Risk management, data quality, and NPL management: CRIF among the protagonists of “Risk And Supervision 2017”

At the XVII edition of the ABI event, held in Rome on June 14-15, CRIF experts gave presentations looking in detail at highly topical issues for the credit industry through analytical evidence and business cases.

Benchmarking: from validation requirements to RWA and expected loss optimization engine

Nowadays, the Chief Risk Officer (CRO) plays a key role in guiding the strategic choices of banks. Contextual needs, as well as the many regulatory guidelines (EBA Guidelines, Circular No. 285) drive the evolution of the role of Risk Manager as advisor to the bank's senior management, supporting first of all analysis of the consequences of methodological choices and of risk appetite. Starting from this point, Giorgio Costantino, Executive Director Management Consulting & Solutions at CRIF Credit Solutions, highlighted how benchmarking can become an effective management tool to govern credit processes and the economic impacts and effects on capital. Marco Macellari, Senior Manager Management Consulting & Solutions at CRIF Credit Solutions, followed by presenting some business cases on how it is possible to optimize RWA and reduce provisions for the purposes of IFRS 9 through specific models which challenge the bank's internal methodology, also benefiting from the contribution of external data.

Data quality and credit sustainability: the NPE Loan Data Tape to support governance

The banking industry must adopt a paradigm shift in order to deal with and overcome the challenges of the economic and regulatory framework. The path to be taken, explained Fabrizio Arboresi, Director Italy Finance at CRIF Credit Solutions, must cross three crucial stages. The starting point must be the structuring of a Data Quality process and the construction of a robust and exhaustive Information Framework, enabling, on the one hand, compliance with regulatory requirements and, on the other, all-round support of credit management. The second obligatory stage is certainly the Loan Data Tape (LDT), or in other words the database with the financial statement and management information relating to Non-Performing Exposures, collected as information views which respond, among other things, to the signposting requests from the supervisory body and to the needs of third parties regarding special transactions. Finally, we mustn't forget a control and reporting system which gives full governance of the credit management engine through the production of KPIs, management dashboards and operational reporting.

Optimum NPL management

Alberto Sondri, Director of CRIF Servicing, took part in the closing round table at the event, putting forward CRIF's point of view on how best to approach the management of NPL portfolios. A sustainable and virtuous model for the resolution of the problem of bad debt, explained Sondri, must aim for a clever mix of the use of the three levers that the bank has at its disposal: internal management, sale, and outsourcing. NPL volumes, 4 times higher than 7 years ago, are stabilizing, and the new rates of exposures becoming non-performing seem to be in line with pre-crisis levels. It seems highly probable that banks are dealing with an exceptional situation, which hopefully should not reoccur to the same extent in the medium term. Therefore, the choice to resize the internal workout teams to manage the current NPL peak could prove to be risky, with not inconsiderable future impacts on cost to income ratios. From here comes the need to deal with the problem and its extraordinary nature and to leverage on sales and outsourcing. In particular outsourcing, i.e. using an industrial partner, is an optimum choice for the institution when sales cannot be concluded at a satisfactory price, relying on variable-cost services, highly-specialized resources and distinctive assets such as methodologies and information which allow optimum collection performance.

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