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25

May, 2020

Integrated Stress Testing

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We are currently grappling with the biggest Black Swan event of our lifetime i.e. COVID-19. The crisis continues to unfold simultaneously in all parts of the world and never before have we experienced such widespread lockdowns of flights, trains, hotels, offices, restaurants and shopping malls, affecting life as usual across the globe. Financial institutions continue to do their best to provide essential services, but undoubtedly they will have to bear the direct and indirect repercussions of this unprecedented economic tsunami. The Central Banks are also monitoring the situation closely and […]

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  • Liquidity Management during the Pandemic

3

May, 2020

Liquidity Management during the Pandemic

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The outbreak of Covid-19 pandemic has brought the global economy to a standstill. With most of the countries in lockdown and macro indicators in the red, the financial world is witnessing an unprecedented liquidity crisis. Governments and Central Banks around the world, including those of the GCC, have announced multiple fiscal and monetary measures to support the economy and are preparing for further action. Some of the initiatives by Central Banks to support the banking system include introducing repo facility windows for accessing liquidity, change in rules to increase the […]

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1

Aug, 2019

ML and DL Algorithms and Applications

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In our previous blog we discussed the meaning of AI and ML and history of AI.Let’s dive deeper and understand how these algorithms can lead to business benefits. Machine Learning algorithms can be divided into three broad categories Machine Learning Supervised Learning: Algorithm learns from a training data that contains human-supplied labels (such as good/bad, fraud/non-fraud, high-risk/ medium-risk/low-risk) for different observations. Classification: The algorithm learns by identifying patterns that describe each label such as data pattern that distinguish fraudulent vs.non-fraudulent transactions. Common algorithms used for classification problems are Logistic Regression, […]

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1

Aug, 2019

Introduction to the Blog Series

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We would never know how it felt to be part of the industrial revolution or how people felt when electricity was transforming the way we lived. But we are no strangers to revolutions; well atleast digital revolution (also called ‘third industrial revolution’) happened during our lifetime. The revolution started half a century back with advent of computers and is still ongoing. Are we at the cusp of the fourth industrial revolution, marked by transformations from culmination of artificial intelligence, robotics, IoT etc.? Well we are no Oracle and we would […]

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6

Dec, 2018

Reducing Model Bias Bayesian Model Selection and Averaging

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The advent of IFRS 9 across the Banking industry has led to the emergence of various challenges for risk managers. Given the current practices with respect to incorporation of macroeconomic impact in risk parameters, it is imperative to have a robust framework for the same. The current blog enumerates the current industry practices and introduces the methods of statistical model averaging. The method of Bayesian model averaging, which has become an important tool in empirical settings with large numbers of potential regressors and relatively limited numbers of observations is described […]

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24

Jul, 2018

IFRS 9: First Glimpse of the Actual Impact

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During the IFRS 9 Implementation & impact assessment phase majority of the banks anticipated a negative impact on their balance sheets and the same was evident in the December 2017 financial disclosures. In our previous blog, based on our analysis of December 2017 bank disclosures, we indicated that the expected transition impact may lead to erosion of approximately 3.56% of the total equity of the banks across KSA, UAE, Qatar and Bahrain. As per the March 2018 financials, the transition impact absorbed by banks on total equity is 4.35% across […]

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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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