Our Clients
Assisted leading banks, and many credit unions since 2000.
Below are some of the leading banks and credit unions that we have assisted over the years. For reasons of confidentiality we do not detail work completed. However we are able to present broad outcomes, as set out in the following Case Studies.
Some Case Studies
Substantially Reduced loan losses
One bank, operating on optimistic estimations of early Probability of Default (PDs) and of Loss Given Default, (LGDs) was neglecting the collection of early arrears. By measuring the true early credit risk, via ECM, the bank was incentivised to undertake earlier intervention and, rapidly, to reduce its write off experience. Additionally, early identification of ‘Hot Spots’ incentivised and improved Collections Management and reduced bad debts by a measured 20% against initial forecasts.
Through earlier intervention this bank reported an improvement of €7 million on loan loss forecast.
Portfolio Valuations
The accurate measurement of portfolio credit risk and of impairments, on both well performing and under-performing debt, makes it possible to value an entire loan portfolios for sale or purchase. Valuations of such Sales or Purchase can be undertaken on a ‘going concern’ basis or on a ‘gone concern’ basis, the difference relating to the composition of the portfolio, final maturity and the loss provisions to be recognised on the relevant date.
Credit Expo completed two valuations for one bank purchaser, finding alternatively, one valuation above the bank’s own estimations, with the other being significantly below the bank’s estimation. Following discussion of Credit Expo’s valuations, these valuations were adopted for bidding, some months ahead of rival bids.
The benefits of the ECM analysis were high in terms of portfolio pricing and the timing and confidence level of the bids.
ECM Analytics and Credit Union Resolution 49
ECM’s empirical measurement of differentiated and rolling credit risk was responsible for identifying the former, seriously misleading, fixed-rate risk matrix, Resolution 49, introduced by Credit Unions in 2002, but not revised thereafter to recognise the 2007/8 recession. When the ECM calculations were adopted, the true position of credit union loan risk was measured, resulting in higher provisioning requirements, higher loan pricing and more focused collections. The ECM software is currently in use in over 50 Irish Credit Unions
Revising Loss Given Default calculations (LGD) and new loan pricing
One client was operating based on an assumed, universal LGD/Write off rate of 66%. Using ECM analytics it was possible to complete current net present values (npv) calculation of the net recoveries and to measure the bank’s LGDs across asset types and loan maturities, with LGDs now varying between 40% and 80%. This prioritized specific asset types and accounts for collections. Importantly, the review also differentiated strategic loan pricing.
Securing additional relief from Corporation Tax
An ECM review of one bank’s provisioning calculations identified that earlier reported calculations had understated the Bank’s credit risk, and the associated provision requirement. By recasting the calculations empirically, it was possible to make a retrospective adjustment in the Bank’s financial statements and, with Revenue approval, to secure significant additional corporation tax relief, €15 million
Refining and adopting UK credit scores for the Irish Market
Before credit scores became available in Ireland one bank adopted the expedient of testing UK credit scores. CreditExpo was engaged to test and refine the UK scores, for the Irish market. This review identified many risk outliers but also providing high confidence in many other areas.
This process achieved high loss avoidance and the progressive refinement of Irish credit scores
Rigid and inaccurate calculations of the Probability of Default (PD)
In another case a bank was applying PD figures “imported” from another Loan Portfolio to measure its microfinance exposures. However, the two portfolios had very different customer bases and diverse loan securities, with very different, measured LGDs. ECM analysis showed that the common loss probabilities/PDs then being applied greatly understated the risk for it’s microfinance loans. Once the true Credit Risk was identified, micro finance lending was suspended and relevant arrears were prioritized for collections. The benefit of this early intervention was later measured by the Bank at some €4 million.
Elimination of Cross Subsidization of loan losses, with enhanced profitability
Cross Subsidization within banks is, very frequently the biggest source of loss to lenders and is typically invisible. For one bank, it was found that while the overall calculation of the Loss Forecast was broadly accurate, the distribution of risk across different regions and branches was skewed, resulting in seriously misleading perceptions of risk, of individual performances and of local profitability. By retuning formerly undifferentiated Loss and Profitability calculations to measure local experiences and, now differentiated, product losses to eliminate local losses, the former overall modest profitability recorded for one bank was increased by a an impressive 100%.
Confirming the value of telephone lending
One bank which had introduced telephone lending experienced a high level of default and decided to withdraw from that market, ECM was employed and was able to pinpoint the bad loans to a particular location and vintage and ‘ring fenced’ them for management. The rest of the portfolio was confirmed ‘good’ and the bank successfully continued its service in telephone lending.
Complimentary Consultation
We would be delighted to undertake a complimentary consultation to show you our approach and identify where we can be of assistance to your organisation in reducing credit risk.
