The Saudi Arabian Monetary Authority has mandated compliance with the advanced approach to calculating capital requirements, as required by Basel II.
Under the Basel II rules, banks using the advanced ‘internal rating based’ (IRB) approach can use their own estimates of credit risk – measured using probability of default (PD), loss given default (LGD) and exposure at default (EAD)- as primary inputs to determining minimum capital requirements.
FICO said it is building models for NCB that will calculate PD, LGD and EAD. The developed models will be used by the NCB both in new account decisions and in credit decisions for their two million customers, as well as for calculating capital reserves under Basel, NCB will meet the Basel II ‘use test’.
In addition, FICO will use the FICO Economic Impact Service for stress testing, another requirement of Basel II, to reveal how changes in the economy would affect the risk in its portfolio.
