DBS readies for IFRS 9 with Z-Risk Engine roll-out
Singapore-based DBS is deploying Aguais and Associates’ (AAA) Z-Risk Engine (ZRE) to generate future credit losses on the bank’s wholesale credit portfolio, as it complies with imminent IFRS 9 requirements.
According to AAA, the new financial regulations, effective from 1 January 2018, call for banks and other lenders to deliver a regular, predictive point-in-time (PIT) view of credit quality and to recognise any potential impairments to credit before a loss event occurs.
The ZRE technology is part of a hybrid credit risk management solution that also includes AAA’s “consulting expertise”. Over the last year, the platform has been tested by DBS together with AAA and is now being rolled out enterprise-wide at the bank.
Sok Hui Chng, chief financial officer, DBS, says “most external and internal wholesale credit ratings are mainly through-the-cycle, so are unable to capture the substantial short-term movements in risk that are needed for the point-in-time measures IFRS 9 requires” and AAA has “helped to resolve this challenge”.
The ZRE solution includes applying regional and industry economic credit risk cycle scenarios to obtain PIT versions of through-the-cycle parameters. The result is a “dual-ratings” system generating statistical credit estimates.
Founded in 2014 and headquartered in London, AAA has been partly funded to develop Z-Risk Engine by the UK Deloitte Innovation Committee.