning model for credit risk consistent with the new International Financial Reporting Standard 9 (IFRS 9) accounting principles and the European Banking Authority (EBA) regulatory approach to stress testing. The model defines a flexible framework that helps to develop sound projections covering all the relevant figures related to the credit cycle: performing and non-performing exposures in the balance sheet, impairment adjustments of P&L and stock of provisions. The differences adopted in our model compared to the EBA methodology for the last supervisory stress test provide more flexibility, enabling the model to fit actual bank operations more closely, and allowing business planners to manage all kinds of dynamics and market conditions.
Keywords: business planning; credit risk; expected credit loss; IFRS 9; loan loss provisions; stress testing; 2018 EU-wide stress test; EBA stress test
The full article is available to subscribers to the journal.
Author's Biography
Giuseppe Montesi is an adjunct professor of bank financial statement analysis at the University of Siena, School of Economics and Management. He is a consultant and professional trainer in the banking industry. Giuseppe’s fields of interest and research include corporate finance, credit risk analysis, business modelling, bank capital adequacy and planning, stress testing, and banking regulation and supervision. His recent publications have focused on the development of risk analysis techniques based on stochastic simulation methods for assessing bank financial fragility and corporation risk of default.
Giovanni Papiro is an adjunct professor of bank capital raising at the University of Siena, School of Economics and Management. Giovanni is a professional with over 25 years of experience in risk management, capital and business planning within major Italian banking groups. His fields of interest and research include corporate finance, credit risk analysis, business modelling, bank capital adequacy and planning, stress testing, and banking regulation and supervision. His recent publications have focused on the development of risk analysis techniques based on stochastic simulation methods for assessing bank financial fragility and corporation risk of default.
Laura Ugolini has a master’s degree in finance from the University of Siena. She is currently a financial risk analyst at Valuecube, Siena, Italy.
Giuseppe Ammendola has a master’s degree in banking management from the University of Siena. He is currently a financial risk analyst at Valuecube, Siena, Italy.
Citation
Montesi, Giuseppe, Papiro, Giovanni, Ugolini, Laura and Ammendola, Giuseppe (2018, December 1). Credit risk forecasting modelling and projections under IFRS 9. In the Journal of Risk Management in Financial Institutions, Volume 12, Issue 1. https://doi.org/10.69554/JIYD8135.
© Henry Stewart
Publications LLP
Publications LLP