NBK

Risk management, Basel II

Development of rating / scoring systems and validation (2005-)
ITCB has almost 10 years of experience with the development of different rating and scoring systems according to the international best practice and Basel requirements. During these years, a large variety of rating systems were developed by our experts:

• rating and scoring systems for portfolios with large number of customers, e.g. private individuals, small corporate and also for specific segments or segments with few number of customers (and / or) low default rates, e.g. municipalities, private entrepreneurs, large corporate, project finance,
• application scoring system and behavioural modules for private individuals and small corporate segments,
• scoring systems developed using statistical methods and scoring systems developed with extensive expert judgement.

Besides developments, ITCB also performed several independent validation scoring / rating system validation using the validation framework of the institution and our statistical validation toolkit developed based on international best practice. Our experts gained confidence in each step of the development process of rating / scoring systems from the compilation of the modelling database to the specification of the implementation into the IT systems of the institution.

Development of risk parameter (PD, LGD, CCF) estimation (2005-)
Within the frame of Basel II projects, ITCB has elaborated several risk parameter estimation models for IRB and ICAAP capital calculation purposes for. PD models were generally built on rating model results based on calibration techniques described by international best practices both for portfolios with high and low default rates. Our LGD modelling experiences are covering all the steps of typical LGD estimation exercises starting from the compilation of the LGD database from different data sources of exposures, collaterals and cash flow movements connected to the deals; trough the development of different parts of the LGD (cure rate, collateral recovery, etc.) to the specification of the implementation of regular LGD calculation into the IT systems of the institutions. Our experts collected relevant experiences with different data structures and collection systems which enables ITCB to develop LGD models in an effective manner.

Basel II project management (2003- )
ITCB’s Basel II project management activity consists of the supporting of the Basel II IRB projects in flexible way. Usually our IRB projects are starting with a deep gap analysis and planning activity by the main areas of IRB like rating system development, collateral management, credit processes, parameter estimations, capital calculations, data warehouse specifications, etc. Based on the detailed planning, the institutions are able to decide where and to what extent ITCB involvement is needed to fulfil the regulatory requirements. In several cases, ITCB experts are involved not only into pre-defined activities like the development of a rating system but also into the daily operation of the projects with supporting the institutions by the preparation of expert opinions in different areas of the project.
ITCB was the leading consultant of several credit institutions, including members of Central-European banking groups with successful IRB approvals. Our experiences with different regulatory approaches learned through the mother companies and their regulator in Europe enables ITCB to have confidence in all possible professional activities of Basel II IRB projects from the gap analysis to the compilation of IRB application package.

Development of internal capital models (2007- )
Within the frame of internal capital adequacy assessment processes (ICAAP), ITCB developed internal capital calculation models for several Hungarian credit institutions and also for credit institutions abroad. The models developed by ITCB were tailor-made to the specific nature of each credit institutions and are in line with the complexity and size of the institutions. Among our references there are complete ICAAP frameworks including modelling and processes; and also specific internal models for several risk types such as credit risk, operational risk, market risk, residual risk, interest rate risk of the banking book, comprehensive stress test model development. Our experts are familiar with complex portfolio models such as CreditRisk+, internal models for operational risk based on loss distribution approach (LDA) and econometric methods for stress testing.

Participation in the development of advanced operational risk management approach (2007-)
ITCB was participating in several successful AMA validation processes by supporting a large variety of tasks connected to the development of advanced operational risk management approach. Our references include the participation and leading of risk control and self assessment (RCSA) and scenario analysis workshops, review of KRI systems, participation in the interpretation of AMA models developed by mother companies of Hungarian institutions, historical loss data cleaning, etc. By proxy of the Hungarian Banking Association ITCB is responsible for the professional coordination of the Hungarian operational risk loss Consortium (HUNOR). The database is designed to collect the operational risk loss data of member institutions in order to allow them to more specifically estimate their operational risk exposures. During the recent years, ITCB has developed its own ITCB Oprisk Manager Software which was designed to give a complex, integrated and flexible solution for banks aiming to use more advanced methodologies for the management of their operational risk.

Strategic- and bank consulting

Participation in strategy building (1995 - )
We participated in building mid- and long term strategy for several banks and financial institutions. The assignments were related to business planning, SWOT analysis, creating financial scenarios, organizational design or a combination of the above mentioned elements. In several instances we built an entire business model, ranging from defining the scope of activities of the organization and operational framework to product design. As a part of the business model Bankárképző’s experts prepared detailed business plans, including macroeconomic forecasts, future income statements and cash flow projections.

