FICO will build models for NCB that will calculate probability of default (PD), loss given default (LGD) and exposure at default (EAD), as they will be used both in new account decisions and in credit decisions on NCB’s two million customers, as well as for calculating capital reserves under Basel, NCB will meet the Basel II ‘use test’.
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 such as measured using PD, (LGD) and exposure at default (EAD) as primary inputs to determining minimum capital requirements.
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.
FICO worked on the sale to NCB with Cadmus International, a sales agent in the Middle East.
NCB Portfolio Management and Risk Analytics vice president Ery Rinaldi Zaidir said that one of the critical factors was to create risk models that were sufficiently powerful for the bank to use in originations and account management decisions, as well as in calculating capital reserves.
"FICO demonstrated that they had both the analytic skills and experience with Basel regulations to meet this requirement, and to advance our whole best-practice Basel program," Zaidir said.
NCB has worked with FICO since 2002 to advance its predictive analytics and risk management. FICO has assisted NCB in moving from ‘expert’ origination models developed when no data was available, to fully empirical models based on NCB data.
