KBank Subsidiaries and ASEAN Economic Strategy
K
KASIKORNTHAI
ธนาคารกสิกรไทย
开泰银行 KASIKORNBANK
Expected Credit Loss: Provision Reserve (PD x LGD x EAD)
Existing building blocks of both provision and credit cost are unchanged. TFRS 9 changes only the definition and
methodology of provision calculation.
TFRS 9 (Effective: January 1, 2020)
Probability
of Default
(PD)
Stage 1: Performing
1 Year
Stage 2: Under-performing Lifetime
Stage 3: Non-performing
Lifetime
Loss Given
Incorporate forward looking over lifetime
■ Macro-factor is captured through PD point-in-time
Define relevant
economic factors
& scenario
Incorporate
through PD
point-in-time
■ Term structure PD is derived over behavioral life
Derive term
structure PD &
ECL by scenario
Weight with
probability
for final ECL
Multi-scenario is weighted to come up with final Expected Credit Loss (ECL)
Incorporate recovery from both collateral and cash payment
Default
(LGD)
Exposure at
Default
(EAD)
Combination of drawn and undrawn as credit exposure
■ It is an accounting complication to treat drawn ECL as assets contra and undrawn ECL
as liabilities, while to risk, both are "credit exposure"
■ Drawn is "outstanding amount + EIR adjustment"
■ Undrawn is "outstanding amount x conversion factor"
"Drawn"
Principal
+ Accrued Interest
+EIR adjustment
"Undrawn"
Notional x CCF
1) Contingent products: LI, LC
2) Committed unused facilities
CCF could be regulatory CCF or behavioral CCF
Note: Drawn = Loan amount that customer has already drawn down, which is booked under loans to customers or part of "Interbank and money market items"
Undrawn Credit facilities that are not utilized yet or credit facilities that are utilized but are booked as contingent liabilities, excluding derivatives
EIR = Effective Interest Rate; LI = Letter of Indemnity; LC = Letter of Credit; CCF = Conversion Credit Factor
บริการทุกระดับประทับใจ
K
KASIKORNTHAI
ธนาคารกสิกรไทย
开泰银行 KASIKORNBANK
Expected Credit Loss: Day 1 Adoption (Effective: January 1, 2020)
Even without excess allowance, prudence on TFRS 9 can be achieved through conservatism in the model assumption
TFRS 9
Case 1: Banks with Excess Allowance
Stage 1
Stage 2
Model
Output
Management
overlay
+
Current
Stage 3
Excess Reserve
Required
Reserve
Release to P&L over Five Years
or subject to BOT change
(Requirement)
"BOT 1% Floor"
1% x Stage 1 +2 of
EAD of Customers
Definition:
Model Output and Management Overlay
Model Output:
Results generated from pure model base
and stable assumptions where key driving
factors on its value are:
■ Shift of asset structure from Stage 1
to Stage 2
"
Change of economic outlook
■ Move between drawn & undrawn ECL
Excess
Provision
Case 2: Banks with Provision Shortfall
Stage 1
1) Provision
shortfall
(Current <T9)
Stage 2
Model
Output
+
Management
overlay
(Requirement)
"BOT 1% Floor"
1% x Stage 1+2 of
EAD of Customers
Stage 3
Deduct from Retained Earnings
Floor Outcome
Management Overlay:
ECL estimation to cover emerging issues
and uncertain future events not captured in
the model
2) Provision Shortfall
(T9 BOT floor)
Note: EAD = Exposures At Default
→Deduct from Tier 1 for Three Years
* The BOT Reserve Requirement 1% Floor = 1% of stage1 + stage 2 of EAD of customers. It is used to maintain financial stability, both prudential and countercyclical; the BOT will enforce
it through capital requirements
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