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24

May, 2018

IFRS 9 IMPACT ASSESSMENT MORE QUESTIONS THAN ANSWERS

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The average provision coverage ratio has increased by 28% across the four countries. The increase has been highest for Qatar and Kingdom of Saudi Arabia. The impact of ECL for most of the Banks in UAE has been up to 2% of the loans and advances whereas, the impact on banks in the KSA have been highest. In Bahrain, the impact of ECL has been in the range of 1% to 4% of loans and advances (L&A). The region as a whole is looking at an increase in provision, impacting […]

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20

Dec, 2017

Current Expected Credit Loss (CECL): It’s More Than ALLL+

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1) Introduction The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU), Financial Instruments – Credit Losses in June, 2016. This ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments which is based on an estimate of Current Expected Credit Losses (CECL). The ASU will apply to: loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, loan commitments and certain other off-balance sheet credit exposures, debt securities and other financial assets measured at fair value through other comprehensive income, and beneficial […]

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6

Sep, 2017

Credit spread risk in the banking book: Is it material?

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Basel Definition The Basel guidelines (BCBS 368) on Interest Rate Risk in Banking Book (IRRBB) define Credit Spread Risk in the Banking Book (CSRBB) as a related risk to IRRBB that refers to any kind of asset/liability spread risk of credit-risky instruments that is not explained by IRRBB and by the expected credit/jump to default risk. It adds that any change in the market liquidity spreads and market credit spreads that are not specific to the instruments are combined within the definition of CSRBB. The guidelines further explain that CSRBB […]

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16

Aug, 2017

Understanding cash flow behavior: The key to managing bank liquidity and product pricing

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The Cash Flow View Supply of money can be said to be the vital life line of an economy. It is the enabler of production, movement and consumption of goods & services that define the economy. The banking system, which is a core component of a country’s economy, is essentially in the middle of all such monetary cash flows. In fact, a bank can be viewed precisely as a conduit that enables the cash flows of an economy. For an entity, the stock of all cash flows accumulated over time […]

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15

May, 2017

Basel IRRBB Guidelines – Riding the Rate Curve

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Banks perform important roles in the economy by acting as financial intermediaries whereby they collect deposits from sectors with surplus liquidity and deploy these funds to finance long term development requirements of social and corporate infrastructure of the economy. The deposits typically are short term in nature reflecting general investment appetite and cash settlement requirements of the society while the financing needs are of longer term in nature thereby requiring banks to extend the maturities of their deposits through maturity transformation of their balance sheet. This act of maturity transformation […]

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17

Dec, 2016

IFRS 9 Impairment Solution: The Future is Now

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Are you still clinging on to your rusty legacy technology that’s gracefully aging towards obsolescence? Perhaps you are still running important applications on legacy databases with legacy operating systems because they’re “good enough” and still “work fine.” In many aspects, your old legacy technologies are like a rusty old car. You know where the kinks are and it gets you where you need to go. But lurking below the surface of that rusty old car and your old technologies can be hidden risks that can result in very big problems, […]

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15

Nov, 2016

Effective Interest Rate – Solving the Riddle

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Aptivaa has been a key representative speaker across panels of various risk events held recently such as the PRMIA Qatar chapter event, a Workshop on IFRS 9 organized by FIS for banks at Kuwait City, 3rd Banks Risk Management conference 2016 at Amman and the IFRS 9 workshop at GARP Istanbul chapter. During these interactions a number of participants have reached out to us for views on the approach for estimation of Effective Interest Rate (EIR). Also, as a part of our current engagements on IFRS 9 with several Banks, […]

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5

Aug, 2016

IFRS9 Model Risk Management – Given the Short Shrift?

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Banks are scrambling to meet with IFRS 9 guidelines and are setting down on the path to implement various ECL estimation methodologies and models. But a topic that hasn’t been given enough attention is the need for governance of these models and the attendant model risk management framework that needs to be set up to lend credibility to the model estimates. IFRS 9 is the new accounting standard for recognition and measurement of financial instruments that will replace IAS 39. Several banks are planning to perform parallel run by Q1 […]

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28

Jun, 2016

Exposure at Default: IFRS 9 Ramifications

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Under IFRS9 Framework, impairment assessment requires computation of Expected Credit Loss (ECL) that reflects a probability-weighted outcome, the time value of money and the best available forward-looking information. The ECL can be computed using cash shortfall approach or modular approach using risk parameters like PD, LGD, EAD and Maturity. Of these, we have discussed PD and LGD in detail in our previous blogs. In this blog we intend to touch upon Exposure at Default (EAD). Exposure at Default (EAD) is an estimate of a financial institution’s (FI) exposure to its counterparty at the time […]

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