|
Default Forecast Report:
Bank Finance Subsidiary
|
| SITUATION:
|
Senior vice president, bank finance division
|
| CRITICAL ISSUES:
|
- Lender needs to develop a more granular and accurate risk-rating system.
- Lender needs to prepare for Basel II compliance.
- The high operating costs of rating small-ticket loans need to be reduced.
|
| REASONS:
|
- Lender is the finance division of a major commercial bank.
- Senior vice president needs to proactively improve the risk-rating system in reaction to parent and regulatory demands.
|
| PAYNET:
|
- We developed a default forecast report.
- We segmented the risk-rating system by obligor and facility types.
- We compared the lender’s current risk-rating system with the new system.
|
| RESULT:
|
- The division’s cost of capital allocated by parent was lowered.
- Productivity of the risk-rating function was improved by 75 percent per year.
- The structured statistical process yields better results (see chart).
|
