Analytiques consultance et Formation

Poor pricing of credit risk has cost the banking industry hundreds of billions of dollars in recent months, a stark reminder that pricing is a credit issue.

The new Basel II framework, now a reality, provides banks with a best practice tool to align pricing, capital and risk, and is therefore essential knowledge not only for compliance staff but for all those involved in the utilisation of the bank’s capital and pricing such as senior managers, credit staff, transactors and relationship managers.

The course cuts through the maize of provisions contained in the new Basel II Accord to focus on the practical implications of the new framework on pricing, deal structuring, profitability and ultimately, competitiveness.

Jean-Charles spent seven years in the Credit, Corporate and Investment Banking divisions of Citibank, including three years in the World Corporation Group in London as Vice-President managing a portfolio of UK multinationals on a worldwide basis.

He subsequently worked as Director of Project Finance and Acquisition Financing for Security Pacific in Frankfurt before returning to South Africa in 1993 as Head of Corporate Banking (Senior Vice-President) for the local operation of ABN-Amro.

Jean-Charles has broad credit experience gained over 20 years as credit analyst, credit officer and credit committee member at Citibank and ABN-Amro, covering Corporate Banking, Financial Institutions, Structured finance, Leveraged transactions, Asset securitisation and Derivatives.

He provides in house training to international financial institutions such as Barclays, CIBC, Royal Bank of Scotland, Merrill Lynch and West LB and runs public courses in the UK, Honk Kong, South Africa, Singapore and the Middle East.

He also assists banks with the hands on implementation of the Basel II Accord in a consulting capacity.

He holds an LLB and an LLM in Tax Law from the University of Liège in Belgium.

• Auditors
• Credit analysts
• Credit committee members
• Risk management staff
• Internal auditors
• Operations managers
• Corporate bankers
• Relationship managers
• Bank regulators
• Bank consultants
• Central banks’ supervisory staff
• Structured finance transactors
• Analysts of stock broking firms
• Financial institution units’ staff

By attending this course, delegates will gain an understanding of:

• The objectives of the Basel II Accord and how it seeks to achieve them
• The concept of economic capital and how it compares with/differs from regulatory capital and capital as reflected on the balance sheet
• The concept of RAROC/RORAC and its impact on pricing, business decisions and (active) credit portfolio management
• The concepts of Expected and Unexpected losses
• How EL and UL relate to capital and provisions
• Internal credit ratings and their purpose
• The extent to which the concept of economic capital is incorporated into the new Basel II Accord and how it is measured
• The three pillars approach and how the pillars interact
• The three capital allocation approaches
• The concepts and requirements for credit risk and operational risk
• How capital requirements are calculated
• PD, LGD, EAD, M and the Risk Weight Function and how they apply to the various business segments: corporates, sovereigns, banks, retail and high risk exposures
• The practical implications of the new Accord in terms of pricing and profitability of business lines and individual transactions
• The 3 operational risk measurement methods
• Credit risk mitigation and how it impacts capital requirements and returns.
• The Accord’s strengths and weaknesses and why its worldwide acceptance is an issue

• The Basel I Accord
   • Background and scope
   • Mechanics-definition of capital, provisions & risk weights
   • Risk weight, Credit Conversion Factors and Return On Equity.
   • Success and limitations.

• Credit Risk management practices at best practice banks.
   • Internal Credit Ratings
   • Economic capital
   • Expected and Unexpected losses
   • Rorac /Raroc concepts
   • Pricing as a credit issue
   • Credit models: KMV Moody’s, CreditRisk+ and CreditMetrics.
   • Credit portfolio management.

• Objectives and how the Accord seeks to achieve them
• Credit and Operational Risk vs. other risks
• The three pillars system
   • The three approaches to capital allocation
   • Bank supervision
   • Market discipline

• Definition of Capital and Provisions

• Analysis of the three Approaches: Standardised, Foundation and Advanced
• The Risk Weight Function, PD, LGD and EAD.
   • Requirements for PD, LGD and EAD calculation
   • Different methods of PD calculation- Actuarial/Pooled Data/Merton
• Rules for Sovereigns, Banks and Corporates
• Rules for Retail
• Practical implications for business lines, capital allocation & pricing of transactions
   • Case studies- calculation of capital requirements, pricing and returns.

• The use of guarantees, credit derivatives and collateral under the different approaches
• What has changed? Impact on deal structuring
• Case studies: Structuring deals to achieve capital relief and maximize returns

• Specialised lending sub-classes
• Project finance
• Object finance
• Commodities finance
• Income producing real estate
• High volatility commercial real estate
• Rules for Equity Exposures
• Rules for purchased receivables
• Rules for Securitisations

• Add-ons, VaR and IMM methods
Case studies: capital requirements for OTC derivatives, including credit derivatives.

• Banking book and trading book.
• Changes to the 1996 Amendment for Market Risk
• The Standardised Measurement Method and VaR method

• Basel II requirements – the three pillars
• What is Operational Risk
• The three approaches
• Basel II requirements for the Standardised Approach
• Basel II requirements for the AMA (Advanced Measurement Approach)
• Expected and Unexpected losses
• International operational risk failures
• Operational risk events – discussion
• The role of Key risk scenarios
• Link between Operational risk and Economic capital
• Why is Economic Capital important
• How can the level of capital be influenced?
• Tests for satisfying the Regulator

Case studies