Auditing banks (2000- )
Bankárképző carried out audits for several banks in Hungary. The objectives of the audits range from validating the soundness of financial statements to examining completeness of business procedures and analyzing clients’ portfolio qualities. We included in the evaluation factors such as market-, own capital- and liquidity positions, interest rate risk scenarios, and the assessment of potential hidden risk factors in the given institution’s operation. The loan portfolio analysis is usually based on the examination of a representative portfolio sample, but we also use statistical analysis on aggregate portfolio data. In some projects we carried out a fair valuation of the given bank or financial institution.

Financial Institutions’ Audits for the Hungarian FSA (1995-2002)
Bankárképző carried out audits on banks and other financial institutions from a risk management perspective by proxy of the Hungarian FSA.

Process audit and redesign (2003- )
Bankárképző participated in the audit of risk management procedures for banks and other financial institutions. The main goals of the audits were to define and analyze the existing or missing risk management procedures, and the redesign of existing procedures in order to increase efficiency of risk management.

Contribution in funding financial institution (2002- )
Bankárképző participated - as an external consultant - in the foundation and in mergers of financial institutions. Our duties included issues such as ensuring legal compliance and the development of internal procedures and systems.

Product design brand building (2006- )
Bankárképző’s involvement during product design projects included the development of internal operational guidelines and business plans. We also participated in the product development, in creating financial models and in analyzing the new product’s effect on the entire portfolio quality.

Analysing and designing internal procedures for financial institutions (2002- )
Bankárképző analyzed and assessed the quality assurance level of financial institutions’ internal procedures and guidelines. Our special focus was on some certain characteristics of the internal procedures, such as:
• Analyzing if internal procedures are in line with each other.
• Analyzing if procedures and internal guidelines meet the requirements of the Hungarian regulatory framework and the EU directives.
• Suggestions on further design of internal guidelines and - in several cases - the redesign of those

Consulting related to the European Union

Microfinancing in Europe – Microcredit in the bank sector (2008)
Microfinancing is key for the development of those small enterprises that have no access to credit, since this way of financing is an indirect tool for facilitating economic growth and for managing social problems. The EU has realized this and initiated such programs in order to support the SME sector. The Economic and Monetary Committee of the European Parliament asked Bankárképző to prepare an analysis, which shows Bankárképző’s expert opinion underpinned by Hungarian examples. In the study we analyzed the measures already taken, the institutional structures, the banking practices, and based on these pieces of information we formulated a recommendation regarding the implementation of the microfinancing structure.

Analysis and improvement of the Regional Development Program and its institutional background.
Bankárképző was evaluating the performance of the Regional Operative Program and the INTERREG run by the Hungarian Bureau of Regional Development. The main aim of the evaluation was to analyze the work done in the framework of the Regional Operative Program including the scope of authorities & responsibilities, and the efficiency of the operation.

Quality assurance of Schengen Fund (2005)
In this project Bankárképző carried out quality management and quality assurance on the Manual of Operation, which determines the rules of operation for the Ministry of Economy and Transportation. The task included the audit of the Ministry’s procedures in all related departments of the Institution.

The audit of the Community Support Framework’s application process (2004 – 2005)
The audit included all operative programs, all Managing Authorities and Cooperating Organizations, who participate in the application process. The main aim of the audit is to analyze if the Hungarian operating system works in an efficient manner and if it is in line with the fundamental goals of the Community Support Framework.

Quality assurance of the Regional Operative Program’s (ROP) Manual
Bankárképző carried out quality assurance of the Manual that defines the operational framework for the Managing Authority and the Cooperating Organizations of the ROP.

Complex training program regarding the EU’s Structural Funds and the Cohesion Fund (2004)
The objective of the program was to give an overview about the Structural- and Cohesion Funds to the Managing Authority and to all Cooperating Organizations in the following topics:
• Duties of the financial and monitoring areas,
• Models facilitating the unified and efficient operation of the institutional structure,
• Applicable procedures
• International experiences with examples
• Best practices

PHARE: improving the human resource quality of SMEs in certain regions of Hungary (EuropeAid/11855/D/SV/HU project) (2002-2004)
The project included both the analysis of the SME sector’s operation and providing consulting services related to SMEs’ internal process optimization. Moreover, we also gave a specialized training to municipal authorities and to 1300 SMEs in order to facilitate the preparation of the Hungarian SME sector for the EU accession. This enterprise development project was carried out in cooperation with the British Enterprise Plc.