FSRM holds Credit Risk Management and ECL workshop

SGV’s FSRM group recently concluded a Credit Risk Management Framework and Expected Credit Loss Methodology Overview seminar at the Makati Shangri-la. More than 50 participants representing banks and other financial institutions as well as regulatory and government agencies participated the event, who were welcomed by FSO Leader Vicky Lee-Salas (VLS) and FSRM Leader Ian Lauron (CGL).

The event was a combination of a workshop and illustrative case studies around Bangko Sentral ng Pilipinas (BSP) Circular 855: Guidelines on Sound Credit Risk Management Practices and an overview of the expected credit loss (ECL) methodology based on Basel, BSP and International Financial Reporting Standard (IFRS) 9 frameworks.

FSRM Manager Belvin Armenion covered the risk-based provisioning methodology with emphasis on the definition of default, application of the appropriate approach given the segment covered, and shift from the prescribed rules to parameter drivers (probability of default or PD, loss-given default of LGD, exposure at default or EAD, cyclical adjustments and overlay management process). Belvin discussed the business, financial and capital planning impact of Circular 855, Basel, IFRS and other authoritative standards. He also tackled the data challenges and MIS reporting needed for the Board and Senior Management, issues that go beyond compliance like the independent credit review function and organization implications, and the industry roadmap and implementation timeline for the move to expected credit methodology and enhancing credit risk management. Several emerging topics were also discussed during the seminar.

FSRM Manager Christian Edmund Chua discussed customer segmentation and analytics, with application in household segmentation using cluster analysis. He also discussed ECL applications for project finance and how these can be aided by FinTech developments. CGL provided an illustration of the value chain and corridor assessment approaches applicable for the agricultural sector and the “middle market” or small and medium-sized enterprises (SMEs) segment and use of network analysis to adjust PDs for conglomerates and concentrated exposures. He closed the session with an overview of the shift from parameter to coding drivers especially with the rise of artificial intelligence and algorithmic calculations.