The Probability of Default

Analyser TM

Your first step to measuring credit risk: accurately, efficiently and consistently.
How does your credit risk department measure up?
Banks and other credit providers need to have their own Probability of Default
(PD) models. A PD model provides quick analysis of the creditworthiness of an
individual based on their personal demographic details and other drivers of risk,
including all debt commitment they might be having. The resulting PD and credit
score will then be used, alongside other factors, as a benchmark to approve or
disapprove a loan application and to calculate expected loss for Regulatory
and Economic Capital.

Introducing the PD Analyser

A PD model is not a one-size-fits all because each bank has its own mix of
clientele. One cannot buy a PD model on the market because it will be irrelevant
to your circumstances. The CTS team will build a customised PD Analyser
based on your organisations strategy and requirements, taking into context
your lending standards and business practices. The analyser effectively captures
changes in performance by analysing the underlying quality at all stages of
accounts, i.e, origination and seasoning of the accounts as well as changes in
the economic and credit cycles.

The PD Analyser: How it fits in.

Group Risk

Credit Risk Models:

Market Risk Models:

PD, LGD, EAD

VaR Calculator

Internal Credit Rating

(from PD and credit score)

Moodys/S&P/Fitch

Risk Weights
(for provisioning)

Credit Risk
EL = PD x LGD x EAD

Market Risk
EL = VaR

Bankwide EL = S ELs

RWA Calculations
RWA UL = K x 12.5 x EAD;
K = K(PD, LGD, M, R)
Tier 1 & 2 Capital/Ratios

Operational Risk
Models:
Historical & Monte
Carlo Simulations

Operational Risk
EL (IRBA)

Benefits of having an internal Probability of Default model

1. A PD model is your first and major step in implementing Basel II. It will enable you to create the necessary internal
ratings scale and map them onto the global ratings (Moodys, S&P, Fitch) for Risk-Weighted Assets calculations.
2. A PD model promotes risk-based lending and takes your entire loan portfolio to a new level. A level that uses simple
risk management tools to better identify, quantify, monitor and manage each risk component.
3. A PD model is your first line of defence and the main tool that will help you better monitor and manage your loan
portfolio. Since loans make up the largest portion of your asset base -- any measures that reduce loan default risk will
have a positive impact on over-all solvency.
4. A PD model will help you to process loan applications in just a few minuteswith results that are far superior
to previous evaluation methods. Exception approvals may take a little longer but are still much quicker than
conventional subjective decision-making methods.
5. A PD model increases your profitability in two waysyou either increase income or decrease expenses by:
Cutting costs by automating processes.
Growing loan income as you expand your loan portfolio to include a larger segment of your clientele base (from
both ends of the risk spectrum).
Decrease expenses through increased efficiency and productivity, reduced allowance for loan loss requirements,
and better management and control of default risk (charge-offs).
If you do choose to issue higher risk loans, the increased income should more than offset any increase in
charge-offs or allowance for loan loss transfers.

AvantGarde Areas of Expertise

in Risk Modelling

Methodology
The table below shows the estimated project timetable.

Internal Probability of Default Modelling (Retail,

SMEs, Corporate)
Internal Credit Rating Modelling (Retail, SMEs,
Corporate)

Activity

Estimated Time
(30 working days)

Terms of Reference

2 days

Loss Given Default (LGD)(Retail, SMEs, Corporate)

Formulate Data Request

2 days (after TOR meeting)

Exposure at Default (EAD)(Retail, SMEs, Corporate)

Data Extraction by your institution*

3 days (after data request)

Market Risk Simulator modelling (VaR Simulator)

Data Cleansing Exercise

2 days (after data extraction)

Operational Risk Charge (Capital) Modelling

Model Building

5 days

Portfolio & Bank-wide Expected Loss Modelling

Findings, Feedback & Progress Meeting

1 day

Model Validation & Testing with real data

5 days (after progress meeting)

Capital Allocation (Provisioning) Model (for

Regulatory Capital & Economic Capital)

Independent Review and approval

2 days

Risk Weighted Assets Calculator

Model Documentation

5 days

Tier 1 & 2 Capital/Ratio Calculator

Technical Review meeting & Model sign-off

1 day

Model Implementation (going live)

2 days

Internal Capital Adequacy Assessment Process

(ICAAP)

Contact Us:
Physical Address: Pro Space Center, 18A Olu Holloway
(formerly Temple) Road, Ikoyi, Lagos, Nigeria
Victor Nkomo: victor@avantgardenig.com
(NG) +234 81 0323 1613 | (SA) +27 11 655 7225
Funmi Tytler:
funmi@avantgardenig.com | +234 80 2448 4963
Adebola Akapo:
Adebola@avantgardenig.com | +234 80 9179 9577

www.avantgardenig.com
Our Partners

Systems & Solutions

Nigeria Limited

Profile Summary
AvantGarde Systems & Solutions Nigeria Ltd
After many years of successful Treasury, Risk Management consulting and SAP End to End
implementations in Africa and the USA , the founders of AvantGarde Systems and Solutions Ltd saw an
opportunity create a local consulting and Technological company in West Africa with fresh approach
and tested delivery models. AvantGarde Systems and Solutions is the child-company of CTS Pty Ltd in
South Africa and Gabod Consulting Group LLC in USA.
Our differentiators:
The experience we bring from work in the rest of Africa and the USA,
availability of in-house SAP skills,
encouraging entrepreneurial flair (but with accountability),
development of local talent through training and mentorship and a drive for innovation.

Our Services
Transactional Banking
Analytical Banking
SAP Basel II/III for Banking
Treasury, Cash and Financial Risk Management
Governance, Risk and Compliance (GRC)
Big Data, Business Intelligence, Analytics
In-Memory Computing (SAP Hana) & Cloud Solutions

Other Available Training

Fundamentals of Corporate Treasury Management for Non-Treasury Managers (2 Days)
Global Treasury Management Controlling your Cash and Risk (3 days)
Bank Treasury Best Practices (4 Days)
Basel II / III Retail Credit Risk Modeling (3 days)
Tax Revenue Forecasting, Modelling and Revenue Analysis (3 Days)
SAP Treasury and Risk Management (5 Days)
SAP Cash Management (2 Days)

AvantGarde Systems & Solutions

www.avantgardenig.com