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

Pragmatic PD Modeling October 2013 Dean A DeVos SVP, Head of Risk Capabilities SVP, Non-Traded Market Risk Dean.DeVos@GreatWesternBank.com Revised: June 2010

Great Western Bank • Nearly 200 Great Western Bank locations • $9.5 billion Assets • 7 th Largest agribusiness lender in the US* *Source: FDIC 06/30/2012

Our Parent Company National Australia Bank (NAB) • 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

Our Parent Company

STAR 5

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

What - continued New CRS Mapping to Implied Mapping to S&P Mapping to Fitch Grade Moody's 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 8

What - continued 9 Revised: June 2010

How Spreading / Input Experian Risk Data Tools Engine Moody’s Customer Information Banker selects PD Models (NAB) Risk Rating -Qualitative model and 1.Q&A Small Business spreading tool -Quantitative 2.Q&A Agri Data 3.SME Banker Inputs (via 4.MM Moody’s or Web Data WebEquity Equity) 5.Agri – Large Customer Information 6.CRE – Developer -Qualitative 7.CRE – Investor -Quantitative 8.Sovereign Risk Rating Return Risk Rating (1 to 23, 98 / 99) Data Jack Henry GWB Data Silver Lake Warehouse Data Great Links GWB Reporting 10 NAB Reporting

How - continued Project Control Board EVP -NAB CEO -GWB, Chairman CRO – NAB Business Banking CRO -GWB EVP -NAB CFO -GWB SVP -NAB SVP -GWB Sponsors CRO – GWB EVP -NAB GWB Working Group NAB Working Group GWB Stakeholders NAB Stakeholder

When – Multi Year Plan FY 15 FY 13 FY 14 CMDB PD LGD Models Models EAD The next steps of credit modeling is LGD ( Loss Given Default Models) Collection of collateral data on Defaulted customers is required for LGD. 12

Questions

Thank You! Dean A DeVos SVP, Head of Risk Capabilities SVP, Non-Traded Market Risk Dean.DeVos@GreatWesternBank.com Revised: June 2010