Risk Ratings and CRE

Challenge: Risk ratings are the cornerstone of every credit risk application. Most banks are challenged with developing dual risk ratings scales that can effectively parse out borrower (the probability of default) and collateral (the loss given default) risks. Banks also need to have a system that produces consistent, well distributed, differentiated, and transparent risk ratings. It is often the case that only very limited to no data is available to do this, especially in the case of low default portfolios like Commercial Real Estate

Solution: ERisk provides a comprehensive solution to the development and validation of risk ratings systems. We produce scorecards for C&I, CRE and Retail. In doing so, we develop point in time (PIT) and through the cycle (TTC) estimates of PD and LGD and adjust for seasonality. In addition to benchmark data, we have a proprietary “fundamental” CRE model which requires no default data to run. It stress tests the drivers of LTV and DSC, including cap rates, rental rates, occupancy rates and interest rates

Benefits: A risk rating project will allow you to make sure the inputs that go into credit risk applications like ALLL, Economic Capital, Pricing and Profitability are correct.

For more information, please contact us.

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