1. ‚ 1 The New Capital Adequacy Framework for Credit Risk Possible Impact on the Austrian Banking Sector and Banking Supervision Franz Partsch Credit Division Oesterreichische Nationalbank Vienna, 1 February, 2001

2. ‚ 2 Overview  Empirical analysis: sample 37 larger Austrian banks  Magnitude and variability of credit risk Data sources: annual bank supervision audit report, monthly statistical returns  Portfolio structure Data sources: central credit register, rating data, sector default data  Conclusions  "Road map" for the implementation of the new Accord  based on empirical evidence and judgement Disclaimer:available data do not come from credit risk management sources and can only serve as more or less suitable proxies for credit risk

3. ‚ 3 Watch loans  Extreme values  Outliers  Median BoxInterquartile Range  Highest Non-Outlier Lowest Non-Outlier

4. ‚ 4 Doubtful loans

5. ‚ 5 Loss loans

6. ‚ 6 Value adjustments to operating result Value adjustments of claims and allocations to provisions for contingent claims and for credit risks

7. ‚ 7 Value adjustments to loans

8. ‚ 8 Value adjustments to assets

9. ‚ 9 Conclusions (I)  Credit risk  is by no means immaterial for the average large Austrian bank  has been, on average, fairly stable over the last years  shows significant and increasing differences between banks

10. ‚ 10 Austrian Central Credit Register  Description  Register of all borrowers from financial institutions (banks, leasing companies, insurance companies) with more than ATS 5m in total loans outstanding or credit lines  Purpose  service for reporting institutions  source of information for supervisory authorities  Content  structural data on borrowers (name, address, legal form etc.)  monthly reporting by types of loans  quality check and aggregation  regular and ad-hoc information on total indebtedness of borrowers

11. ‚ 11 Loans by borrower type (I)

12. ‚ 12 Loans by borrower type (II)

13. ‚ 13 Loans by country type

14. ‚ 14 Country Risk Weights (Rating agency)

15. ‚ 15 Country Risk Weights (Export Credit Agency)

16. ‚ 16 Hypothetical default rates (corporate sector risk) Payment incidence: reported non-payment of commercial or financial debt

17. ‚ 17 Corporate sector risk distributions Payment incidence

18. ‚ 18 Corporate sector risk distributions Bankruptcy

19. ‚ 19 Borrower number by borrower type

20. ‚ 20 Effective number of loans

21. ‚ 21 Hypothetical Granularity Scaling Factor

22. ‚ 22 Conclusions (II)  Credit risk  is by no means immaterial for the average Austrian large bank  has been, on average, fairly stable over the last years  shows significant and increasing differences between banks  Portfolio structure  large banks have significant domestic and foreign lending in all exposure classes (corporates, public, financial)  country risk is concentrated in highly rated areas, but lending to countries with low ratings is material for some banks  corporate exposures are concentrated in medium risk sectors, but lending to corporates in high risk sectors is material for some banks  the number of borrowers in some exposure classes (public, financial) is fairly small and (lack of) granularity will be an issue for some banks

23. ‚ 23 "Road map" for Basel II  Data  own time series on ratings, defaults, losses  data pooling  mapping to external data  check against other data sources  Estimation of risk parameters  robust methods using relatively few data  transparency for tests by risk managers, supervisors and market participants First: sound rating system and risk management framework Then: