Pragmatic PD Modeling October 2013 Dean A DeVos SVP, Head of - - PowerPoint PPT Presentation

Revised: June 2010

Pragmatic PD Modeling

Dean A DeVos SVP, Head of Risk Capabilities SVP, Non-Traded Market Risk Dean.DeVos@GreatWesternBank.com

October 2013

Great Western Bank

*Source: FDIC 06/30/2012

• Nearly 200 Great Western Bank locations
• $9.5 billion Assets
• 7th Largest agribusiness lender in the US*

Our Parent Company

• NAB is an international financial services

company headquartered in Melbourne, Australia

• $750 billion in assets, in US dollars
• AA-/Aa2 credit rating (S&P and Moody's, respectively)
• Long history of over 150 years in financial services
• More than 12 million customers, 43,000 employees and over

480,000 shareholders

National Australia Bank (NAB)

Our Parent Company

5

STAR

Why

• Granular
• GWB desires to increase the existing scale of 1-8 to 1-23, 98

and 99

• Over 80% of GWB Credits are currently rated a 3 or 4
• Regulators
• Requirement to be aligned with NAB BASEL II Advance

environment (APRA)

• Future Stress Testing requirements
• Objective
• GWB wants a risk rating system that is systematic and

more objective

6

What - New Master Rating Scale

• Ratings1-20

– Good acceptable credits

• Ratings 21-23

– Possible Watch credits – Banker asked the question “Why is this customer not on the Watch List”

• Ratings 98 and 99 “BASEL Default”

– Substandard (Accrual), CRS Rating of 98

– Substandard (Non-Accrual), CRS Rating of 99 – Doubtful (Non-Accrual), CRS Rating of 99 – Loss (Non-Accrual), , CRS Rating of 99

• Expert judgment prevails for CRS Rating

– The Banker owns the Risk Rating – Expectations are not changing

7

8

New CRS Grade Mapping to Moody's Implied Mapping to S&P Mapping to Fitch 1 Aaa, Aa1 AAA, AA+ AAA, AA+ 2 Aa2, Aa3 AA, AA- AA, AA- 3 A1 A+ A+ 4 A2 A A 5 A3 A- A- 6 A3, Baa1 A-, BBB+ A-, BBB+ 7 Baa1 BBB+ BBB+ 8 Baa1, Baa2 BBB+, BBB BBB+, BBB 9 Baa2 BBB BBB 10 Baa3 BBB- BBB- 11 Baa3 BBB- BBB- 12 Ba1 BB+ BB+ 13 Ba1 BB+ BB+ 14 Ba1, Ba2 BB+, BB BB+, BB 15 Ba2 BB BB 16 Ba2, Ba3 BB, BB- BB, BB- 17 Ba3 BB- BB- 18 Ba3, B1 BB-, B+ BB-, B+ 19 B1 B+ B+ 20 B1, B2 B+, B B+, B 21 B2, B3 B, B- B, B- 22 B3 B- B- 23 B3, Caa-C B-, CCC+, CCC, CCC- B-, CCC+, CCC, CCC- 98 D D D 99 D D D

What - continued

Revised: June 2010

9

What - continued

GWB Data Warehouse

Banker selects model and spreading tool Banker Inputs (via Moody’s or Web Equity)

Data

Jack Henry Silver Lake

NAB Reporting GWB Reporting

Experian Risk Engine PD Models (NAB)

1.Q&A Small Business 2.Q&A Agri 3.SME 4.MM 5.Agri – Large 6.CRE – Developer 7.CRE – Investor 8.Sovereign Return Risk Rating (1 to 23, 98 / 99)

Spreading / Input Tools

Moody’s Customer Information

• Qualitative
• Quantitative

WebEquity Customer Information

• Qualitative
• Quantitative

Data Risk Rating

Great Links

Data Risk Rating Data Data

10

How

Project Control Board

CEO -GWB, Chairman CRO -GWB CFO -GWB SVP -GWB EVP -NAB CRO –NAB Business Banking EVP -NAB SVP -NAB

Sponsors

CRO –GWB EVP -NAB

GWB Working Group NAB Working Group

GWB Stakeholders NAB Stakeholder

How - continued

When – Multi Year Plan

PD Models

CMDB EAD

LGD Models

FY 13 FY 14 FY 15

12

The next steps of credit modeling is LGD (Loss Given Default Models) Collection of collateral data on Defaulted customers is required for LGD.

Questions

Revised: June 2010

Thank You!

Dean A DeVos SVP, Head of Risk Capabilities SVP, Non-Traded Market Risk Dean.DeVos@GreatWesternBank.com