FICO (NYSE:FICO), the leading provider of analytics and decision management technology, today announced that the National Commercial Bank (NCB), the largest bank in the Arab world, will use FICO predictive analytics to meet Basel II regulations.
NCB, based in Saudi Arabia and also known as Alahli Bank, has purchased FICO custom models along with stress testing as part of its plan to adopt the advanced approach set down in Basel II.
The Saudi Arabian Monetary Authority has mandated compliance with the advanced approach to calculating capital requirements, as required by Basel II. Under the Basel II rules, banks using the advanced "internal rating based" (IRB) approach can use their own estimates of credit risk — measured using probability of default (PD), loss given default (LGD) and exposure at default (EAD) — as primary inputs to determining minimum capital requirements.
FICO is building models for NCB that will calculate PD, LGD and EAD. Because the models developed will be used both in new account decisions and in credit decisions on NCB's 2 million customers, as well as for calculating capital reserves under Basel, National Commercial Bank will meet the Basel II "use test." In addition, FICO will use the FICO Economic Impact Service for stress testing, another requirement of Basel II, to reveal how changes in the economy would affect the risk in its portfolio. FICO worked on the sale to NCB with Cadmus International, a sales agent in the Middle East.
"The initial analytic discovery project we did with FICO confirmed the sophistication of their approach, and showed that working together we could meet our bank's plan to achieve Basel accreditation," said Ery Rinaldi Zaidir, vice president of Portfolio Management and Risk Analytics at NCB. "One of the critical factors was to create risk models that were sufficiently powerful for us to use in originations and account management decisions, as well as in calculating capital reserves. FICO demonstrated that they had both the analytic skills and experience with Basel regulations to meet this requirement, and to advance our whole best-practice Basel program."
"Basel regulations are one of the top priorities for banks around the world," said Mike Gordon, FICO managing director for Europe, the Middle East and Africa. "By using this opportunity to further improve their predictive analytics, National Commercial Bank are out in front, turning regulatory compliance into a competitive advantage."
NCB has worked with FICO since 2002 to advance its predictive analytics and risk management. FICO has assisted NCB in moving from "expert" origination models developed when no data was available, to fully empirical models based on NCB data.