Basel II Compliance

This encourages banks to adopt a more comprehensive approach to addressing risk, and maintains the overall capital in the financial system at a level similar to that required by the 1988 Accord. It addresses explicitly Operational Risk as in addition to the Credit Risk and Market Risk and reinforces the new approach by increased supervision and disclosure, by the relevant country regulator, in the case of UK, this is the Financial Services Authority (FSA).

SLA will work with clients to calculate the Credit Risk element of the Risk Weighted Asset of the bank.

How To Calculate The Credit Risk

To calculate the Credit Risk more accurately the committee have introduced three parameters, which need to be understood, modeled and calculated on a portfolio by portfolio basis. 

Probability of Default (PD) this is defined as the likelihood of a customer not meeting their credit obligation or going bad or defaulting within the next 12 months.

Exposure at Default (EAD) this defined as the expected amount of exposure on outstanding commitments at the point of default.

Loss Given Default (LGD) this is defined as the likely financial loss associated with the default net of collections and or recoveries costs and any realised security. 

SLA Consulting Limited