Dimension 1: Basel II Implementation Approach

The Basel Committee makes a fundamental distinction between a Standardized Approach to Credit Risk and InternalRatings-Based (IRB) approach. Within the IRB approach, another distinction is made between a foundation and an advanced approach. With its graphic modeling environment, the Credit Risk Rating Platform is perfectly suited for the implementation, improvement and maintenance of rating models for both IRB approaches. The complexity of computation and decision logic is not subject to any limitations and they can still be structured and represented to the rating experts (without any programming skills) in a clear, highly-intuitive way.

Dimension 2: Risk Components

The following risk components are specified by Basel II for determining credit risks:
Probability of Default (PD)
Loss Given Default (LGD)
Exposure At Default (EAD)
Effective Maturity (M)

While the standardized approach relies solely on external credit assessments, the IRB approach also employs internal ratings systems. With the foundation IRB approach, internal rating models to estimate the Probability of Default (PD) are used, and with the advanced IRB approach, banks must also use internal rating systems for the determination of all other risk parameters as well.

Dimension 3: Dimension 3: Portfolios

To improve selectivity in the determination of risk parameters, financial institutions often utilize portfolio-specific rating models for specific classes of lending. The following types of portfolios have already been implemented in customer projects using the Credit Risk Rating Platform:

Corporates, Retail, Sovereigns, Financial Institutions, Project Lending, Specialized Lending, Real Estate

Dimension 4: Assessment Methodology

Scoring models or "scorecards" and simulations are frequently-used assessment methods for Basel II risk quantification. A number of input factors are included for scorecards, with a distinction made between qualitative and quantitative factors. All input factors are assessed and assinged scoring points. Partial scores are aggregated into a total score that corresponds to a rating class and a probability of default. Simulations are also performed on special portfolios, such as properties and project lending, that are meant to simulate a range of developments on the basis of time axes and random numbers. In comparison to scorecards, these simulations feature greater complexity and computational intensity.

Dimension 5: Risk Factors

Basel II rating systems are based on quantitative as well as quantitative factors. Quantitative factors are for example obligor data and financial ratios based on financial statements. Qualitative factors (e.g. management quality, positioning in market) are assessed by Credit Analysts.