ECL Methodology
For a Commercial Bank in Jordan
CLIENT & PROBLEM STATEMENT
- A large Commercial Bank in Jordan.
- The Portfolio comprises of Cards, Mortgage, Retail, Vehicle and SME.
- The Company wanted to validate and create the ECL methodology using macroeconomic PD modelling, incremental PD modelling & LGD modelling for retail credit portfolio.
APPROACH
- Macroeconomic factors like GDP Growth, Interest Rate, Inflation, Real Estate Index and Unemployment for the prediction of PD.
- We performed moratorium scaling of the PDs for some segments, due to the Moratorium period in COVID the PDs were reducing after a specific period even though some of macro values were coming down which is affecting (reducing) the correlation between PD and Macroeconomic Variables.
- We projected macro-factors using economist forecasts and statistical modeling.
- Using the model and macro-economic projections, we projected forward looking segment wise defaults and PIT PDs.
SOLUTION & OUTPUT
- We provided the projected quarterly PDs and annualized PDs.
- Project PDs product-wise and Rating/Bucket-wise.
- Factored U-shaped and V-shaped recovery over next five years.
