1 / 5

Credit Risk Assessment Framework

Credit Risk Assessment Framework. Credit Risk Assessment Framework. A consistent, transparent and dynamic approach driven by LME Clear’s credit judgement to 1) Assess, 2) Quantify and 3) Monitor, the level of credit risk LMEC is materially exposed to from each counterparty it deals with.

bartsch
Download Presentation

Credit Risk Assessment Framework

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Credit Risk Assessment Framework

  2. Credit Risk Assessment Framework A consistent, transparent and dynamic approach driven by LME Clear’s credit judgement to 1) Assess, 2) Quantify and 3) Monitor, the level of credit risk LMEC is materially exposed to from each counterparty it deals with. The assessment framework will drive member limit setting, collateral and investment decisions, with the goal to prevent credit loss.

  3. Credit Scorecard Model Process Credit Rating Credit Score

  4. Credit Analyst Review Rationalise counterparty risk against relationship type Identify Counterparty Specific Key Risks Justify model factors and confirm credit rating from scorecard Provides a full audit trail of the credit assessment process and decision • Exposure - Rationalise and Recommendation. • Assessment of key Risks – Likelihood and Impact rating for each identified risk, EWI Monitoring • Rating Profile – Rating history and trend. • LME Relationship – Strategy and Products. • Group/Counterparty Description – Legal Structure. • Sector Exposure – Sector risks. • Peer Group – Relative analysis , business position. • WWR – Identify wrong way risk it present. Key Risks/Ratings/Relationship Strategy Counterparty Profile • Forecast financials under counterparty specific stress - Assess vulnerability to firm specific risks. • Forecast financials under macro stress - Assess vulnerability to macro risks. • Profitability/ Cash Generation – Assessment of financials. • Asset Quality – Assessment of asset quality • Capitalisation/Liquidity – Assessment of capital and liquidity position. Financial Analysis Sensitivity/Stress Scenario Final Credit Rating/LME Credit Rating Bands

  5. Early Warning Indicators (EWI) • Identify and monitor credit deterioration for both public and private counterparties based on real time market information Market Indicators • Data sourced from Moody’s KMV (EDF), Markit (CDS), Bloomberg (Other Market Data), External Rating Agencies Internal EWI Model Calibration • Determine the appropriateness of each market instrument as a measure of credit quality. • Calibrate to our portfolio characteristics and ensure effectiveness. • Set EWI triggers to generate the optimal level of warnings with the least amount of “false alarms” • Credit Cycle Time Series Analysis • Optimisation • Sensitivity Analysis

More Related