Risk drivers and rating criteria
On this provision: 1 EBA Q&A
In the process of selecting risk drivers and rating criteria, institutions should consider a broad set of information relevant to the type of exposures covered by the rating system. Potential risk drivers analysed by institutions should include in particular the following:
obligor characteristics, including sector and geographic location for corporates;
financial information, including financial statements or income statements;
trend information, including growing or shrinking sales or profit margin;
behavioural information, including delinquency and the use of credit facilities.
Institutions should ensure that for the purpose of selecting risk drivers and rating criteria the relevant experts from business areas of the institution are consulted with respect to the business rationale and risk contribution of the considered risk drivers and rating criteria.
Institutions should ensure that the decrease of reliability of information over time, for instance of information on obligor characteristics obtained at the time of the loan origination, is appropriately reflected in the PD estimation. Institutions should also ensure that the model estimates the proper level of risk with respect to all relevant, currently available and most up-to-date information and that an adequate MoC is applied where a higher degree of uncertainty exists due to the lack of up-to-date information. In particular the model or the assignment process should provide for an adequate and conservative adjustment in both of the following situations:
in accordance with Article 24(1)(g) of the RTS on IRB assessment methodology, in case of financial statements older than 24 months where information stemming from these financial statements is a relevant risk driver;
in the case of credit bureau information that is older than 24 months, if still relevant at that point in time, where credit bureau information is a relevant risk driver.
Institutions should use the risk drivers and rating criteria consistently, in particular with respect to the considered time horizon, in model development, model calibration and model application.
Where there is a significant proportion of customers using multiple facilities of the same type within a considered retail rating system institutions should analyse the level of risk of such customers compared with customers carrying only one facility of the relevant type and, where necessary, reflect the difference in the level of risk in the model through appropriate risk drivers.